Mobile Banking in Southern Africa
The World Food Programme (WFP) is unveiling a new initiative to make mobile banking in southern Africa more accessible.

The World Food Programme is a humanitarian agency dedicated to fighting hunger worldwide. They work to provide food both during and after emergencies and international conflict. For the former, they provide the necessary sustenance where it is needed by victims of war, disaster, and such. Once the conflict has passed, the WFP continues to provide food to help communities rebuild themselves. However, their work extends beyond just providing people with access to nutrition.

In the case of their newest initiative, the WFP will also be providing money transfers and mobile banking in southern Africa. The cash-based transfers will allow people in eight countries to more easily access the money they have to tap into local markets. Increasing cash availability and access in developing countries have been shown to allow local economies to flourish. A study by the WFP showed that for every U.S. dollar made available boosted the local economy by up to $1.95.

In their 2015 Annual Letter, Bill and Melinda Gates argued that mobile banking in developing countries will revolutionize the way in which the global poor raise themselves out of poverty. The poor, Gates explained, not only lack money but when they do have it, they often lack the means to access it. Now, mobile phones are changing the way they do business.

Between the marginal costs of digital transactions and the fact that more than 70% of adults in many countries have mobile phones now, mobile banking in southern Africa can be highly profitable. This provides incentives for companies to get in on the ground floor of these services, where competition between them will no doubt foster faster innovation and better technologies to address the challenges unique to global poverty.

The WFP has had success with mobile banking in the past. Recently, they unveiled a similar, pilot program in Ghana.

In an interview with the WFP, Adams Inusah, a farmer, said, “I like receiving money through my mobile phone because I can go and cash the exact amount I need for food and save the rest to buy seeds for my farm.”

Both the World Food Programme and the Gates Foundation believe that mobile banking in developing countries will pave the way for stronger economic growth and prosperity.

Sabrina Santos

Photo: Flickr

Loans in Bangladesh

Nearly half of the population in Bangladesh work in the poor agricultural sector where they have traditionally been excluded from accessing credit facilities that could improve their livelihoods.

To help farmers lift themselves out of poverty, USAID’s Development Credit Authority has partnered with Bangladeshi banks to provide customized financing options that fit the needs of local communities. Here are Benefits of Small Loans in Bangladesh.

3 Benefits of Small Loans in Bangladesh

  1. Bank loans give farmers the opportunity to become self-sufficient. Many poor farmers lack the resources to invest in the land they work on and often spend a significant portion of their income on rent or lease  agreements. Through credit facilities, small farmers can purchase the land they work on providing them with stability and opportunities for growth.
  2. Some farmers have used loans to diversify or increase their crop production or to purchase livestock. Through loans, some workers have even been able to make the switch from being a laborer on someone else’s farm to developing a farm of their own. Each small investment that farmers are able to make moves them one step closer to economic stability.
  3. Entrepreneurs have the option to expand their businesses through bank loans. One of USAID’s success stories is of a man who had run a carp farm for 16 years. His business was well-established but in order to expand he required a loan, which he received through the USAID program. Farmers can increase their livelihoods when they have more land, because they can cultivate more crops or raise more livestock.

The availability of loans in Bangladesh that are customized for small borrowers will go a long way to benefit farmers, their families and local communities.

Emily Milakovic

Photo: Flickr

Cash TransfersCash transfers are one of the most thoroughly evaluated types of humanitarian aid that have been shown to effectively reach individuals and families in developing countries and can be provided with accountability. This form of aid has proven effective in reducing suffering by increasing limited household budgets and providing for basic needs.

According to a report by the Center for Global Development (CGD), cash transfers may come in the form of “an envelope of cash, a plastic card, or an electronic money transfer to a mobile phone, with which [recipients] can buy food, pay rent and purchase what they need locally.”

This report also suggests that these transfers should be complemented by services such as immunization and sanitation, where cash transfers may not be sufficient.

Other benefits through transfers include the transparency provided. They allow precise measurement of how much aid is arriving to the desired target population.

Receivers are granted the benefit of being able to choose what the aid is spent on. This decision making process further empowers communities and allows them to receive what they really need.

Despite the benefits, the CGD states that cash transfers are still often overlooked in favor of other forms of assistance. Today, cash payments make up only six percent of aid. Evidence from global crises, in Ethiopia, for instance, has proven that “cash was more effective than food aid by 25-30 percent,” says the CGD.

