Africa leads the way in ‘mobile money’

24th June

Simon Harding

Africa is racing ahead of the EU and US in the use of ‘mobile money’ technology, according to Reuters. The article, ‘Africa’s upwardly mobile money’ (1/6/09), describes how a deal between Kenya’s biggest mobile operator, Safaricom, and Kenya Commercial Bank is allowing Kenyan phone-users who do not hold bank accounts to transfer money through their mobile phones.

The demand for financial services, together with a lack of formal banking infrastructure and the burgeoning African enthusiasm for the mobile phone means the M-PESA network, Swahili for ‘mobile money’, is being used by an estimated one in six Kenyans (6.5m people). Inspired by M-PESA’s success, South Africa’s MTN and the Kuwaiti mobile operator Zain are piloting similar projects.

‘Mobile money’ is being heralded as a ‘cornerstone for development’ by the World Bank in Africa due to its potential for easing and increasing remittances from urban migrant workers back to their families in impoverished rural areas by providing quick and cheap money transfers. ‘Mobile money’ allows funds to ‘penetrate more easily into rural areas where they’re really needed’, states researcher Olga Morawczynski of Edinburgh University. Urban-rural remittances hold great potential for rural areas. They allow increased spending on housing and education, raising rural living standards. Remittances also provide capital where credit markets are absent or underdeveloped, particularly important when most rural areas lack formal banking and remain beyond the reach of microfinance institutions. Households receiving remittances may invest in agricultural technology to intensify farming and push into hitherto cultivated areas. They may also set up fledgling non-farm businesses, such as shops, roadside kiosks, crafts businesses and small scale food processing. Remittances help households to spread risk by developing non-farm incomes which are invulnerable to bad harvests. An increase in urban-rural cash flows brought about by ‘mobile money’ is undoubtedly of great benefit to small rural businesses.

However, ‘mobile money’ may not be a silver bullet for rural entrepreneurship. Money may now flow increasingly rapidly and efficiently to individuals in rural areas, but the local business environment plays a crucial role in enabling the transformation of capital into productive businesses. Political stability, sensible regulations and efficient infrastructure are crucial factors in the transformation of remittances from extra disposable income into fledgling businesses which employ people and have wider benefits for the local economy.

See: Helen Nyambura-Mwaura and Ed Cropley, ‘Africa’s Upwardly Mobile Money’, Reuters Thompson, 1st June 2009