January 27, 2011

Better Development Through (m)Banking

We’ve written previously about the  potential of mobile banking to help marginalized populations overcome poverty’s debilitating effects. Elsewhere, you can find extensive data on the enormous financial potential of mobile banking. Indeed, the alignment of corporate and development interests in the sector suggests a sustainable, double bottom-line opportunity.

Through strategic cooperation, mobile operators, governments, and financial experts can each achieve their respective goals—profit for the former, improved livelihoods for the latter two—and empower the poor to securely save, better manage day-to-day risk, and seize new opportunities to improve their lives.

Below is a chart we have developed to describe the intersecting opportunity in mobile banking for both private and public sector. It’s a chart that we’ll likely refer back to again. Today, however, we want to discuss how mobile banking has been used in international development and how it can be better leveraged, both to improve specific programme outcomes and to serve larger development goals.

(Click image to see full size.)

Three years ago, Concern Worldwide became the world’s first organization to use mobile banking to transfer cash in an international development context. In the wake of the 2008 Kenyan elections, Concern used M-PESA in a targeted response to the food security crisis that arose. Families whose livelihoods had been severely compromised in the post-election violence received virtual cash via their mobile phones, redeemable at any M-PESA agent nationwide. Since then, digital solutions have been used for emergency cash transfers in Niger, for food vouchers for Iraqi refugees in Syria, and for cash-for-work programs in the Philippines. Indeed, mobile platforms can decrease the risks, costs, and logistical challenges—both for governments and citizens—associated with cash delivery, while improving accountability, efficiency, and programme sustainability.

And social protection is but one area where mobile banking can support development efforts. Public health is another. Menekse Gencer of mPay Connect has explored the latent synergies between mobile health and mobile financial services to improve access to and amplify the impact of both. Gencer notes that the two sectors share common user bases, infrastructure, business elements, and policy concerns. “These common elements,” she writes, “if addressed cross-sector, will benefit each by reducing costs that would otherwise be independently borne, thus improving services overall.”

There is also immense opportunity for mobile banking to help development organizations reduce administrative costs, burdens, and risks associated with financial management and transfer. Given the scale of development operations worldwide, even minor efficiency improvements throughout the system can, in aggregate, have immense effect.

Today, however, we will focus on social protection programmes to illustrate the benefits of integrating mobile banking.

Opportunities to Improve Social Protection

Mobile banking can support quick-impact initiatives such as food security and household cash transfer programmes. Not all programmes are well-suited to mobile integration, however, case-by-case assessments must be made and in most cases, it’s likely that mobile would be used to supplement—not replace—existing, non-digital platforms.

A key challenge facing cash transfer programmes is the security of cash as it is physically counted and transported. Mobile banking largely eliminates this risk as accounting and transfer are digitized. Development organizations can make a bulk payment to the mobile operator, who then takes responsibility for the funds from the time it enters its system to the time it reaches beneficiaries.

In giving them agency to decide what to feed their families and how to invest in their livelihoods. cash transfers can empower recipients. Unlike food transfers or material donations, they benefit local economies and communities’ self-dignity. Cash transfers done via mobile can have a doubly empowering effect by introducing beneficiaries to new tools, or by advancing their technological aptitudes. By requiring recipients engage in a novel, technological process to access support, beneficiaries become active participants in their own development rather than passive recipients of aid.

Benefits for programmes and operations

In addition to supporting larger poverty reduction efforts, mobile banking can bolster development programmes in a few specific ways:

1. Increased reach—specially in rural, hard-to-reach, or insecure areas—through a ready-built network.

Both mobile and banking networks require vast and relatively dense coverage to succeed. In developing mobile banking systems, operators thus invest heavily in building sizable technological and human networks and in ensuring adequate agent penetration across geographies. Even in rural and insecure areas, mobile operators generally have greater presence compared to government or other commercial services.

By leveraging operators’ existing networks, development organizations can increase programme reach by orders of magnitude and rapidly so. Safaricom’s M-PESA in Kenya, for example, currently boasts roughly 20,000 agents countrywide, latest figures from Zain’s Zap service in Uganda puts it at approximately 4,000 agents. Such ready-built infrastructure can be leveraged to extend critical support in times of need, even to those hardest-to-reach.

UNICEF Uganda, for example, is already exploring this model with Uganda Telecom, which has trained mobile agents to process birth registrations nationwide.

2. Greater transparency and accountability.

By tracking the flow of money from donors to implementing partners to beneficiaries, mobile banking can increase accountability in aid. Using mobile also decreases the number of middlemen handling cash, thus reducing opportunities for leakage. Combined, this enables more rigorous, accurate monitoring and evaluation and responsible programmatic and budgeting decisions in the future.