There are also challenges in the distribution of cash transfers. According to the World Bank, one challenge is ensuring that cash directly reaches needy recipients, avoiding corrupt processes and opportunistic elites.

Overall, cash transfers are practical. They can also reduce administration and operating costs. Respected nonprofits such as Give Well assert that unconditional cash transfers help the poor begin to create a better life on their own terms.

Giving the impoverished the freedom to utilize cash payments means they have the ability to meet individual needs and accelerate progress in their developing countries.

Mayra Vega

Sources: Center For Global Development, World Bank, The New York Times
Photo: Flickr

World Bank Supports Mozambique to Improve Financial ServicesOn Sept. 29, 2015, the Government of Mozambique (GoM)’s Financial Sector Development Strategy got the support of a U.S. $25 million credit from the World Bank.

Funneled through the World Bank Programmatic Financial Sector Development Policy Operation (DPO), this support aims at promoting greater financial inclusion and market stability in Mozambique, which also helps develop business and alleviate poverty.

In order to reinforce financial stability, the World Bank Programmatic Financial Sector Development Policy Operation (DPO) supports improvements in the bank’s regulations and supervision, safety net and crisis preparedness frameworks.

The operation supports reforms to promote financial inclusion by focusing on improving credit reporting systems, branchless banking and mobile banking, consumer protection, payment systems and insolvency frameworks

Moreover, by supporting reforms in capital markets and expanding the insurance and pension coverage, the operation helps promote long-term financial markets.

According to the World Bank, if effectively regulated and supervised, improved financial services would spur economic growth, reduce income inequality and help lift households out of poverty.

Through the funding program, DPO directly supports the GoM’s Financial Sector Development Strategy to broaden financial inclusion, enhance banking regulation and supervision, strengthen the banking safety net and crisis management framework and improve government securities markets.

“This DPO series has three main objectives: increase financial inclusion, improve financial stability, and strengthen long term financial markets in Mozambique,” said Mark R. Lundell, World Bank country director for Mozambique.

Mazen Bouri, the World Bank co-Task team leader for the DPO, said, “The GoM recognizes the importance of financial services development to reduce poverty and improve the business environment.”

In line with the World Bank Group’s Country Partnership Strategy for Mozambique (2012-2015), this program is dedicated to the twin goals of eradicating absolute poverty and improving shared prosperity in the world.

Shengyu Wang

Sources: World Bank 1, World Bank 2, World Bank 3, First Initiative
Photo: Pixabay

The Growth of Mobile Money in Africa
Millions of Africans utilize their cell phones to manage their finances. Mobile money in Africa is currently in use in 36 of the 47 countries in Sub-Saharan Africa and is used prominently throughout East Africa.

Mobile financial services (MFS) have become increasingly popular across the continent for many reasons. Many economists cite safety, efficiency, transparency, and ease of the services as reasons for the increased usage.

MFS include more than just cash transfers but have also expanded to utility bills, shopping, investment, taxes, and more. The services have also allowed easier cash flow across borders and between family members in times of crisis, which economists have cited as major motivators in service usage in the region, according to a report in All Africa.

One of the most prominent mobile money services in the region, M-PESA, was developed in Kenya. Since 2007, Safaricom and Vodafone’s M-PESA application has allowed users in Kenya and beyond to store funds on their mobile devices in order to transfer funds to other users, pay bills, and make other purchases.

The country now tops the global charts, with 58 percent of its adults having mobile money accounts. Former Safaricom CEO Michael Joseph noted that mobile technology has been transformative for the informal business sector, which comprises about 70 percent of jobs in Kenya. This increase has been instrumental in helping surge GDP rates throughout the developing world.

The latest mobile money statistics indicate that users in East Africa have largely continued to shift GDP to be transferred via various mobile money platforms. According to All Africa, mobile transactions amounted to $45.75 billion for East Africa, comprising 32 percent of the region’s combined GDP.

This is a significant increase from the $4.86 billion transacted via mobile services in 2009, which only comprised 3.4 percent of the region’s GDP. In Zimbabwe, 45 percent of the country’s GDP is transacted via MFS.

In its 2014 State of the Industry Report, the Groupe Speciale Mobile Association (GSMA) stated that MFS are ingrained in the majority of developing markets, with over 250 mobile money services available across 89 countries.

