Kenya dials up banking by text

Tom Marcinko @ 23-02-2010

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]


Cheap > good: renewable energy and the developing world

Paul Raven @ 29-09-2009

A chap from MIT called Daniel Nocero has been making a bit of a splash with a report on his recent development of a new catalyst for electrolysing hydrogen from water. While the catalyst itself is pretty big news, it turns out that Nocero’s research is geared toward a much larger vision – namely changing the way the global energy economy works.

Nocera pointed out that most of the work in providing carbon-neutral energy has focused on increasing efficiencies of existing technology and creating economies of scale, both of which will ultimately reduce the cost of electricity produced in the developed world. The problem has been that this has kept the price of the hardware expensive. As a result, the solutions we’re arriving at won’t make sense for the developing world. “We need to tackle the non-legacy world, and they don’t have any money,” Nocera said.

[…]

Hydrogen production isn’t generally considered a solution, because each step of the process involves energy losses and inefficiencies. But again, Nocera doesn’t care: if it’s cheap, the inefficiencies don’t matter, because higher-priced solutions are simply never going to be deployed.

There’s a strong general point here – namely that chasing after new and ever-more ingenious methods of generating clean energy is kind of self-defeating. We already have solutions that work – and while their efficiency curves may not appeal to the sensibilities of scientists and engineers, their ability to get the job done should be all the reason we need to roll them put to the places that need them most. We in the West can afford to wait for efficiency; the world’s poorest people cannot.


Web2.0’s international profit paradox

Paul Raven @ 29-04-2009

internet cafe sign - Varkala, IndiaSlowly but steadily, the world is becoming wired; internet penetration in developing countries is growing at a surprising rate, and the residents of said countries are taking to Web2.0 like ducks to water. Great news for start-up entrepreneurs, right? [image by piccadillywilson]

Well, not entirely. Citizens of developing nations are providing a huge influx of users to Web2.0 platforms, certainly, but the problem is that they chew up a lot of expensive bandwidth without returning much in advertising revenue:

Web companies that rely on advertising are enjoying some of their most vibrant growth in developing countries. But those are also the same places where it can be the most expensive to operate, since Web companies often need more servers to make content available to parts of the world with limited bandwidth. And in those countries, online display advertising is least likely to translate into results.

This intractable contradiction has become a serious drag on the bottom lines of photo-sharing sites, social networks and video distributors like YouTube. It is also threatening the fervent idealism of Internet entrepreneurs, who hoped to unite the world in a single online village but are increasingly finding that the economics of that vision just do not work.

I imagine this problem has been magnified recently by the economic slump; the pricing of online ads everywhere has taken a nosedive in the last year or so. That may be temporary, though, as print media venues close their doors in response to the same pressures. [via SlashDot]

What’s most likely, as the NYT article points out, is a sort of tiered service; MySpace is allegedly planning to serve its Indian userbase with a stripped down page design to save bandwidth (a course of action that, if deployed globally a few years ago, might have stopped people from abandoning it in droves for Facebook), while Veoh has entirely blocked users from many developing regions from watching videos on its service.

A big outfit like Google can afford to bleed money on this sort of thing (and indeed it is – some people estimate YouTube is costing them $1.65million every single day), but not forever. Which means that, if things continue in the same vein, the internet may become the latest frontier where the omnipresent (and ever-growing) gap between the haves and the have-nots makes itself manifest.

It’s a bit of a Catch-22 situation: ad revenue in developing countries is low, but it will only increase at a decent rate if the internet in those areas doesn’t become a second-rate ghetto with limited services. It’s the ages-old battle between idealism and profit margins… and a crucible test for Google’s “don’t be evil” manifesto.


Lubing the unregulated edges of the internet

Paul Raven @ 20-02-2009

cellphone solar chargerIsn’t that the best title ever? Jan Chipchase strikes again, talking about the anthropological outcomes of the proposed universal micro-USB phone charger format:

Widespread adoption of Micro-USB lowers barriers to entry for would-be services providers – they currently need support a range of memory cards, umpteen data cables, Bluetooth and InfraRed […] A mobile phone optimised Bollywood movie can take 20 minutes to transfer from a laptop onto a generic micro-memory card – currently it’s hardly convenient.

If you follow Chipchase’s Future Perfect blog (and if you enjoy the stuff we talk about here at Futurismic, I suggest that you really should do) you’ll be aware that developing nations are far more dependent on their cellphones for infrastructural purposes than we are in the West; universal accessories would remove a number of small and pointless obstacles from the flow of commerce. In other words:

There is a place at the edges of the internet where the level of friction makes content and data grind to a halt. It’s largely unregulated. And it just got seriously lubed.

[Image by Ken Banks, kiwanja.net]