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Bring in the tech nerds to help expand financial inclusion

Ignacio Mas's picture

(image: Sean Graham, Flickr Creative Commons)

It has become mainstream to think that digital technologies will have a significant role to play in addressing the financial inclusion challenge in developing countries. This may be so, but if all we in the financial inclusion community do is merely add the mobile phone (or the smart card) to our stock of dearly-held beliefs, we will accomplish little. Technology will not work additively; if technology-based models work it will be because they will have changed pretty much everything. I’m not saying that everything will change: I’m just saying that that should be the bet.

What’s Next for Mobile Money?

In recent years, mobile money has attracted sustained attention in ways that few other mobile services have. And for good reason: from East Africa to Pakistan, the Philippines and elsewhere, mobile money services are growing and diversifying into fields such as savings and insurance. Kenya-based M-PESA remains the global leader, and the benefits from increased market efficiency, consumer risk-sharing and third party utilizations are significant. But mobile money can no longer be considered an isolated phenomenon, and as it matures, a variety of new challenges and benefits will influence its developmental potential.

Mobile money is changing the financial landscape around the world. What's next? (Credit: Flickr Creative Commons, Gates Foundation)

Although it is notoriously difficult to make predictions about such a fast-moving and wide-ranging industry, in the new edition of Information & Communication for Development 2012, we highlight some emerging issues in mobile money that will likely become relevant in the upcoming years.

Weekly Wire: the Global Forum

Kalliope Kokolis's picture

These are some of the views and reports relevant to our readers that caught our attention this week.

International Center for Journalists
Digital Map to Track Corruption Launches in Colombia

“A new digital mapping tool to track and monitor corruption in Colombia on a national scale, launched July 24th a result of our partnership with the Consejo de Redacción, a country-wide organization of investigative journalists.

The "Monitor de Corrupción" (or "Corruption Monitor") will provide journalists and citizens a platform to submit reports that will expose and map incidents of corruption.

It’s a project I anticipate will contribute to making Colombia a more transparent and stronger society. The idea for this grew out of another similar project by Knight Fellow Jorge Luis Sierra.”  READ MORE 
 

Data Makes a Difference in Financial Inclusion

Leora Klapper's picture

These are exciting times in the world of financial inclusion. In the past few years, policymakers and private-sector leaders have made some bold and innovative moves to modernize financial infrastructures and expand financial access. Mobile money products have seen impressive growth in parts of Sub-Saharan Africa; bank agents are expanding access to underserved populations; and governments are increasingly disbursing payments via formal bank accounts.
Nevertheless, large challenges remains in the financial inclusion agenda: 76 percent of adults – almost 500 million people - in Sub-Saharan Africa remain outside the formal financial system and 36% of these unbanked report that having a formal account is too expensive. To continue moving forward we need to assess financial behavior and understand where the challenges and opportunities lie for the future. To do that, we need high-quality, multi-dimensional, comparable financial inclusion data.Savings groups are one of the ways people are saving money (Photo credit: mckaysavage, Flickr Creative Commons)

And so, in April the World Bank Development Research Group released the Global Findex, an individual-level dataset that measures how adults in 148 economies save, borrow, make payments, and manage risk. The Global Findex is just one of the foundations of the G20 Basic Set of Financial Inclusion Indicators that was formally proposed by the Global Partnership for Financial Inclusion (GPFI) in Los Cabos this week. 

Weekly Wire: the Global Forum

Kalliope Kokolis's picture

These are some of the views and reports relevant to our readers that caught our attention this week.

Mobile Media Toolkit
A Profound Media Shift in the Arab World

“A report from the Center for International Media Assistance analyzes the growth of digital media in the Arab region.

A new report from the Center for International Media Assistance (CIMA) highlights a profound media shift happening in the Arab world. Amidst continued repression and threats to free expression, both online and offline, this year saw tens of millions of individuals and news outlets using social and digital media tools to capture and share events. The full report is available here: Digital Media in the Arab World One Year After the Revolutions.”   READ MORE

Can mobile phones be used to "bank" the poor?