In 2014, almost 300 million users were registered for mobile money accounts. 2014 marked 16 markets with more mobile money accounts than regular bank accounts, “indicating that mobile money remains a key enabler of financial inclusion.” Furthermore, as smartphone access increases, the GSMA expects MFS usage to continue to increase rapidly.

Because of the prevalence of MFS through non-bank providers throughout the region, government regulators are passing guidelines for mobile money service provision in order to allow better financial inclusion for all members of society.

While competition has grown steadily between bank and non-bank mobile money service providers, regulations like these aim to maximize the reach of the services to the widest audience possible. The GSMA report marks that 47 of the 89 markets with mobile banking have regulations to allow both banks and non-banking services to sustainably provide for their markets.

The GSMA outlined in its report that there are still obstacles in helping mobile money services achieve their full potential in the region. The report states, “Regulatory barriers, low levels of investment and lack of industry collaboration limit the ability for mobile money to reach scale.”

Despite these obstacles, economists widely expect mobile money to continue to grow in order to meet eager markets across the continent.

Arin Kerstein

Sources: Africa Focus, All Africa, CommsMEA, GSMA, IT News Africa
Photo: Flickr

South Africa and Mobile Money
The matter of mobile money becoming popular in South Africa was not a question of if, but when. This claim is supported by South African payment experts who believe that the current local market factors support mobile wallet adoption.

Some believe that mobile money does not have a place in the developing world. Countries that have a smoothly running banking system like card payments and ATMs. There is no room for the digital use of money.

However, mobile phone usage in South Africa has soared. The country’s high rate of mobile phone users suggests that user education is not a barrier.

Consumers have become comfortable making payments online as well as on mobile devices. This fact supports the mobile wallet service as a viable option for many individuals.

The First National Bank’s mobile wallet is an example of how banks are looking to have access to low-cost channels to serve under- and un-banked customers. In South Africa, a key focus is on the seven million people who earn salaries but do not have their own bank accounts.

“The World Bank 2014 Global Financial Development Report estimates that about 2.5 billion people in the world do not have access to banking services.” Mobile money could change this.

In the United States, T-Mobile has introduced similar services to serve the needs of unbanked individuals. Romania faces the same challenge. There is a huge population of unbanked individuals that mobile money could help.

But it does not stop with mobile money: other services are likely to be incorporated within the banking infrastructure. In China, a mobile banking service lets brands reach consumers via mobile banner ads.

“A diversified offering will unlock value in a South African market that is socially savvy and has an appetite for integrated services,” says Mustapha Zaoiunu, the CEO of PayU, a mobile banking company. “It is an inevitable progression for large third-party players like Apple or PayPal to offer a suite of services through their wallets.”

Some of the integrated services could include price comparisons, relevant product information, the ability to make reservations, split billing and digital tickets for movies or concerts.

The world is starting to notice the role mobile money pays, including its efficiency, speed, access, reach and revenues. Mobile money is becoming the new way to be part of the banking network.

Because smartphone usage has soared in the developing world, mobile money will surely become a popular banking option. With its easy access and acceptance, it is predicted to become favored with the unbanked and banked individuals of the developing world.

Kerri Szulak

Sources: IT News Africa 1, IT News Africa 2
Photo: Meme Burns

With official approval from the State Council, China’s central bank decided to cut reserve requirement ratios and benchmark interest rates for the third time in nearly five months in July. These cuts will specifically affect commercial banks that serve agricultural and rural areas, as well as provide loans to small businesses. The reserve requirement ratio (sometimes called the deposit-reserve ratio, or the RRR) is a regulation from the central bank which sets a minimum ratio (or fraction) of customer deposits that banks must hold in reserves (as currency, or note) within the bank. A decrease in RRR allows banks to more easily lend money to the institutions it supports, as a smaller amount of physical cash is required to finance loans.

Adjusting the RRR is common practice in China and is often used as a tool of domestic monetary policy. The deposit-reserve ratio has been altered several times in recent years and this is, in fact, the fourth round of interest cuts since 2014. While central banks in many nations refuse to make similar types of cuts in light of liquidity concerns, China has in the past shown leadership in this type of aggressive monetary policy. Such a policy is intended to allow for a positive credit flow towards rural and poverty-stricken areas.

