Insights and Analysis

What’s Holding Mobile Money Back in Asia?

August 22, 2012

By Katherine Loh

My colleague Michelle Chang recently blogged about the promises of mobile money for Asia. It’s true that in many countries, like Pakistan and Afghanistan, where banking infrastructure is limited, mobile money represents a potential solution for the hundreds of millions of individuals  who remain unbanked, providing financial services such as digital payments, transfers and remittances, savings, credit, and insurance. As the Gates Foundation points out (and is funding to the tune of half a billion dollars), tools like mobile money “can play a key role in determining whether a poor household is able to capture an opportunity to move out of poverty or weather a shock without being pushed deeper into poverty.”

A man speaks on his cell phone in Lahore

In many countries, like Pakistan and Afghanistan, where banking infrastructure is limited, mobile money represents a potential solution for the hundreds of millions of individuals who remain unbanked. Photo by Sara Farid.

Mobile money can help open the channels for further economic benefits such as higher savings and household expenditures, increased rates of business investments, and smoother consumption over time. In Afghanistan, for example, where mobile phone penetration already exceeds 80 percent of the population, USAID is launching a $5 million initiative to expand access to financial services to 100,000 Afghans. And in the Philippines – one of the earliest adopters of mobile money – rural residents are being connected via these virtual pipelines to new markets, other users, and recipients. The number of mobile money users there now exceeds three million.

However, expanding mobile money takes far more than building out towers and a network of agents and changing consumer behavior. Many other hurdles exist that can hinder adoption. So why is it that some countries have overcome these hurdles and some have not? And what are the differences between countries that have successfully expanded their mobile money markets and those that have not?

A look at Kenya’s experience can shed some light. Kenya is celebrated for its successes with M-PESA, the nation’s main mobile money service provider. In just over five years since M-PESA was first piloted in early 2007, its number of users has grown to over 15 million, or more than 80 percent of Safaricom’s (Kenya’s leading mobile service provider) total mobile subscribers, as of November 2011, and the transactions that M-PESA processes annually are now worth nearly US$ 5 billion.

Mwangi Kimenyi of Brookings’ Africa Growth Initiative and Njuguna Ndung’u, governor of the Central Bank of Kenya (CBK), say the Central Bank and government should be given more credit for their role in M-PESA’s success. They point out that “the primary factor [in the success of M-PESA] is the creation of an enabling environment through the establishment of prudent oversight that guarantees the simultaneous achievement of access and financial stability.” They say a successful mobile banking sector is contingent upon “a conducive environment for business, private sector-public dialogue in the formulation of policy, prudent oversight that keeps abreast of innovations, and removal of barriers to entry into both supply of mobile telephone and banking services.” Liberalizing the mobile phone market in the first place to create a more competitive supply of mobile telephony, supporting an efficient tax system and stable legal structure, and promoting public-private dialogue and private innovation all have contributed to creating a business climate broadly conducive to private enterprise and to mobile banking’s growth. Continuous maintenance and oversight and protection of consumers also helped to provide the stability needed for accelerated adoption of mobile money. Earlier this year, the CBK announced that it would soon start working on a mobile money platform that will have tighter security checks to safeguard transactions from the threat of cyber crimes.

In short, these are the valuable lessons that other countries could learn from Kenya’s success:

  • Support regulators to develop the policies and regulations needed to facilitate the build-out of digital infrastructure, expand access to digital financial services, and increase consumer adoption;
  • Support authorities to simultaneously enable people to open accounts while protecting them from fraud and corrupt practices; and
  • Encourage service providers to expand their array of financial services they offer to consumers.

By and large, the Kenyan government, Safaricom, and M-PESA have done an admirable job of addressing the governance constraints to the proliferation of mobile money. Similarly proactive measures should be encouraged in other countries as well.

For example, in India, where the distribution of banking services is highly unequal across the rural-urban divide, state governments could work closely in partnership with local mobile service providers and financial institutions, to target the rural population. Could payments for work performed for schemes under India’s National Rural Employment Guarantee Act be made via digital transfers? A similar rural-urban divide in Bangladesh leaves rural residents without easy access to financial services. While some operators are willing to invest in the market for mobile money, like Dutch-Bangla Bank Limited did last year, national and sub-national policies can help encourage further mobile money penetration, as well as support mobile financial literacy training among and consumer protection oversight on behalf of citizens.

In all the excitement about mobile money’s potential as a game changer, the role for mutual dialogue and engagement among relevant government bodies, financial institutions, mobile money operators and agents, as well as consumers, has received scant attention. But it may well be the key to ensuring that such a system is developed to a standard that is mutually trusted by and accountable to all stakeholders and to ultimately expanding services to the truly unbanked.

Katherine Loh is a program fellow for The Asia Foundation’s Economic Development Programs. She can be reached at [email protected]. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.


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