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Peter Muturi Njeri 2011-11-30 Why mobile phone-enabled financial systems should be spread across Africa.
2 Despite claims by opponents that cell phone money transfer and banking systems are not enough to cause economic impact, I will argue that these new systems have engineered economic development in the African countries they have been used in and should therefore be spread across the entire continent. Early adopters of this technology such as the Kenya with M-Pesa, Nigeria with GloFirst card and Zambia have seen reductions in unemployment, more entrepreneurial activities, more diversified risk patterns and increased savings which are all positive indicators of economic development. Due to the convenience and low cost of cell phones buoyed by the prevalent actor network theory of technology adoption , their use has become very ubiquitous and therefore I will argue that cell-phone enabled financial products are ideal for promoting growth in across the African continent.
In countries with a high percentage of unbanked population-as high as 75%-mobile phone money transfer and banking solutions are critical in promoting savings and bringing people into a more formal sector of the country's economy.(Jack, Suri 2009: 15) Due to low financial literacy levels, weak banking industry network and high cost of accessing banking services, a lot of Africans have been left out of the financial industry. This has resulted to less savings for the future as well as the insecure 'under-the-mattress' saving. According to Jack and Suri, M-Pesa in Kenya has provided a savings platform for a lot of Kenyans who did not own bank accounts before. According to their study, out of every 100 M-Pesa users, 75 users used M-Pesa account to save their incomes, even higher than 72 users who saved money in their bank accounts. (Jack, Suri 2009: 16). This means that both banked and unbanked people are given a platform which they can easily defer current consumption for future expenditure as well as providing a bigger pool of available loanable funds for enterprises to use in investment ventures. Additionally, the use of mobile phone enabled financial systems has significantly led to diversification of risks. Since the clients are able to spread out risk over a wide geographical and social-economic spectrum, they are more confident in their savings and hence save more. (Jack and
3 Suri 2009: 11) This is particularly important considering that most entrepreneurs borrow funds to start businesses which lead to higher incomes. Therefore as people save their money into mobile phone banking services, they are channeling it back into the economy instead of leaving it 'under-the-mattress' thus generating more economic activity.
In addition, mobile phone financial services have created a lot of employment opportunities in areas they have been applied in. The most efficient way for the service providers to reach the unbanked population is to be located in the vicinity of their residential areas. As a result, the agency model has been commonly used for financial services. This model is such that the service provider-for example Safaricom, the major cell phone service provider in Kenya, in the M-Pesa case employs agents across the market who in turn operate the conversion of the money to and fro the mobile phone currency and the actual bank notes and coins. As of October 2010, 16,000 such agents were employed by Safaricom all across Kenya while other existing businesses added more employees after adding an M-Pesa section to their business.(Jack and Suri 2010:1; Plyler et al 2010:6). This has resulted to higher household incomes for these agents due to their increased disposable income. Prior to the mobile phone banking industry, these agents lacked jobs and now that they are employed, they are now more likely to be economically active and thus spur development.
Businesses have also thrived due to the reduced transaction costs as a result of use of mobile phones in the financial systems. In areas where the infrastructure is relatively rudimentary and costly to establish, the crucial flow of information especially in the financial sector has hindered the growth of small businesses which are necessary for economic prosperity. However, with the less costly mobile phone systems, the budding entrepreneurs have easier access to information, their financiers and to their
4 clients. Their clients can also find information and make payments on a real-time basis as opposed to the traditional cases where they had to move around looking for information and then making payments in cash or waiting for a bank check to clear in almost a week's time. A study financed by the Bill and Melinda Gates Foundation to assess the impact of M-Pesa on a community level in Kibera, Murang'a and Kitui areas in Kenya found out that small businesses such as fish retailing and meat vendors had incorporated M-Pesa into their businesses which resulted in higher incomes. (Klyler et al 2010, 21) As a result, such small businesses have succeeded due to the more convenient financial tools for both customers and the businesses.
Critics have argued that these mobile transfer and banking systems are likely to widen the gap between the rich and the poor as past technological advances have done. While their fears are justified since the smaller part of the population with higher incomes own a big part of assets in the service providing companies, it is crystal-clear that mobile phone enabled financial systems result in bottom-up development in these regions. Most of the technology is designed to be used on relatively cheap gadgets which are accessible to even those at the bottom of the pyramid. As a result, the low-income earners have embraced this service. A follow-up study on the Kenyan M-Pesa revealed that even though the earliest adopters were mainly the top-income earners and more educated, the user base has over time become evenly divided amongst groups of diverse social-economic and academic backgrounds. (Jack and Suri 2010: 4) As opposed to waiting for state benefits to trickle down to the bottom of the population-which they rarely do- the low-income citizens are able to utilize the technology to their advantage. They start up small business using savings from the mobile phone financial services or set up businesses that employ the use of mobile phone payment technology which is cheaper and more secure.
5 The convenience and ubiquity of cell-phone financial products has also made them a powerful resources mobilization and disaster responding tool. Since one can literally send donations by their fingertips, the M-Pesa tool was very instrumental in raising funds to support the hunger stricken in the Northern Kenya in the recently concluded Kenyans for Kenya Initiative where Kenyans were encouraged to donate towards a relief fund for the starving fellow citizens. According to an audited report of the Kenyans for Kenya Initiative, of the over 675 million cash donations received, over 167 million (almost 25%) were made via M-Pesa (Kenyans for Kenya 2011: 7). This shows the potential of mobile-enabled financial systems to mobilize collective effort towards a cause. This would be applied to different scenarios such as raising funds for education, healthcare or other projects which would lead not only economic growth but also more importantly economic development.