Despite China’s rapid rise in recent years, growth has lately slowed—representing a transition from an economy characteristic of a rapidly-emerging nation, to a growth rate that is less fast-paced, but more sustainable. This new round of cuts reveals a strategy by China to restructure its borrowing mechanisms, as well as boost and stabilize its economy. Part of this strategy involves offering competitive advantages and lending options to small, independent businesses and agricultural enterprises.

This change, a lowering of the deposit-reserve ratio by 50 basis points (bps) for banks lending to rural, agricultural areas and to small businesses is intended to encourage financial institutions to invest in farmers, micro-businesses and rural development in many poverty-stricken areas of China. China explained its most recent round of cuts in the deposit-reserve ratios and benchmark interest rates by citing plans to “stabilize economic growth, upgrade structure and lower financing costs in society,” and describes the cuts as “conducive for financial institutions to support mass entrepreneurship and innovation.”

The new measure allows institutions to more easily lend money to small businesses in rural China and will provide more credit influx towards these small (but crucial) enterprises, which make up an important part of China’s economy. The cuts not only lower the costs of financing small enterprises but lower loan rates. This allows China’s financial institutions to encourage innovation and entrepreneurship amongst the least developed areas of society.

Melissa Pavlik

Sources: CCTV, The New York Times, The People’s Republic of China

On July 10th, a consortium of development banks—the Asian Development Bank, the European Bank for Reconstruction and Development, the African Development Bank, European Investment Bank, the Inter-American Development Bank, the World Bank Group and the International Monetary Fund—released a statement laying out plans to “extend more than $400 billion in financing over the next three years.” They are also committing to working “more closely with private and public sector partners to help mobilize the resources needed to meet the historic challenge of achieving the Sustainable Development Goals (SDGs).”

$400 billion over the next three years averages out to slightly more than $133 billion per year, not significantly more than the $127 billion in available financing for 2015. The World Bank recognizes that much more is needed. Infrastructure investment alone is estimated at $1.5 trillion per year for developing economies.

One strategy that the multilateral development banks, or MDBs, will employ for bridging the investment gap is capacity building: working with developing nations on devising smarter tax systems and improving government procurement processes. These will make better use of existing money, and open up new sources of national revenue.

It may seem counterintuitive to tax poor nations to fund development, but the high levels of informal sector employment and low tax collection by developing nations, relative to developed ones, suggest otherwise. A study that looked at a sample of 31 low-income and 32 high-income countries put informal sector employment 20% higher in the low-income group. The low-income sample posted government revenue as a percent of GDP at 18%, while the high-income countries averaged 33%.

Although the negative correlation between tax collection and informal sector employment seems to work both ways, development economists agree that boosting national tax revenues in developing countries, if done correctly, will provide a source of necessary development financing and reduce poverty.

These development banks are also increasingly looking toward the private sector to raise the level of financing. Five of the seven heads of the banks spoke about the role that the private sector needs to play, and how they plan on engaging with it.

The proposals include investing more in private enterprises, connecting private investors with opportunities and helping countries make investments more attractive, effectively opening the tap for foreign capital flows.

More than a feel good story of throwing money at the SDGs to help them meet their laudable goals, the statement released by the MDBs hints at a more systemic change to how the SDGs will be financed. More technical assistance for capacity building and a greater inclusion of the private sector will change the landscape of development financing and the field of development itself.

These new changes are coming just in time for rigorous debate at the set of international conferences taking place this year, and their potential to reduce poverty and help meet the SDGs is hopeful.

John Wachter

Sources: Chatham House, World Bank
Photo: KAREN BLEIER/AFP/Getty Images


Mobile banking and money transfers are growing in popularity. Kenya has more active accounts than it does people. But how exactly can mobile banking make a positive impact on the developing world?

The total value of worldwide transactions made on mobile phones in 2013 was $24 billion. The top five countries with the highest number of active bank accounts are all in the developing world: Kenya, Tanzania, Botswana, Zimbabwe and Cameroon.

Such is the potential of mobile banking that Bill and Melinda Gates have made it their next target, believing that “mobile banking will help the poor transform their lives.”

Instead of storing wealth physically, with things like livestock, jewelry or even stuffing money in mattresses, mobile banking enables people a safer and more “mobile” way to manage their money. There is less potential for depreciation or loss of wealth when money is stored in a bank – a bank cannot get sick and die, unlike a cow.

