Category Archives: Poverty

Research Update: A New Direction for Financial Inclusion in India?

After months of research, data collection and interviews with almost 30 of India’s leading financial institutions, colleagues and I released a report this month titled “From Social Banking to Financial Inclusion: Understanding the Potential for Financial Services Innovation In India“.

I was excited to see that The Wall Street Journal wrote up a nice summary of some of the takeaways from the research here: “Why So Few Indians Have Bank Accounts” along with the social enterprise blog, Next Billion: “Innovative Banking Strategies for the BOP in India“.

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Technology & Savings: Competing for Kenya’s Base of the Pyramid

This article was originally written for NextBillion.net to launch the report “Savings for the Poor in Kenya” along with the event “Tracking Progress Toward Financial Access

Kenya’s financial market has caught the world’s attention. The rise of mobile money in Kenya has become the interest of financial inclusion experts, the excitement of mobile network operators, and an opportunity for financial institutions to rethink their products and services.  Last year alone, mobile phones transferred over 900 billion KSh (US $10 billion) representing almost 30 percent of the country’s GDP.  However, the implications and transformative impact of mobile money and other breakthroughs on the bottom of the pyramid are often much less understood.

Our new research study examines how Kenya’s rapidly evolving market has opened up to a wide range of new and dynamic players and looks at what this means for savings products available at the bottom of the pyramid.

The research compiles data on over 100 products from commercial banks, microfinance institutions, cooperatives, insurance and asset management companies, and digs into the details of  interest rates, fees, and delivery methods to learn what is really going on in the financial market. In particular, three main findings surfaced:

First, mobile financial products are here to stay. Of the institutions surveyed in our research, 75 percent now use mobile phones to deliver their services. Financial institutions initially viewed the rise of mobile money as a threat, but as these services have solidified themselves in the financial landscape, savings providers are increasingly adapting to link and leverage mobile money services with their financial products. However, as further partnership occurs between mobile money services and banking services, technological integration and regulatory issues will become more relevant and central to progressing forward product offerings.

Second, commercial banks are paying attention and starting to make moves down market. Over the past five years, the number of deposit accounts with balances below KSh 100,000 (US $1,000) grew dramatically faster than those accounts with balances above KSh 100,000. Equity Bank, the largest bank by clients in Kenya, was at the forefront of this trend; of the 4.4 million accounts opened since 2006, 97 percent were smaller volume savings accounts.

Third, Kenya’s commitment to fostering and opening up financial data is paving the way not only for Africa, but proving to be a role-model for developing and developed countries alike. Kenya is the first country in Africa to launch a national open data initiative called the Kenya Open Data Initiative, and the Central Bank of Kenya is leading efforts for the country’s transparent development. These types of demand and supply side data are at the heart of identifying and addressing issues for the bottom of the pyramid and are fundamental to creating a comprehensive strategy for financial inclusion.

Are Mobile Solutions Overhyped?

This article was originally written by Eric Tyler for CNN.

Yes, if you are predicting that mobile technology will mean the end of the digital divide and that a mobile phone in every hand will solve all problems. No, if you are saying that utilizing mobile phones already in the hands of nearly 6 billion people is profoundly better than dropping tablet computers out of helicopters.

Mobile phones are leading the developing world into the information economy and digital age. Already, we’ve seen the potential of the devices to transform an entire industry, as mobile money did in Kenya. And for a large portion of the developing world’s next generation, it will be through mobile phones that Internet connectivity is gained.

But let’s not get ahead of ourselves and throw mobile phones at every problem we see. The sustainability and effectiveness of mobile solutions will be closely tied to the human reality and context that surrounds these devices. And important questions still need to be asked around replicability and costs. For example, why has mobile money not yet taken hold outside of Kenya? And how can prices come down for those who cannot afford mobile phones?

A promising sign of mobiles phones’ potential are early randomized evaluations of projects showing a range of positive impacts. One such study of a mobile money transfer project in a drought prone village in Niger showed a huge reduction in distribution costs and greater diversity in crop allocation, purchasing decisions, and diet for mobile transfer beneficiaries.

“Mobile development” is still in its infancy. After all, the first call was made from a mobile less than forty years ago. The inventor Martin Cooper picked up the two and half pound handheld and dialed his rival company’s head researcher to gloat. Martin couldn’t have envisioned the implications of his breakthrough for helping the world’s poorest, and the picture is still coming into focus today. Whatis already clear is that this is just the beginning, and as mobile phones get smarter, cheaper, and more widespread, they will continue to play an integral role in adapting international development to the digital age.

Mobile Phones and 21st Century Poverty Reduction

This blog post was originally written for the Global Assets Program of New America Foundation.

The first place winner of the State Department’s Apps 4 Africa Competition – a calling for technologists in East Africa to build the best digital tools to address community challenges – was awarded to a mobile application called iCow.  The voice-based App helps farmers maximize the value of their cows by tracking breeding periods and monitoring nutrition levels leading up to a calf’s birth. Another winner was an SMS service called Mamakiba, a mobile platform designed to help low-income women cope with the financial burdens of maternal health such as antenatal care and clinical delivery. The App maintains savings targets for user’s healthcare costs and establishes prepayments through a mobile money platform (M-PESA). 

If there could be a competition for the technology device with the fastest adoption in the developing world, mobile phones far and away would take first place. From 2003 to 2009, in Least Developed Countries, average penetration of mobile subscriptions rose from 2 per 100 inhabitants to 25 per 100 inhabitants (with this penetration likely being higher due to numerous mobile users and multiple SIM cards per single phone). To put this into perspective, a report from the United Nations University concluded that more people in India have access to mobile phones than bathrooms. Globally, by the end of this year, there will be an estimated 5.3 billion mobile cellular subscriptions; more astoundingly, the developing world will account for more than two-thirds of these subscriptions. No such technology has ever seen such a rapid rate of adoption according to the International Telecommunication Union, and the developing world is leading the way.