Furthermore, the major use of mobile phone-enabled financial systems has been remittances both within the countries as well as remittances from friends and relatives abroad. Since the cost of sending money is cheaper and the fact that mobile-enabled financial products offer increased privacy as opposed to substitute remittance methods such as money orders or through services such as Western Union, an increasing number of people prefer the former to the latter. This has the effect of changing the spending patterns among the population. People who have relatives who can remit money to them have higher disposable incomes and due to the more secret methods of money transfer, they are likely to spend less since most of their colleagues are not aware of the remittance.(Jack and Suri 2009, 11). This has led to more economic activity as people, especially abroad and rural areas, can now more efficiently make cash transfers on the real time mode to their relatives in the rural areas. This has led to inflow of capital in these areas which has been used by the recipients for both consumption as well as investment into boosting their economic activities.
6 Having led to better living standards in areas where mobile technology has been applied in, shouldn't it be spread to the other parts of the continent? Recent statistics have resulted in skepticism as to whether mobile phone usage is adequate to guarantee the success of such mobile phone enabled services. According to James and Verstee, the average mobile phone penetration rate in Africa is a dismal 6.2%.( James and Verstee 2007:113) This is however misguiding considering the fact that about 90% of all mobile phone users prefer pre-paid services-where users buy credits to use the phone services- as well as the popular phone sharing culture prevalent among many Africans. Sharing is very common among the low income areas where people even buy the cheap SIM cards which they can use to own a mobile phone number and therefore can be able to operate their accounts while still sharing one device. As a result of the mobile phone sharing and higher preference for prepaid usage, the mobile phone access, people in a household with at least one mobile phone and who can therefore use a mobile phone on the continent is as high as 97% in countries with low mobile phone ownership statistics such as Tanzania. (James and Verstee 2007:130) This shows that most of these countries have a sufficient mobile footprint and the establishment of mobile phone enabled financial services is most likely to reach a huge proportion of the population. Consequently, the chances of success are increased as the mobile phone owners are more likely to share their mobile phones with other people so that they can access the services.
Furthermore, the mobile enabled financial services are more likely to succeed as well as cause immense economic impact in a short period of time on the continent due to their unprecedentedly fast levels of growth. Whereas other technologies such as fixed-line telephony took about 100 years to reach 80% of the population around the world, mobile phone adoption reached an 80% adoption in 20 years, five times lesser than the fixed-line telephony.( Jack and Suri 2009:2) Also the follow-up study on M-Pesa shows that in two years, out of every 100 households, 69 households were M-Pesa users. (Jack and Suri
7 2010: 4) This impressively high adoption levels can be explained by the Actor-Network Theory of technology adoption as explained by Neil McBride. Since, the use a mobile device and the new mobileenabled financial services technology was socially constructed in a manner that placed the users in a higher social status, more people are encouraged to adopt the technology.(McBride 2003: 267) Since the social nature of consumption is widespread among many Africans, spreading the mobile phone enabled financial services would be result in fast adoption hence more users within a very short period of time.
Also, the nature of mobile phones systems having less installation and subsequent maintenance costs has led to the high level has been critical in sustaining high levels of growth. In countries with low per capita incomes, the low cost mobile-enabled financial services are likely to be widely adopted as they save costs while increasing convenience. As opposed to fixed-line technologies which require huge capital investments to both install and maintain, mobile phone systems need relatively cheaper investments. Moreover, most of these investments have already been made in the process of making mobile phones accessible to the African population. Therefore, the mobile phone-enabled financial products have a mobile phone framework already established and the cost of making them available is much less which would only include employing agents and registering users across the countries. It is therefore clear that many of the African countries are ready for mobile phone innovations on the financial systems.
Another factor that sets the stage for widespread adoption of cell phone-enabled financial services is the shift from state owned telecommunication companies to private owned companies. As opposed to the corrupt and mostly inefficient major government that controlled telecommunications in the era
8 when the fixed-line technology were the major mode of communication, mobile phones companies are owned either privately or as publicly listed companies that report to certain shareholders. These companies are therefore more compelled to innovate so as to gain high profits for their shareholders. As a result, these companies are more efficient and will be receptive to the introduction of mobile phone enabled financial products which will lead to higher profits and more satisfied customers. In addition, most of these companies are multinational companies that operate in several African countries. For instance, according to their website, MTN operate in 21 different African countries. If MTN applied mobile phone money transfer in all these countries, they would not only raise revenues but also increase financial interactions as well as multinational trade which would increase the level of utility in the countries.
Having been successful in bringing economic development in the countries they were applied in, I believe that implementing mobile phone enabled financial systems in other parts Africa would result in similarly high adoption levels and improvement of the standards of living of the people living in these countries. Due to the actor-network theory of adoption, little maintenance costs and high mobile phone users level, the other countries' markets are ripe for cell-phone enabled financial services. These will in turn provide a savings tool as well as an easier payments platform on which small businesses as well as consumers can thrive on. Also jobs, which are in low supply and high demand, will be created for the service providers' agents across the continent. Consequently, more people will be economically active setting up a chain of consumption and expenditure patterns which lead to economic growth and development which the continent years for.
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