Defeating Global Poverty

The Economist published a report on how mobile phones are starting to become banking tools for the poor. In South Africa, 16 million people, over half of the adult population, have no bank account. Yet 30% of those people have mobile phones almost all of which are used on a pay-as-you-go basis.

You might think -- why do poor people need/want bank accounts? The report highlights Andile Mbatha, who owns a hair salon in Soweto. He used to have to travel more than 2 hours by minibus to send money to relatives ... a personal delivery. He also used to have to keep what ever cash he had on hand at the salon or with him as he travelled. He now uses a new mobile banking service called Wizzit which enables him to instantly transfer money to his relatives for a very low fee which enables him to spend more time earning money. He also now receives payment for services at his salon via mobile phone from more than half of his customers which means that he doesn't have to manage a lot of cash.

The reality is that the poor, with by definition fewer resources, have needs (often more so than wealthier people) to transfer their monies to support other dependents and family members who out of necessity live significant distances from each other. Without bank accounts, the transaction cost of making these payments (recurring ones are often referred to as remittances) are very high ... even higher than what it costs wealthy people to transfer even much larger sums. This is often referred to as the the "poverty tax" where the less well off pay a premium because they are not able to use more economical service options due to their economic and/or social status.

I am a big fan of scalable models like this which provide valuable services to the poor at a price point that works for the poor. This enables increased productivity and therefore enables more earnings capability which is a core element in increasing wealth (another way of saying decreasing poverty levels).

And, I'd like this kind of service too!!

See NPR story on Wizzit.

Labels: africa, mobile banking, poverty, wizzit

This article was pointed out to me by my friend Harry Veihmeyer... The number of people with mobile phone subscriptions in Africa is projected to explode to 378M by 2011 increasing penetration levels to nearly 50% by then. From there its one small step to internet connectivity for the mass of Africans.

Mindbranch's African Mobile Handset Market Analysis (2006-2009)

Labels: africa, mobile banking, poverty

Sevak Solutions is a non-profit which is researching practical means of using the latest technologies to improve the feasibility of delivering sustainable financial services to the rural poor ... especially needed in places with lower population densities.

Microfinance has mostly flourished in higher-density rural and urban environments and has struggled to develop in lower population density locations. This is due to the critical need to keep the operational transaction costs low in order to keep the microloan interest rates low. Operational cost management is a critical issue when you are dealing with small loan transaction amounts on a high volume. Think how much more work would be involved in servicing a single $100,000 loan to one business (with monthly payments) vs. 1,000 loans of $100 each (with weekly payments.) Over a period of 90 days, the single larger business loan requires 4 customer interactions (1 loan disbursal and 3 loan payments.) Over 90 days, the microloans require 14,000 customer transactions (1,000 loan disbursals & 13 loan repayments for each of the outstanding loans.) So, you can imagine the need to keep the cost of each customer interaction/transaction as low as possible for microloans!

Sevak Solutions has been building what they call a Remote Transaction System which uses wireless technology (think: cell/mobile phones) to turn individuals into mobile ATMs and bank branches. This would allow a bank employee (or an agent) to interact/transact with customers in remote locations in a seamless manner. I understand that Omidyar Network has funded a trial of this technology in Africa to prove its viability.

I think that mobile technology, while initially gaining interest for low population density scenarios will also be invaluable as it is applied to other higher density market segments.

Labels: mobile banking, poverty, technology