Coming in from the Cold

Mobile devices helping to achieve financial inclusion

Can I offer you a cup of hot coffee… a warm place to sit? How about a mobile phone? The development community has been abuzz recently with the next fashionable method to secure financial inclusion among the worlds marginalized poor and un-banked: mobile financial services. 

The trend towards mobile and online banking is growing. The Economist cites that 73% of internet users in Brazil think mobile banking is important or very important; 71% in India; 89% in South Africa; and a much smaller 53% in France. Mr. J. Kwabena Addo, at “The Impact of Mobile Technology & Telephony in East Africa,” additionally spoke to how technical factors of innovation are being internalized by a greater share of African populations. Addo explained there are currently over 690 million cellular phones in the hands of Africans today and that “[i]nternet access has been growing at 40% in key countries for the past 10 years”. The increased access to these technologies has lead to the creation of jobs along supply chains and the banking of traditionally un-banked people through services like M-PESA.

The proliferation and innovation of mobile technologies provides a long-run path for economic growth and empowerment first and foremost by utilizing the scale of people traditionally kept “outside the purview of the financial system.” It broadly gives these people greater access to a platform for information, education, banking, and avenues to FDI. Mobile banking services and platforms like Safaricom, MTN Group, and Obopay allow people to build savings, generate capital wealth, raise the productivity level of their own labor, and tap into the more invisible side of their potential asset accumulation — i.e. their credit worthiness.

Financial inclusion, achieved this way, provides a step towards legally enforceable transactions. Entrepreneurs can be guaranteed payment for products or services, shop owners can establish a relationship of trust with patrons, consumers can make regular bill payments, and banks can safely evaluate a customers credit worthiness. This can be achieved over greater distances, isolated by poor infrastructure, with mobile technologies. It begins to strip away Hernando de Soto’s “dead capital” and provide a means for the generation of additional wealth.

The Brookings Institution hosted a three-panel discussion on May 16, examining this idea of financial inclusion. The event, “Expanding Financial Inclusion in Developing Regions: Economic Growth through Innovations in Mobile Technology,” included discussion on mobile financial services, economic growth, scale and scope of technological integration, and the role of development partners. There was a focus on “removing the walls in [traditional] banking” and taking banking services to the consumer.

Several of the development benefits that mobile financial services provide to the traditionally un-banked and the broader community, as discussed by Mr. Addo, Michael Joseph, David Porteous, and the rest of the Brookings panelists include:

  • Productivity gains to individuals and businesses;
  • Creation of a method for tracking mobile savings, creating capital history and credit worthiness;
  • Empowerment of Women, providing access to capital while also ensuring security through a “cash lite” environment; and
  • Providing a source for “stores of value”.

The development benefits achieved through mobile financial inclusion can take advantage of foreign assistance in the broader development process. The endogenous technological advances in mobile money permit outside cash transfers and remittances to quickly and accurately reach intended recipients. Remittance flows, which already make up the bulk of foreign assistance according to the CGP’s 2011 Index of Global Philanthropy and Remittances, can be more successfully applied with a larger impact using this type of mobile financial inclusion.

The financial inclusion through technological innovations in mobile technologies, mobile financial services, and internet accessibility advancements offers an alternative path for achieving economic growth. As Mwangi Kimenyi said “innovations in mobile technologies have provided alternatives to expanding the financial services frontier.” It has allowed for traditionally excluded peoples to come in from the cold and be included in driving their own economic prosperity.

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