Mobile money and the social good of financial globalization

Since Grameen Bank launched the microcredit movement in 1982, the quest for financial inclusion of the world's poorest people has gained currency. Despite a few scandals, such as the oversupply of credit in places such as Andrah Pradesh, capital has continued to be funneled into microfinance by coalitions of development agencies, philanthropic organizations, and companies. They are banking upon microfinance to act as as a tool for socioeconomic development, as well as a means for companies to make a profit.

Microfinance might seem to be merely the newest trend in poverty alleviation, but it actually has a far longer history than the microcredit myth reveals. David Roodman, in his book Due Dilligence, explains that what we might call charitable lending dates back centuries.

Jonathan Swift, the author of Gulliver's Travels, is one of the earliest recorded examples of people engaging in charitable lending. In the 1720s he would lend Dubliners five or ten pounds without interest, so long as they could find two co-signers to guarantee the loan. Over the next couple of decades, charitable loan associations began appearing in Dublin and spread slowly throughout Europe.

The microfinance of today resembles these early organizations in its aims and practices. However, there is one major difference. Finance today is far more globally integrated than it was in the seventeenth century. When a person signs up for a loan, a bank account, or a mobile money service, they are joining a vast, interwoven financial system. What are the implications of this financial globalization? 

From a political economy perspective, one could argue that it is high time that this financial inclusion occurred. Niall Ferguson, in The Ascent of Money, argues that the development of financial products was a crucial component of the industrial revolution.

Countries that innovated financially, such as the Netherlands, got ahead of the curve in the global economy. Most of them are still strong in the global economy today. In contrast, countries that did not develop financial tools, focusing instead on traditional economic production, got left behind. In vast swathes of the world, neither trade nor socioeconomic development have done much to address this disparity.

New financial tools have the possibility to provide formal financial products to millions of people for the first time. This is particularly true of mobile money because the barriers to using it are low. It works with a basic mobile phone and does not require an Internet connection or a bank account, meaning that the majority of the world's population already possess the means to use it: all they require is for the service to become available. And it is spreading fast around the globe: there are now approximately 212 deployments in 83 countries.

There is likely to be no reasonable argument to exclude people from consuming mobile money or any other financial product. Financial tools can build economies and save lives. At the very least, they can make life far easier. You cannot tell someone that they would be better off travelling large distances at great cost to send money than they would be to make an instant transaction via their mobile phone.

However, while new financial tools show promise, they also pose challenges that need to be addressed. Unlike alternative currencies such as Bitcoin, which aim to disrupt the global financial system, mobile money incorporates people into that very financial system. Rather than a diversification of money forms, we're seeing people linked up into formal systems of relationships between large banks, multinational telecommunications companies, and money transfer services.

This comes with risks. As we have seen with the 2007 global financial crisis, problems in the system can have wide-reaching effects. The common wisdom that one should not put all of one's financial eggs in the same basket seems increasingly difficult to achieve. Our financial systems are becoming so integrated that it is hard to predict where risk will come from, and to where it will ultimately flow.

The idea behind microfinance is to move capital to the people who need it most, yet financial products tend to facilitate the flow of capital from periphery to core. Privacy is also an issue, especially in cases where people must supply biometric information to register for financial products such as bank cards.

What does this mean for microfinance? I see it as a strong indicator that the micro part of microfinance is an illusion. It's not microfinance, it's just finance–and on a global scale. Whether being part of this system is socially beneficial will depend very much upon how these products are supplied, and how they are used. Technically, most microfinance products are private goods, but they are widely used as a way to deliver non-state social services. I refer to them as "social goods" to address this dual purpose of profit and welfare.

The demand for mobile money in Haiti

First, let's take a look at demand side. In Haiti, banking infrastructure is scarce, with nearly 70 percent of bank branches located in Port-au-Prince. Just 10 percent of Haitians have bank accounts. Even if you can access a bank branch, using it may present significant costs. Lines are long, with people often waiting hours to make a transaction. Remittance services such as Western Union can be very expensive to use, especially when people wish to spend small amounts of cash.[1]

As a result of a lack of alternatives, people rely heavily upon informal services. People send money around the country via public transport. They either travel themselves, send the money to a friend or relative who is travelling, or entrust the cash to a truck driver or boat captain. In one trade route in the south of Haiti, boats travel twice per week on market days, carrying goods, passengers, and money from the Dominican border to the town of Marigot. The boat journey takes around seven hours. Security is also an issue, as people carrying cash run the risk of being robbed.

Mobile money is an attempt to bridge the gaps left by formal and informal services. It is a way for people without bank accounts or internet to access basic banking facilities through their mobile phone. They can deposit money, store it on their SIM cards, pay for airtime, and transfer money to other people.

Unlike its banking system, Haiti's mobile telecommunications infrastructure is well-developed, and mobile penetration is growing rapidly. The decentralization, flexibility of operations, and simplified infrastructure involved in mobile banking means that the service can be integrated within pre-existing commercial outlets, reducing transaction costs and allowing the service to spread rapidly throughout the country.