Gabriel Demombynes's picture

The phenomenal success of Kenya’s M-PESA system, which allows people to store and transfer funds via electronic accounts that they access via mobile phones, has raised hopes that mobile money may provide a way for the poor to access basic banking services. In an earlier post, I presented findings from my recent working paper with Aaron Thegeya, showing that a remarkable 73% of Kenyan adults use mobile money, and nearly a quarter use it every day. 

We also show that savings with a simple M-PESA account is common, with 2/3 of M-PESA users reporting that they save in some form with M-PESA. We see some mild evidence that M-PESA may increase savings: controlling for various characteristics, those who are registered for M-PESA are 32 percent more likely to report some savings activity.

Why do people save with M-PESA when it doesn’t pay interest?  A possible explanation comes from an experimental study on health savings (not involving M-PESA).  

Is mobile technology over-hyped?

Gabriel Demombynes's picture

At an event at the New America Foundation in DC  and in a recent article in Slate, Sascha Meinrath and Jamie Zimmerman argue that mobile technology in general and mobile money in particular have been overhyped as game-changing tools for the poor.

They claim that mobile technology “creates a greater economic divide” and that Kenya’s M-PESA mobile money system is “leaving a substantial portion of the nation’s poor in even more dire straits.”

Tavneet Suri and Billy Jack and separately Kevin Donovan have already beaten me to the counterpunch with cogent rebuttals. Here’s my own two cents:

Weekly Wire: the Global Forum

Kalliope Kokolis's picture

These are some of the views and reports relevant to our readers that caught our attention this week.

The Guardian
Why eliminating corruption is crucial to sustainability

“Ethical business practices are a critical aspect of sustainability, yet progress towards eliminating bribery and corruption appears to be elusive in the face of persistent headlines such as the recent forced resignation of Avon CEO Andrea Jung, the IKEA incident in Russia and the conviction of former French president Jacques Chirac.

Corruption continues to have a dire effect on the global economy. In fact, The World Bank and the World Economic Forum estimate that corruption costs more than 5% of global GDP ($2.6tn) annually, and estimate that more than $1tn is paid in bribes annually. These organisations suggest that corruption adds 10% to the total cost of doing business globally, and a staggering 25% to the cost of procurement contracts in developing countries.”  READ MORE

The Rich Role of Mobile Phones in Financial Inclusion

Ignacio Mas's picture

The mobile phone has become a useful tool in tackling the  financial access deficit in many countries. M-PESA in Kenya has shown that adoption curves typical of new information-based technologies (radio,TV, mobiles, internet) can be applied to  financial services. Yet M-PESA-like mobile payment schemes have only scratched the surface of what is possible. The typical mobile money user still uses it only a couple of times a month.

In a recent paper, Colin Mayer of the Saïd Business School at the University of Oxford and I argue that the real power of mobile will come when it is seen not only as a mechanism for reducing access costs but also for building new types of banking experiences. Indeed, the agenda needs to shift from access to use.

Triggering Disruptive Innovation in Retail Banking in the Digital Age

Ignacio Mas's picture

See what a profound transformation the internet is producing in information-based sectors. Newspapers are under threat from online news sources and blogs. These same web destinations are becoming less relevant as people simply lift and filter the information they want using RSS feeds. The music CD is being unbundled as customers buy individual tracks online. These songs get remixed and re-distributed across an ever-growing number of online content repositories. Books are increasingly digitized, and customers can now sample content and search for information across entire libraries.

The internet is a destroyer of digital products but a great creator of new kinds of customer experiences. Power has shifted to users: it’s no longer about the packages of content suppliers want to sell but about the content mash-ups users want to consume. Providers’ best response is to try to extract more customer information with each interaction, and use that to deliver even more relevance and convenience to their customers. Think Google and Apple and Amazon: the new corporate battlefield lies in the control of the user interface and the customer intelligence system that supports it.

