Guest blog: In case you didn’t know, Africa is re-inventing the wheel. Part 1: Mobile Money
July 17, 2012 in Africa, Guest Author, International Development, Young Professionals, Youth
by Jesse Buya
Figure 1 MOBILE MONEY USERS IN AFRICA (2011)
In this week’s blog in our ‘What’s Your Priority’ campaign blogger Jesse Muraya from Kenya argues Africa is leading the way with new information technologies for mobile payments. Is this a model the remainder of the world should adopt? Read further & comment below with your responses!
“In Tanzania, a hospital sends money by text message to women in remote areas so they can pay for bus fare to travel for critically needed surgery. In Afghanistan, the government pays its police officers by text message to skirt corrupt middlemen. In Pakistan, the biggest financial network is not a bank, but a unit of Telenor, the Norwegian mobile phone operator.” says the NY Times.
The above story is not really about Tanzania or Afghanistan, but about a little known company in the heart of Kenya that came to inspire the world (Having lived most of my life in Kenya, I will unashamedly boast about Kenya in this article.)
In April 2007, following a donor-funded pilot project, Safaricom launched a new mobile phone-based payment and money transfer service known as M-Pesa (Safaricom is the largest mobile phone operator in Kenya.) The service allows users to deposit money into an account stored on their cell phones, to send balances using SMS technology to other users (including sellers of goods and services), and to redeem deposits for regular money. Charges, deducted from users’ accounts, are levied when e-float is sent, and when cash is withdrawn. M-Pesa has spread quickly, and has become the most successful mobile phone-based financial service in the developing world.
The ‘dark continent’, as it was referred to in the 19th century, is now brighter due to such innovation. In Africa, many more people possess mobile phones than bank accounts. Telecoms, followed by banks, were amongst the first group of people to notice this. At first there came the introduction of an innovative way to transfer funds from one person to another via a GSM enabled mobile phone. Banks then felt like they got the raw deal out of this whole innovation as mobile banking picked up immensely. A marriage however, was inevitable between the two industries. Three years after launching M-Pesa, Safaricom took its innovation to a new level by teaming up with Africa’s leading microfinance bank, Equity Bank, to launch the pioneering M-Kesho. M-Kesho (‘mobile tomorrow) is an M-Pesa Equity Bank affordable bank account, which can be started with a deposit of as little as $1.30. At their convenience, customers can deposit money into their bank account as well as withdraw money from the same account using M-Pesa. They can also request for mini statements and make balance enquiries. Today, most banks in Kenya have set up such linkages with telecom operators to enhance such a service offering. This model is proving successful all over Africa. Adding a bank account to an existing mobile phone number would narrow the access gap to financial services considerably. If one goes to Kenya right now, they will notice that one can make quick money transfers from their mobile to any bank account securely. Allowing mobile phones to provide financial services to those without bank accounts was the result of this successful marriage.
Britain is also at the dawn of the mobile banking craze that hit Africa. Recently, O2 (UK) introduced mobile money transfer services following the success of ‘Pingit’, yet another successful mobile money transfer product of Barclays Bank Plc. While undertaking my postgraduate studies in the UK, I very well remember asking my professor whether the Western world would ever adopt such mobile payment methods as those seen in Africa. His answer was a staunch NO! It would not work because there are already established payment systems like Visa cards, ATMS, established bank branches and so on. He saw no need for the use of mobile phones for such transactions. However if one looks at the successful adoption of ‘Pingit’ a few months down the line, he would have taken his answer back. There is essentially a universal need to enable easier transfer of money from one party to another. Therefore the African success story seems to have been duplicated all over the world.
SO WHAT?
The backdrop of this article lies in the development debate. As part of the Millennium Development Goals, many of the world’s leading nations have committed to reduce poverty by 50% by 2015. Through innovation and engagement with the private sector, this goal has moved a step closer. For example, with mobile banking we have seen a level of financial inclusion never seen before in the history of the developing world. This level of financial inclusion is stimulating growth within every sector of the economy as it easing methods of doing business. Access to finance facilitates entrepreneurial activity. In turn this creates wealth through economic activity, job creation, and trade. This is through a savings culture and thus a greater access to larger financing of economically viable activities.
In order to move to the next level, i.e. post-MDG status, there needs to be greater encouragement towards innovation led technology. Infrastructure in IT is still very low within sub-Saharan Africa.
The private sector has never really been a part of “team development”. This has always been the domain of government agencies, non-governmental organizations and donor agencies. I firmly believe corporations have a huge role to play in the future we want for tomorrow. Safaricom, through their introduction of M-Pesa has come to bridge the divide between the for-profit model and social development. Not only has Safaricom made billions in profits out of such a venture, they have also helped millions in Kenya out of poverty.
Young people should therefore make an effort to steer private organizations towards innovations that benefit the organization as well as the community. For the rest of the developing world, Africa should act as a model. The mobile phone represents a grand opportunity for the provision of financial services to the unbanked population. In addition to economic and technological innovation, policy and regulatory innovation is needed to make these services a reality. Only through this can we see a framework that would work in a post-MDG world where poverty would be, but a rumor. http://www.economist.com/node/21553510
See links:
1. http://www.economist.com/node/21553510
2. http://news.bbc.co.uk/2/hi/technology/8100388.stm
3. http://www.nytimes.com/2010/11/29/business/global/29iht-mobilebanks29.html?_r=1&pagewanted=all
Ubaid Ansari said on July 18, 2012
This was really interesting Jesse: I didn’t know mobile money was so pervasive, and I’d like to read about other examples of successful innovation.
Jesse said on July 19, 2012
Ubaid, in part 2 of this series I talk about yet another technology that has revolutionized the world. Something that has come to save millions of lives, been utilized in Haiti, Afghanistan, Congo, USA, etc. They even hail it as Africa’s contribution to silicon valley.