In a leader this week on banking in Africa, the Economist asks the question “A bank in every pocket?” making the point that “banking on mobile phones holds promise, provided regulators are willing to be flexible”:
Leonard Waverman of the London Business School has estimated that an extra ten mobile phones per 100 people in a typical developing country leads to an extra half a percentage point of growth in GDP per person. To realise the economic benefits of mobile phones, governments in such countries need to do away with state monopolies, issue new licences to allow rival operators to enter the market and slash taxes on handsets. With few exceptions (hallo, Ethiopia), they have done so, and mobile phones are now spreading fast, even in the poorest parts of the world.
I wholeheartedly agree with their point – indeed my post a year ago (!) A Trinity: Finance, Mobile Phones & Africa (from November 11, 2006) made many of the same observations:
It seems clear that mobile phones (as opposed to personal computers) will be the most important device for access and connectivity in the developing world, and probably everywhere eventually. But access to the internet and computing will become more and more common everywhere, with many different initiatives – both technological and financial – focused on bringing down the cost and expanding the market for computing in the developing world.
As has been written many many times before, mobile phones are changing everything. From politics to business to culture. The digital generation is but a subset of the connected generation, a worldwide phenomenon. Again, this is probably being felt more strongly in developing countries – not so much because the effect is greater or different – but because the contrast with what came before is that much more marked. This extension of connectedness enabled by mobile telephony taps into something that is inate in humans; it extends our ability to form communities unbounded by geographical or even political constraints.
The Economist goes on to highlight the flexible, adaptive regulatory approach to mobile banking being taken in the Philippines (something I was not aware of) as a model to emulate:
Rather than trying to work out the best rules in advance, which could hamper innovation, the regulator is working closely with the banks and operators behind the country’s two m-banking schemes. That way the regulator can see what is going on, so the schemes’ operators get more flexibility. The experience will feed into new banking regulations. Rules that are too tight will hinder adoption; rules that are too lax could allow fraudsters to bring the whole idea of branchless banking into disrepute. But if regulators strike the right balance, m-banking may provide the next example of the mobile phone’s transformational power.
In the same edition, “On the frontier of finance” gives a good overview of the state of the banking industry on the African continent, highlight that while recent growth and investment is encouraging, the opportunity remains vast with most of African’s – even in the richest countries like South Africa – remaining unbanked and having no or poor access to even basic financial services.
A couple weeks ago, in a special report in the FT on Tanzania, Tom Burgis wrote a very good article “Crops are starved of lending” on how the lack of access to basic financial services, working capital and markets hold back improvements in agricultural productivity and essentially trap much of Tanzania’s population in a vicious cycle of poverty:
Four in every five Tanzanians live in rural areas; most are subsistence farmers. Eighty-five per cent of cultivated land is still worked with hand-held tools, 10% with animals and just 5% with machines. For a decade, the sector’s growth has failed to match the overall expansion of the economy. Without a transformation in agriculture, Edward Lowassa, prime minister, admitted in a recent speech, there will be no escape from poverty.
…[in a village dependent upon cashew farming] The 1,006 vilagers are unable to bypass what officials say are illegal cartels of traders who keep prices cripplingly low, depriving farmers of capital to reinvest in raising quality and productivity. Their predicament is worsened by the near impossibility of borrowing.
I know that solving problems like these is not easy; that there are many social, cultural, institutional hurdles to overcome (on top of the operational and technological challenges) but it would seem to me that in the next decade or so, there really is a chance to ‘leapfrog’ using cheap, ubiquitous mobile communications and devices as a substrate and deliver the power of modern financial services and markets to every corner of the planet. Even the poorest. Especially the poorest. Indeed the maxim “go where the pain is highest (with respect to introducing new products and services)” means that it is not ridiculous to think that some of the earliest adopters of sixth paradigm markets and techology may well be found in some of the poorest and challenging regions on the globe.
Imagine these villagers armed with mobile phones giving them access to markets, risk management tools (weather, commodity risk), payment systems, and ultimately capital – breaking free from the bottlenecks and information barriers currently trapping them in a vicious circle of poverty. How is that for a big idea? We’re (I’m!) not quite there yet (in terms of being at the inflection point) but we are getting very close. Hey maybe this is worthy of a TED Prize wish in 2 or 3 years from now!
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