So how is this ubiquitous device being leveraged as a tool for poverty reduction?

Just as the winners of the Apps 4 Africa Competition demonstrated, mobile phones can be utilized by those living in poverty in a number of different ways. One of the most revolutionary methods is mobile banking. A CGAP Paper published last month examined the question: does branchless banking live up to the hype and actually lead to increased and more effective financial services for the poor? After studying 18 branchless banking providers (only four of which were completely non-mobile[1]), with more than 50 million customers in 10 different countries around the world, their conclusion was quite simply yes. 37% of the active users examined had previously been unbanked, and transaction values were almost 20% cheaper than traditional banks.

Just as mobiles are spreading so are mobile banking services beginning to take off and expand. For example, M-PESA, a mobile banking platform that has processed more transactions domestically in Kenya than Western Union has globally, had reached 44% of households in 2008, and only a year later, seven out of every ten households were using the platform. The GSMA provides a live deployment tracking of mobile banking around the world; currently, 96 services are underway, and nearly the same amount (91) are in planning.

Mobile phones have the ability to be amazingly entrepreneurial –as proven by the winners of the Apps 4 Africa competition – while also never losing touch with their users, which sadly can be the story of many humanitarian technology employments. Take for example the 40,000 sugar cane farmers in the Warana District in western India. Fluctuating supply and demand and difficulties coordinating with sugar mills that process and then sell the sugar often leads to farmers travelling long distances (up to 15 miles) only to find their crops out of demand. To bridge this gap, a computer-based information exchange system was constructed, but due to high costs and poor infrastructure, the website fell to disuse. Soon after, a mobile-based system using text messaging was piloted, connecting the farmers to market information. The wireless system was less costly, easier to maintain, more accessible and provided immediate price information. Over eight months, the unwired system has had widespread usage and success, resulting in savings of more than 1 million rupees for the farmers.

It is clear that communities in the developing world have chosen their own tool for poverty reduction. In many rural and poor communities where schools and hospitals struggle to get the resources they need and intermittent electricity and inadequate roads remain, mobile phones and the infrastructure to support them are booming. A report examining income expenditures of 17 African countries found that on average the poorest individuals in over half the countries were spending more than 16 percent of their income on mobile services. And where non-financial barriers present themselves, users have adapted solutions to remain engaged with their mobile phones; car batteries have become phone chargers, and even illiteracy has not stopped users.

 

Mobile phones provide those living in poverty with an opportunity to be their own problem solvers, business entrepreneurs and aid workers. Connectivity and creativity have transformed mobile phones from a technology device into a tool of economic empowerment, and their rapid spread in recent years have established it as a powerful tool of 21st century poverty alleviation.


[1] The four non-mobile branchless banking providers are Banco Postal (Brazil), Bradesco (Brazil), Caixa  Economica (Brazil) and Fino (India), which are the larger branchless banking institutions studied, and additional four services use both mobiles and smartcards.

Taking the Cash out of Conditional Cash Transfers to Boost Savings

 

Throughout the developing world, money is heaved onto trucks and transported by governments to delivery points scattered across countries. Citizens come to these drop-offs, where the delivered cash is broken down into smaller sums and distributed. This is essentially the process for more than half of the almost 170 million poor peoplewho receive social welfare cash payments on a regular basis from their governments. The other half receives e-money, which involves no trucks or hard cash, just electronic payments using smartcards, debit cards, and mobile phones.

These government-to-person (G2P) payments are almost twice as common as microcredit loans in the developing world, and have proven to be an extremely effective tool for poverty alleviation. In particular, conditional cash transfers (CCT), which are used to influence positive behaviors like sending children to school or going to the doctor for a check up, are garnering much deserved attention.

One of the largest CCT programs in the world is the Mexican government’s Oportunidades program, which has been in operation for over a decade. Reaching an estimated 5.8 million households, the program has lived up to its name by creating opportunities for the country’s poor through incentivizing involvement with educational, health and nutritional services. Across the implementing areas, program beneficiaries’ high school attendance increased by 23 percent and health visits  increased by 18 percent. As part of the program, recipients are also offered savings accounts, and estimates show that over 1 million households are now using these accounts and saving, on average, 12 percent of their government payments.

This link between savings and CCTs can be an extremely powerful connection in providing a gateway to financial inclusion for the poor. Last week, the Global Colloquium on Savings-Linked CCTs discussed the increasing synergy between the fields of social protection and financial inclusion. Savings and CCTS in their own right have demonstrated their ability to be effective poverty alleviation tools, and their jointure offers potential to increase their impact. One valuable connector and linkage is electronic payments.

Across Mexico, electronic payments are becoming more widespread; from 2001 to 2009, the amount of credit cards in Mexico increased from 6.7 million to 25 million. And in 2009, the National Coordination Board of the Oportunidades program came together to design a pilot to further reach marginal urban households in eight cities. Electronic payments were identified as a platform to reach these beneficiaries and promote bank usage among them. Currently, over half a million beneficiary households are reached by electronic payments.

The vision of an economy dominated by e-money rather than cash is not as farfetched and insubstantial as one might think. As the impact of CCTs and the importance of savings continue to come to light, electronic payments will become an important piece in building the foundation for a mutualistic relationship between the two. This is not to say that difficulties in regulating and operating electronic payments will not arise but rather that the advantages of electronic payments in reducing costs, creating transparency, and promoting formal banking inclusion will outweigh them. In the end, cash payments are becoming a thing of the past, and this trend will prove to be extremely beneficial to the poor.