Despite the proven effectiveness of mobile banking in integrating significant portions of populations in developing countries to the financial system, two New America Foundation partners, Sascha Meinrath and Jamie M. Zimmerman, argue that this strategy is still an imperfect solution to financially include the poorest of the poor. M-PESA in Kenya, for example, has been heralded as an immense success with nearly 70% of the adult population using its e-transaction services, which has lead to positive results in related income generation. Yet Meinrath and Zimmerman cite a 2010 study, which showed that 60% of the poorest quartile did not use these services, further marginalizing this group compared to other Kenyans who are benefiting from M-PESA.
The authors cite two specific problems in this financial exclusion: The reduced incentive to build communications infrastructure in more rural (and generally poorer) areas, as well as the transaction fee structure in which smaller value transactions pay a larger percentage fee than higher value transactions (for example, a $1 M-PESA transaction is charged a 12% fee while a $5 M-PESA transaction is charged an 8% fee). While these obstacles are substantial, certain polices can improve financial inclusion for the poorest of the poor, and fortunately, Safaricom, M-PESA’s operator, has already made some significant changes in their fee structure. This, among other improvements and examples, suggests that such hurdles are not insurmountable.
A recent Telecomm mobile payment pilot program in rural Mexico could serve as a valuable case study for businesses and government agencies hesitant to invest in communications infrastructure in underdeveloped areas without a sure return. While the mobile payment system has only been functioning for eight months, the preliminary results are promising: Mobile account penetration has risen to above 50% for the adult population, the reduction of cash inflows has reduced operating costs thus increasing the branch’s viability, and local merchants are playing a key role in increasing the number of transactions. Proponents argue that such a program has the potential to spur economic development in places that have historically been identified as inaccessible. Meinrath and Zimmerman, however, might argue that the minimum value of 50 pesos (roughly USD $4) for opening a new account still excludes a number of citizens — it thus remains to be seen if this program can generate financial inclusion for all.
Regardless of certain issues associated with mobile technology, economist Philip Auerswald in his book The Coming Prosperity: How Entrepreneurs Are Transforming the Global Economy argues that mobile phones are unprecedented conduits for innovation and entrepreneurship, which are huge drivers of economic growth. Nairobi, for example, has transformed into an African tech-hub due primarily to mobile technology, and numerous start-ups are aimed at tackling local problems. Following the philosophy of asset-based community development, foreign aid should thus be aimed at supporting these innovations instead of stipulating often abstract development goals. Moreover, foreign aid could also subsidize lower value transaction fees, thus enabling poorer members of society to engage in the market.
In their article, Meinrath and Zimmerman allude to the principle that increased GDP per capita in a given country does not mean a better life for all members of society. In fact, The Economist notes that four-fifths of those surviving on less than $2 a day live in middle-income countries, a result of unequal economic growth. While mobile technology may be a boon for many in the developing world, policy makers must advocate strategies that allow the poorest of the poor to similarly benefit from the economic opportunities that accompany it. Only then can mobile phones live up to their hype in ameliorating global poverty.