Yet there is one information-based sector that seems deaf to the great sucking sound of the internet: banking. What is banking but managing information of who has what financial claims on whom? For banking, the internet truly is still just another channel. Sure, it has added transactional convenience, but has it changed how banks talk to us?

Expanding Financial Services in Africa: Exploiting new opportunities with a sense of realism

Thorsten Beck's picture

Editor’s Note: This is the second in a series of posts that preview the findings of the forthcoming Financing Africa: Through the Crisis and Beyond regional flagship report, a comprehensive review documenting current and new trends in Africa’s financial sectors and taking into account Africa’s many different experiences. The report was prepared by the African Development Bank, the German International Cooperation (GIZ) and the World Bank. In this post, the authors focus on the challenges and opportunities for expanding access to finance in Africa, a central issue for Africa’s financial sector development.

Traditionally, we have observed low access levels by households and enterprises across the African continent. Sadly, these low access levels persist. Less than one in five households have a formal bank account (Table 1) and, on average, only 23 percent of enterprises have loans or lines of credit, while the corresponding share among enterprises in non-African developing countries is 46 percent (Figure 1).

Bringing mobile money to the world

Editor's Note: Michael Joseph is the World Bank Group's first fellow and was previously the CEO of Safaricom.

Mobile money has gone viral. In Kenya there are now more than 15 million mobile money users, which is equivalent to three in four adults. The company I was heading until last November, Safaricom has developed the world’s largest mobile money platform M-Pesa, which is being used by more than 14 million Kenyans. Over the last three years the growth of mobile money has been exponential. In December we reached a new threshold when the equivalent of US$ 1 billion was transferred. This is more than Western Union has transferred in all of 2010 globally! This has changed the lives of Kenyans—it created new jobs, new businesses and new opportunities for millions of people.

Are mobile money transfer costs too high?

Sanket Mohapatra's picture

Kenya’s Central Bank Governor Njuguna Ndung’u recently urged the country’s mobile money transfer (MMT) operators to reduce their transaction fees. According to the Governor, “There is no way one can send 50 Shilling at 35 Shillings”. This translates into a seemingly exorbitant 70 percent fee for a small transaction equivalent to less than $1. Safaricom, the telecom operator that offers M-Pesa service (a highly successful Kenyan venture with more than 13 million clients), and other Kenyan MMT operators, however, maintained that the services they provide represent value for money. So are mobile money transfer costs too high?

Before we answer this question, it’s worth pointing out that even if mobile money transfer costs are fixed, average costs expressed as a share of the amount sent can rise if the average size of transactions falls. That is what happened with M-Pesa. M-Pesa charges a fixed fee per transaction within pre-specified fee brackets (see tariff poster). As the use of M-Pesa spread, Kenyans started using it for smaller and smaller transactions. The average amount sent through M-Pesa declined from the equivalent of about $50 in March 2007 to less than $30 by March 2009. The fees charged by M-Pesa, including withdrawal charges, expressed as a share of the average amount, rose correspondingly until mid-2008 (see chart). Because the average transaction size fell to the lowest fixed fee bracket in mid-2008, there was a downward jump in the fee. Then average costs rose again up until March 2009.

AML/CFT requirements detrimental to Remittances?

Myth and realities

 Photo: istockphoto.com
Often anti-money laundering and combating the financing of terrorism (AML/CFT) regulations are said to be a major barrier to the market entry of cross-border remittance services providers and promoting remittance flows through formal channels. It would be naïve to deny it but it would be excessive to generalize it too. 

As to market entry, often the problem seems to be associated with foreign exchange or other laws and regulations. Many countries have foreign exchange regulations that do not allow remittance companies to operate outside banks. This is confirmed by our surveys conducted for an upcoming paper. On the other hand, I have seen no case where remittance companies are not allowed to operate independently from banks because of AML/CFT requirements.


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