The Power of Mobile Money

The microfinance world was buzzing this week about the latest edition of The Economist (9/24/09), which features a special report on the “power of mobile money.”  According to Jeffrey Sachs of Columbia University’s Earth Institute, the mobile phone has become “the single most transformative tool for development.”  A number of innovative uses for the phone have emerged in recent years, such as information services for farmers, and – most notably – mobile phone banking (“m-banking”) for the poor.  How did this happen?  And where does Opportunity International fit into this picture?

First, this happened because mobile phones have become widely accessible in the developing world.  This technology has leapfrogged over traditional landline phones, which reach only a minute fraction of the population.  African mobile phone subscribership grew more than 50 percent per year for the five-year period from 2001-2006, with the result that over 87 percent of all telephone subscribers in Africa are mobile phone subscribers.  Several factors contributed to this growth: government liberalization of the telecommunications industry, which enabled private sector development of cellular phone networks; lower-cost handsets, which made them affordable for more people; and prepaid billing systems, which allowed people to buy airtime for small sums of money.

Second, a number of innovative m-banking programs were initiated recently.  G-Cash and Smart Money launched in the Philippines in 2004, followed in 2005 with WIZZIT in South Africa.  Safaricom subsequently launched M-PESA in Kenya in 2007.  M-PESA gained over 2m registered users in its first year and now has nearly 7m users, out of a population of 38m.   The program’s rapid uptake in Kenya led to its expansion into neighboring Tanzania in 2008.  Other mobile phone companies are following suit.

M-banking is most commonly used to transfer money to other people and top up airtime.  M-PESA capitalized on the need for Kenya’s large urban migrant population to send money back home to the villages.  M-banking is also used to pay bills – such as school fees and utilities – and receive government and employer payments.  This service saves people time and provides greater security, since they are not at risk from carrying cash.

Several Opportunity International banks in Africa are leveraging this new technology to serve the poor, especially those who live in hard-to-reach rural areas: 

• Opportunity International Bank of Malawi (OIBM) is developing its own m-banking program, which is scheduled to launch later this year.  So far Malawi lacks a major m-banking program that focuses on the poor and OIBM aims to fill that gap. 
• Opportunity Kenya is discussing a partnership agreement with Safaricom, which would enable microloan disbursements and repayments, along with M-PESA’s other features. 
• Banco Oportunidade de Moçambique (BOM) has conducted market scoping for m-banking in partnership with the ING Microfinance Support Team and is exploring the possibility of launch next year.     

 Mobile phones are the first information and communications technology (ICT) to gain widespread coverage in the developing world.  M-banking is an infant industry with great potential and Opportunity International banks are using that potential to bring financial services to the poor in Africa.

You can read ‘The Power of mobile money’ by clicking here.