Mar 13, 2012 KV Kiva HQ
By Brigitte Bradford
Mobile transactions: The power of moving money by phone
This is part of a larger series on Kiva’s strategic initiatives and innovative loan products, which are designed to expand opportunities for more borrowers. Kiva is looking to partner with companies or organizations using mobile technology to provide access to financial services -- read on for more on this.



Cell phones make life easier. They’re our alarm clocks, internet browsers, and connection to the outside world. For these reasons and more, the number of global cell phone subscribers has climbed to 5.6 billion -- a staggering 80% of the world’s population.

Over the last few years, this phenomenon has become especially relevant in developing countries where subscriptions total 4.5 million -- dwarfing industrial countries’ 1.6 million subscribers. Mobile technology has fostered greater communication and opened up access to new markets and services in traditionally under-resourced regions of the globe. When you can digitally travel anywhere in the world, not having paved roads doesn’t matter quite so much.

In Africa especially, the prevalence of mobile technology in underserved areas has slashed communication costs, which in turn has pumped up economies, increased agricultural and labor market efficiency, and improved consumer welfare. Cell phones are no longer just communication devices. They are tools with the potential to transform lives through innovative services and applications.

As early as 2003, companies began to develop products and applications that went beyond traditional voice calls and text messaging. In wealthier countries, these “apps” have focused primarily on entertainment (think Angry Birds or Words with Friends). In developing countries, however, many companies and governments have collaborated to produce socially-minded applications with the potential to improve lives.

Mobile financial applications, in particular, have had a dramatic impact. In 2007, Safaricom, Kenya’s largest mobile operator, partnered with Vodafone and the U.K.’s Department for International Development to jointly launch a program called M-Pesa. M-Pesa is a mobile-based banking platform that allows users to accomplish basic financial actions, like money transfers and payments, without having to go to a bank. Check out this video about how it works.

In four short years, M-Pesa has logged over 14 million subscribers, claimed nearly $7 billion in money transfers, and allocated services to nearly 75% of the adult population in Kenya.

These stats aren’t surprising considering that less than 30% of the population in east and southern Africa has formal bank accounts -- with countries like Tanzania at a very low 9%. And it isn’t that poor, rural populations don’t need or use financial services. In reality, poorer households use a higher number of financial mechanisms with greater frequency just to keep their lives running. If recent research and surveys have demonstrated anything, it’s that low-income households are frustrated by the low quality and unreliability of the limited tools that are available.

The challenge has been to offer people the flexibility and convenience of informal cash management tools without the inconsistency, security and lack of transparency that has long defined them. This is where mobile transaction services come in -- rushing to fill the gap by offering faster, cheaper and safer ways to move money.

As the price of cell phones continues to fall, mobile transactions are becoming even more practical. Evidence suggests that the spread of mobile technology has the potential to benefit consumer welfare as well as economic development. At the very least, innovations in mobile transactions have already extended much-needed money management services to underserved communities. There is huge potential for cellular technology to dynamically reshape the lives of poor households.

Kiva couldn’t be more enthusiastic about this trend. To encourage mobile transactions, we’re partnering with Zoona, a company that allows people to send and receive cash via their phones. It operates a network of agents throughout the country who dispense and receive the cash that is swapped. Through Kiva, Zoona is offering loans to new agents looking to set up shop, allowing it to expand its reach to even more remote regions. More information on Zoona can be found here.

 
Ian Matthews is an intern on Kiva’s Strategic Initiatives team, looking for new partners and loan products to extend opportunities and access to even more people around the world. Ian has an MSc in Global Politics from the London School of Economics and Political Science and has previously done field work in Honduras. Send him your feedback on this blog series at blog@kiva.org.
 
Photo courtesy of Gates Foundation.

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