Position paper, as a participation
to the
Workshop on the Role of Mobile Technologies in Fostering Social Development
******
Mobile microfinance for social development
The need for a global initiative to widen financial service access through mobile phones
One of the main solutions to foster social development in developing countries, where hunger or malnutrition is still an issue, is to allow activities to flourish and the economies to grow. This means to allow businesses to spring and conduct business. And one of the critical elements for businesses to come to life is the possibility to borrow money. Entrepreneurs generally start with an idea and they need seed money to convert this idea into actions. Enterprises that come out of this process make the economy and allow communities to make a living (access to food, health and culture). Then, for businesses to conduct business, they need a money transfer mechanism to exchange their product or service against exchangeable value. The more convenient and secure the money transfer mechanism is, the best it is for the businessmen and women.
In both of these cases, access to seed money for entrepreneurs and access to convenient and secure money transfer mechanism, mobile technologies can have an important role to play, if enabled. The argument of the present position paper is that there is a great need for an initiative (support community, programme, institutional body or a combination of these) which aim would be to facilitate the evolution of the mainly communication mobile phone network into a financial service terminal network, in developing countries (adding the financial layer over the communication layer).
Each mobile phone, even the most basic one, has enough embedded technology to allow financial transactions. The challenge therefore lies in enabling the political environment, a fair financial business environment and the technological frame. This is why a group of people, government and non government organizations is needed to:
Explain the poverty reduction and social development potential of such a business-enabling mobile network;
Collect best practices and business models throughout the developing world;
Propose a set of measures and facilitating regulations;
Provide support to ensure a balance in the subsequent wealth distribution (financial services have shown a capacity to become self-centred and unsocial);
Ensure a gradual yet constant progress towards a global mobile-based financial network for developing economies.
An opposite view consists in saying that these developments should be left to the private sector and the private sector only. The economy is driven by businesses and the inner private sector dynamic will lead to the proper developments in the optimal way, using much less financial resources in the process, while making a sound return on investments.
Another one states that the political environment is too complex in developing economies, and least developed countries in particular, to allow such an objective to be achieved.
Regarding the position that advocates for leaving these developments to the private sector only, it is only necessary to oppose a recent statement made by one of the most symbolic beneficiaries of the Information and Communication Technology boom of the last century and its economic system, during the recent World Economic Forum, held last January in Davos, Switzerland. Mr. Gates shared his view [Ref. 1] on the fact that the current system - i.e. capitalism - was not working for the poor. So, as far as we are today in human development, we have not yet found any better system than a balance between the private sector, the governments and the non-government organizations to achieve a development that “works” for a great majority of people. This is valid at both national and international levels. Non-private organizations have their role to play, and particularly when there is a need for an accelerator of development.
It is also interesting to consider that the internet, the Web and web technologies allow businesses to make substantial improvements in resource optimization and that they owe much of these improvements to Universities, governments and non-private researchers (and free and open source solutions...).
Regarding the second argument, stating that the political environment is too complex to let change happen, in our three year mobile application experience in sub-Saharan African countries (cf. the Trade at Hand project summary at the end of the document), we have learned that the political will for development is actually strong and that the taste for technological solutions is great. There is indeed quite a bit of capacity building to do in most of the information and communication technologies, but the younger generations make a fast-learning group that holds lots of promises for their developing economies.
Microcredit has had lots of impact, mobiles can serve as a microcredit spreading tool
The combination of the unexpected mobile presence in developing economies with the usefulness of microfinance, and microcredit in particular, could have an incredible effect on poverty alleviation. The power and usefulness of microcredit has been demonstrated during the last few decades. The 2006 Nobel Peace Prize winner Muhammad Yunus [Ref. 2] has participated in making microcredit known globally for its benefits for the poor populations. “The World Bank estimates that there are now more than 7,000 microfinance institutions, serving some 16 million poor people in developing countries.” [Ref. 3]
Now, with 3 billion GSM mobile phone users worldwide [Ref. 4] (this is only one mobile phone standard) and emerging economies being responsible for 85% of new connections (there are 1.3 million new connections a day), there is little doubt on the fact that the mobile phone is the widest reaching technology today and the one that can spread microcredit offers in the most efficient way.
Many m-finance and m-banking experiences show to be the way to go
Smart Money and GCash in the Philippines, M-Pesa in Kenya, Wizzit in South Africa, and Caixa Economica in Brazil, as analysed by the CGAP in its Focus Note #43 [Ref. 5, PDF], are all giving inspiring mobile-based financial solutions. The pioneers providing mobile-based financial services are discovering innovative usages that the users are inventing. They are also seeing what works and what does not. Lessons learned could already be shared widely in other developing economies. Innovators in these domains cannot spread the services as fast as they should be, as they have already enough to do, improving their new services and fine-tuning their business model. This is why a group needs to be established with the aim of widening the reach and impact of “m-finance”.
The need for a little push
There is also a need for a little help, because history and human nature have shown that the interest of the established few can hinder innovations that are in the interest of the many. This is why a wide and organized consortium of people with this mandate could have a positive effect on poor communities' access to microfinance.
As an example of the negative trend in modern wealth sharing practices, one does not have to look at economies in development in particular. A quote from a 2003 Economist magazine article is enough: “In 1980, the average pay for the CEOs of America’s biggest companies was about 40 times that of the average production worker. In 1990, it was about 85 times. Now this ratio is thought to be about 400.” [Ref. 6]
For economic and social development to happen, there is a need for a balance between the private and non private sectors. Members of both groups actually move forward when they see their interest and the combination of business and poverty alleviation could be of interest to all.
REFERENCES
Ref. 1
http://www.youtube.com/watch?v=Ql-Mtlx31e8
Ref. 2
http://en.wikipedia.org/wiki/Muhammad_Yunus
Ref. 3
http://en.wikipedia.org/wiki/Microcredit
Ref. 4
http://www.gsmworld.com/news/press_2008/press08_31.shtml
Ref. 5
http://www.cgap.org/portal/site/CGAP/BranchlessBanking/
and the focus note (PDF format)
http://cgap.org/portal/binary/com.epicentric.contentmanagement.servlet.ContentDeliveryServlet/Documents/FocusNote_43.pdf
Ref. 6
http://www.economist.com/opinion/displaystory.cfm?story_id=2121856
What is Trade at Hand?
Trade at Hand is an International Trade Centre (ITC) project which objective is to make innovative use of mobile phones by business exporters from developing economies. It has since been replicated in four Sub-Saharan African countries. It was launched in 2006 with Swiss Government funding.
The project started to serve agricultural product exporters and now moves on to other economic sectors. Trade at Hand's first module, "Market Prices", consists in sending, via SMS, product prices on international markets, in real time. "Market Alerts" is a Web-to-SMS tool that enables Trade Support Institutions to transmit business opportunities, contacts and market news to business people.
After local capacity building and national launch, the management of Trade at Hand is given to one local organization in each country (called a Trade at Hand Focal Point).
Note: The above position paper represents its authors' opinion, not its current employer, the International Trade Centre (ITC).
Author: Raphaël Dard
Personal email: radard [at] free.fr
Professional email: dard@intracen.org
Date: 20 April 2008
Thanks!