By Esha Mufti – 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