Mobile Banking Helps Africa Advance

May 30, 2012

The economic growth rate across sub-Saharan Africa has remained at more than five percent in recent years despite the ongoing global recession.  Myriad macroeconomic explanations help explain this progress, but one intriguing element that is both underappreciated and undervalued involves a widget that fits in your pocket: the cell phone. The ability of cheap, easy-to-use cellular technology to connect poverty-stricken populations to the benefits of globalization generally, and banking more specifically, has yielded unprecedented new economic opportunities across the Global South. Socio-economic gains facilitated by mobile telephony in sub-Saharan Africa have sparked the interest of both governments and private companies in the region; however, the potential of mobile banking, or "m-banking," to curb corruption and illicit financial outflows also deserves heightened scrutiny. By cooperating and collaborating with each other and with the private sector, national governments can facilitate a framework for m-banking that is not only sustainable but also secure-both in terms of customer information and the formal economy.

During the last few years, mobile phones have become among the most important tools for economic growth in developing countries and emerging economies, with sub-Saharan Africa leading the way. In a part of the world where only 20 percent of the population is banked, lack of access to the formal financial system seriously inhibits economic growth and prosperity. Where money can flow easily as part of a shadow economy, corruption and other illicit behavior mitigates sustained positive economic impact. Yet in that same region, 57 percent of people use mobile phones. So, where infrastructure such as fixed phone lines, roads, and postal systems is not readily available, mobile phones are more than just a means of communication. With a few clicks, they can provide a fast, simple, less costly, and secure way to carry out banking transactions, fostering entrepreneurship, and even allowing farmers to compare prices in different markets so that they can make the most for what they produce.

As such, m-banking has clear economic growth and development benefits. Most significantly, it is introducing the bulk of Africa's population into the formal financial system, thus expanding it, and in turn, shrinking the informal sector. M-Pesa, for example, a mobile-phone based money transfer system in Kenya, had more than 700 million domestic and international money transfer transactions in 2010, amounting to USD 130 million in revenues. Beyond the obvious benefits of increased access to banking, including improved financial inclusion, increased opportunities for entrepreneurs, and laying the basis for sustainable economic growth, a shrinking informal economy combined with the system's electronic and traceable nature have the potential to help decrease corruption, address the threat of illicit financial outflows, and lower money laundering and terrorist financing risks, thereby improving regional and international security, especially as a wider economic range of Africans increasingly use it.

M-banking also lies at an innovative nexus of the telecommunications and the financial sectors, providing a new and growing market for businesses to expand. Indeed, across Africa, mobile banking is projected to be worth USD 22 billion by 2015.

Because it is relatively new and the public and private sector alike share a vested interest in the success of the system, policymakers and industry stakeholders should work together within and across borders, sharing information to create a sustainable ecosystem for mobile banking across the continent. Industry also has the technical knowledge and expertise of mobile transactions to support policymakers in developing an understanding of not only how to protect consumer information but also how corrupt individuals, criminals, or terrorist could exploit vulnerabilities in the system. Policymakers in turn should ensure that regulation is not too overwhelming so as not take away the aspects of m-banking that are most appealing for customers and businesses-the lower cost and the convenience. To this end, a collaborative approach of developing and testing industry best practices and one that fosters transparency will be key to any such successful approach.

Photo:Ken Banks, kiwanja.net via Flickr

http://www.imf.org/external/pubs/ft/weo/2012/01/pdf/c2.pdf

http://mckinseyonsociety.com/downloads/reports/Economic-Development/Half_the_world_is_unbanked.pdf

http://www.gallup.com/poll/149519/mobile-phone-access-varies-widely-sub-saharan-africa.aspx

http://www.thenationonlineng.net/2011/index.php/business/money/36815-mobile-money%3A-the-unbanked%E2%80%99s-bank.html

http://www.freakonomics.com/2011/02/01/mobile-banking-takes-off-in-kenya/

http://www.thenationonlineng.net/2011/index.php/business/money/36815-mobile-money%3A-the-unbanked%E2%80%99s-bank.html