Digital tracking can also verify whether transferred funds were used for their intended purpose, and in accordance with funding stipulations. And as mobile payments and cash transfers become increasingly common, tracking downstream expenditures via mobile will only get easier.

3. Improved programme sustainability through diversified funding.

User payment for some services, where appropriate, would diversify programme funding sources and decrease reliance on funders and development organizations. Increased financial independence is critical if development programmes are to scale and become sustainable.

Though user fees would, in most cases, remain heavily subsidized, partial funding by direct user contributions would alleviate donor responsibility. There is also growing evidence that charging nominal user fees—rather than having them entirely covered by aid— increases services’ perceived value, leading to greater motivation to participate and improved programme compliance.

4. Ability to link monitoring and evaluation (M&E) across platforms and programmes to enable agile programming.

Automated real-time usage statistics, custom-configured to programming and M&E needs, will allow for the adaptation of programming based on the latest evidence. There is an opportunity, through mobile, to develop advanced history tracking and analytics engines to collect, process, analyze, and act upon large volumes of layered beneficiary and programme data from disparate sources.

Multiple linked mobile programmes would allow for detailed, trans-programme tracking. Development organizations could then observe correlations between beneficiary behaviours, incentive schemes, and other programmes. If relationships are found — ie. up to X cash transfers leads to Y improved malnutrition outcomes; beyond X, the funds are used for other means — organizations immediately adjust programmes to maximize positive outcomes and build stronger social safety nets.

4. Expanded opportunities for developing local capacities.

Integrating systems common in the local environment increases the likelihood that smaller civic groups (that may not otherwise be able to process Big Aid support) can participate in the develop of their own communities. This facilitates smaller scale trials and programmes with more diverse partners, which can increase local ownership of community development and increase funds directly reaching impoverished communities.

5. Improved morale for on-the-ground partners, staff, and extension workers through immediate, performance-based remuneration.

Mobile money can deliver service- or performance-based incentives for NGOs’ partners and extension workers. Immediate payment — rather than having to wait weeks or even months — improves the morale of those on the ground which can, in turn, positively impact response time and overall quality of programmes and services delivered.

6. Decreased time and cost burden in processing funds.

Using mobile to support funds transfers can decrease administrative burden in processing manual forms, and costs in funds transfer. Mobile payments and remittances typically reduce costs by 50 to 70 percent compared with traditional delivery models such as banks or Western Union. They are also more secure, more trackable, and faster than indigenous options such as the hawala model found in parts of MENA and South and Central Asia.

7. Decreased risks associated with cash.

Using mobile transfer to pay partners, staff, and extensions workers, and to disburse funds to beneficiaries, decreases the risks—on all sides—associated with carrying cash. Even if a mobile phone is lost, funds are easily recovered from any mobile device, agent, or operator branch simply by entering in the user’s account details and password.

Broader Effects: Achieving Development Aims

In addition to direct benefits for themselves, their partners, and their beneficiaries, development organizations looking to integrate mobile banking into their operations can also help stimulate the global mobile banking market, a secondary but important effect. Greater adoption of mobile banking can ultimately serve development’s larger aims of reducing poverty, tackling inequity, and achieving sustainable growth.

Early movers in mobile banking can help define whether and how the industry serves development aims. They will also gain critical knowledge and influence that will serve them well into the future, as services are increasingly delivered via mobile. And as mobile banking evolves, governments will require guidance on how the industry can support their economic and social development goals. To provide such support, development organizations first first-hand need experience in leveraging mobile banking.

Many challenges lay ahead for mobile banking, and there is a pool of unanswered legal, regulatory, and operational questions. Security both of the platform and of user data is of great concern, as are associated privacy and fraud risks. Despite such challenges, it would be unwise for development organizations to neglect mobile banking. With significant potential to reduce poverty while directly supporting their programmes, organizations should assume a proactive role in optimizing market forces for social change. The private sector is certainly eager to move fast to realize mobile banking’s immense financial potential. As a high-growth sector, operators seek partners to help them realize mobile banking’s potential.

This is an opportunity for development organizations to align with mobile operators’ core businesses, rather than with their corporate social responsibility arms—as has traditionally been the case—which have significantly less power and influence. Though mobile banking is experiencing early growing pains, ultimately, the alignment of corporate and development interests points to a promising win-win opportunity. By strategically integrating mobile banking into its core programming, the development industry also supports market mechanisms that improve the livelihoods of the poor.

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