Furthermore, if only a small amount of money is needed for a minor home repair or a few groceries, it makes sense to use a small amount and pay through a phone connected to your bank instead of taking a cow or piece of jewelry however far is necessary to sell for more money than might be needed in the immediate future. Mobile banking also makes the opposite more possible – again, livestock can die which makes saving money for the long term more difficult, but access to a mobile bank makes it simpler to save for children’s education, a payment for a car or just a rainy day.

Another positive impact of mobile banking is that it reduces the amount of time spent and distance traveled to go to a physical bank, sell livestock or make a payment. Transfers, deposits and payments can be completed in an instant instead of walking to the nearest bank or market.

In the same way, mobile banking also benefits farmers. Without mobile banking, farmers bring crops to town and leave them with a seller who has a vegetable stand before returning home. The farmer then has to return to town, hope that he can find the seller and collect his money. This whole scenario has the potential for loss of money and long journeys. Plus, what if the farmer needs money before he can come to town to collect it?

Mobile banking can eliminate all these potential issues if brought into play. Instead of the farmer making a second trip to collect his money, the seller can transfer it to the farmer as soon as his produce sells, from phone to phone in an instant.

A perfect example of the positive impact mobile banking is capable of having on the developing world is M-Pesa, which was one of the first systems to start enabling payments by mobile phone. Based in Kenya, the company “developed a system for transferring micro-credits via cell phones supported by a network of agents. This system was initially intended to drive local development and its objective was to reduce funding costs, but it found its real niche for its use with the payment options it offers.”

This way of making payments moved around the obstacle of cash access in Kenya, which is relatively difficult due to the technology and infrastructure needed to set up an ATM system. Instead, making a payment via an SMS text saves time and is easier for individuals – the way forward for banking and improving lives in the developing world.

Greg Baker

Sources: Huffington Post, New York Times, BBVS Innovation Center, CNN, The Economist
Photo: AVG Now

It can get hard to save for the future, plan and invest in a business and survive economic reversals if one lacks access to finances or bank accounts. This is a reality for many individuals who live in poverty.

When the concept of microfinance was developed, people with extremely low incomes had the opportunity to acquire small loans with which they could start businesses and generate income. A revolution at the time, microfinance gave the poor a chance to get loans without a credit history and large collateral needed by the traditional banking sector. However, these kind of loans are still hampered by access and the need to handle finances which can drive up costs and interest rates. This hole is now being filled by mobile finance.

Electronic solutions are making banking options much more accessible across the world. They reduce the cost of infrastructure needed, and the administrative costs associated with maintaining financial accounts. Such remittances can be much more secure than traveling long distances to deposit cash in a bank. Government disbursement programs can also use mobile financing to directly remit payments to the welfare dependents. This cuts out the intermediaries, reduces opportunities for corruption and allows the beneficiary to get their monies quicker.  Worldwide, 170 million people who receive payments directly from their governments stand to benefit from this approach.

M-Pesa, launched in Kenya by Safaricom, is one of the most wide-reaching mobile financing solutions. Over 17 million people in Kenya now use this product and over 25 percent of their GDP is moved through this system. Originally designed to facilitate microfinance loan repayments, M-Pesa allows cash deposits, withdrawals and cash transfers between people in the same way you would credit a phone with talk time. It has now expanded to Tanzania and Afghanistan.

Some of these initiatives are supported by development organizations. For instance, Bangladesh based Bkash is supported by BRAC Bank, IMF and The Gates Foundation among others. The Gates Foundation and other such organizations are closely involved in the process of making these solutions hit their stride.

The Gates Foundation assists in finding innovative new solutions and researches factors that would encourage their adoption. The foundation also works with governments to develop and implement policies that would stimulate this sector and develop suitable methods for oversight and accountability among the providers. As the technology slowly becomes mainstream and more competitors enter the market, governmental regulations will start to become more and more important.

In the words of Jim Kim, President of the World Bank, “More than one in three people on earth now lacks access to basic bank accounts or any kind of credit. Our goal is to bring that number to zero in just five years. Doing so will be an incredible challenge, but the reward will set us on a path to end extreme poverty by 2030.” Mobile financing is going a long way to bridge this gap and help achieve this goal.

Mithila Rajagopal

Sources: Bkash, Economist, The Gates Foundation, LinkedIn Pulse, World Economic Forum
Photo: flickr