Tag Archives: africa

Kenya dials up banking by text

Many places across the planet lack basic commercial infrastructure. Kenya is serving as a case study of how banking by mobile phone seems to fill (or leapfrog?) the gaps. Since a phone-text bank service called M-PESA was introduced in 2007, almost 40% of Kenyan households have one user, while only 22% of adults have traditional bank accounts.

M-PESA charges fees for transfers, and doesn’t pay interest on savings. It might, though, spur development by making it easier to move capital around. The impact of the system is being watched by Tavneet Suri (MIT/Sloan) and William Jack (Georgetown U.).

In a 2008 survey of 3,000 households in areas representing 92% of Kenya’s population, Suri and Jack found that despite M-PESA’s fees, large numbers of Kenyans are using it for basic banking functions. About 38% of money transfers originated in rural areas. According to Suri, farmers are one group that employs the technology to lend each other money in lean times.

“Many of these people work in agriculture where you have highly variable incomes because of the weather,” explains Suri. “That means banks also don’t want to lend to them because the risk is much higher. So people insure risk, by making informal agreements: ‘I’m going to lend you money if you need it.’ And if you were not able to feed your family, you would receive transfers from people in your network. This happens in a lot of developing countries.”

The researchers’ data also shows that 41% of M-PESA money transfers are sent to parents, and only 8% to children, which also strongly suggests that M-PESA fills a classic role in a developing economy; children who leave home to work may be sending money back to help their parents.

The physical separation of people has always made money transfers difficult in developing countries, however, notes Suri, a Kenya native whose family lives outside Nairobi, the capital. Sending money from one place to another has often been “hard to do, costly, not very safe. You might send money with a bus driver and it wouldn’t get there, because he might get robbed. Now it gets there within five seconds, as soon as it takes a text message to arrive.”

And despite their inability to earn interest, Kenyans appear to use M-PESA as a savings tool. In a current working paper summarizing their results, “Mobile Money: The Economics of M-PESA,” Suri and Jack note that 77% of Kenyans say they keep money “under the mattress” at home, so to speak. About 11% of households say they have had savings stolen or become lost, though, meaning that tucking cash away is a money-losing strategy. By contrast, under 2% of M-PESA users believe they have lost money through the system (by sending it to an unintended recipient). That means Kenyans without access to banks should, on aggregate, retain more of their savings through M-PESA.

The next wave of research will look at whether M-PESA really does speed the spread of capital. Freeing up small packets of wealth makes a difference where it’s needed, as Nobel Prize winner Muhammad Yunus, or Heifer International, can attest. (And maybe writers, artists, or musicians, wherever they are, need to see if they can get their 1,000 fans on Twitpay.)

[Mobile Phone With Money in Kenya by whiteafrican]

Why hasn’t mobile banking spread out from Africa?

Kenyan woman with mobile phoneIf there’s been one good thing to come out of the global financial shitstorm, it’s that all of a sudden we’re looking afresh at established institutions and questioning whether, actually, there aren’t much better ways we could be doing things.

Point in case: mobile peer-to-peer banking, which is going gangbusters in parts of Africa but has yet to make much of a splash beyond that continent. The Guardian‘s Victor Keegan takes a closer look, and wonders whether it might be the key to saving the UK’s continually beleagured, semi-nationalised and utterly mismanaged postal service:

If you want to see pioneering experiments in banking you will have to go to a surprising place – Africa. And the question is, why can’t we do the same here? If the Post Office is looking for a new role, it need look no farther. In Kenya, customers of M-Pesa can send money to each other from around the country in 14 seconds flat using their mobiles. In the UK it takes three days, thereby endowing the banks with a huge float of money in transit on which they can earn interest. In Kenya, people leave their money at a trusted outlet such as a shop or pharmacy, where it is loaded into their sim cards.

At a Forum Oxford future technologies conference at the weekend we were updated on the startling success of the operation. It is reckoned that 17% of the Kenyan population is on M-Pesa. As a result they don’t need to carry cash any more, as everything from a can of Coke to your funeral can be paid for by phone. It works because the cash is held centrally by the bank, thereby enabling transactions to take place at very fast speeds. The average transaction is $30 (£20) because people trust it to do big ticket items.

Of course, there is always PayPal (which offers a mobile-linked transfer system as well), but finding a business that will accept PayPal that isn’t internet based is a big challenge. So, why hasn’t the idea caught on in more developed nations? [image by whiteafrican]

Maybe it is because we are not used to the idea of technology transfer coming from poorer to richer nations that industrialised nations have been so slow to realise not only that Africa is leading the world in mobile banking, but that it has big lessons for us.

Call me cynical (O RLY?), but I suspect it has a lot more to do with the fact that banks have no need to sell their services to us in a manner that emphasises our convenience, because our lives are so inextricably entangled in their profit generation systems already. Just like a drug dealer, they like to keep you waiting so as to remind you whose bitch you are…

New ocean imminent in Africa

In epic multi-million-year world-changing news we find that a new ocean is forming as the African continent splits in two:

In northeastern Ethiopia one of the earth’s driest deserts is making way for a new ocean. This region of the African continent, known to geologists as the Afar Depression, is pulling apart in two directions—a process that is gradually thinning the earth’s rocky outer skin.

[from Scientific American via Slashdot][image from Joshua Davis on flickr]