Mobile money therefore has a wide range of potential uses. In fact, mobile money has been referred to as a "platform" rather than a product to illustrate its hosting abilities. But the fact that mobile money has potential does not tell us how it is actually used, or whether it reaches a wide demographic. Are mobile money users rural or urban? Young or old? Poor or middle class?

According to the advertisements of mobile money providers, users are generally families. In an M-PESA television advertisement in Kenya, a forty-something-year-old male, dressed in a snappy suit, uses his mobile phone to send money. Banknotes stream out of his phone and fly through the air. They travel to a rural area where they arrive in the phone of an elderly woman, dressed in a pink blouse and a purple headscarf.

We, the television audience, imagine that these are the peasant parents of the city worker. This image of rural to urban migrants migrants sending home money makes sense in Kenya, where a demand for remittances was a significant reason for M-PESA's success. Interestingly, one of TchoTcho Digicel's advertisements in Haiti also features an elderly woman, but this time she is using mobile money to store her savings so that her sneaky nephew can't steal it from the hiding places in her home.

Of course, these are just convenient marketing representations. But if we want to understand the brief history of mobile money use in Haiti, we need to question our assumptions that the main market for mobile money is the individual customer. This is because, at least in the early days, the typical mobile money user in Haiti was actually an NGO.

While thousands of Haitians registered for mobile money of their own accord, responding to Digicel's and Voilá's advertising, the vast majority of active users in the first year or so were people who had been required to register for mobile money in order to receive aid, often receiving a free handset or SIM card in the process. From its launched in late 2010, Mercy Corps and World Vision used mobile money to deliver conditional cash grants and cash-for-work payments. In this scenario, mobile money provides benefits, but it ceases to look like an choice. 

The supply of mobile money in Haiti

We also need to keep in mind who is behind the supply of mobile money. It is ostensibly a market-driven product that is developed and offered by private companies whose goal is to turn a profit. Often these are telecommunications companies that partner with banks. In Kenya, Safaricom has been very successful in scaling mobile money, and in the past year or so has launched an array of products that work on the mobile money platform, including insurance.

However, mobile money is rarely deployed or scaled by private companies alone. This is because, like most products developed for people with low incomes, profit margins are tight. It is also difficult to scale: the classic "chicken-and-egg" problem of mobile money is that individual customers will be reluctant to register for it unless they have ready access to mobile money agents, but business will not want to become mobile money agents unless they have customers. As a result, non-profits, such as USAID, have been critical in stimulating the development of mobile money services around the world.[2]

Haiti is no exception. On 12 January, 2010, an earthquake levelled Port-au-Prince and its surrounding areas. Six months later , the Bill & Melinda Gates Foundation and the USAID-funded Haiti Integrated Finance for Value Chains and Enterprises (HIFIVE) announced the launch of the Haiti Mobile Money Initiative (HMMI) to stimulate the development of mobile banking services in Haiti (HIFIVE 2010). The HMMI offered $10 million in prizes and $5 million in technical assistance for companies to develop and expand mobile banking services across the country.

As 2010 drew to a close, there were two publicly available mobile money services in Haiti: Digicel's TchoTcho Mobile and Voilá's T-cash. By the end of 2011, over 800,000 Haitians had signed up for mobile money services; of these, between 6000-9000 were in development programs at any given time. [3] In October 2010, Digicel won HIFIVE's First to Market prize, pocketing $2.5 million.

In August 2011, Voilá won the Second to Market prize of $1.5 million. Voilá were bought out by Digicel in 2012, but mobile money survived.  Today, TchoTcho Digicel claims to have 367 active agents distributed around Haiti. USAID continue to drive demand by requiring NGOs in Haiti to include a mobile money component into their socioeconomic development programs, fostering links between market and welfare.

It's not just non-profit organizations that are blurring the line between commerce and development. Digicel have a great deal of experience in building social concerns into their products. When Digicel arrived in Jamaica in 2001, they cornered the market by inexpensive handsets and calls, making them affordable for the first time to millions.[4] Their handsets incorporated features that were designed especially for people with little money, such as their "call me" service.

Digicel are repeating this endeavour in Haiti. They carry out corporate social responsibility activities through the Digicel Foundation, whose social projects include equipping schools with technology and sponsoring sports teams. In Port-au-Prince, Digicel even sponsor street signs. The latest project of Digicel CEO Maarten Boute is the develoment of SurTab, an Android tablet manufactured in Haiti.

Digicel have become so popular that people we interviewed would tell us things like "Digicel should be President of Haiti" or that "God sent Digicel to save Haiti." One man also told us that he had never heard of mobile money, but that he would sign up for it because "Digicel never lie." These are not just isolated anecdotes: as the anthropologist Timothy Schwartz notes, "If Digicel could run for President of Haiti [….] it would win." 

Indeed, there is evidence that a significant section of Haiti’s population views telecommunications companies as providing more social benefit than government or NGOs. This means that Digicel are well-positioned to promote mobile money as both a commercial product and as a means to achieve social goals.

Mobile money and financial globalization

The blurring of boundaries between private and public interests in mobile money's supply and demand suggest that, when objectified in certain products, socioeconomic development and commerce lose their distinction. Should we be worried that it is increasingly difficult to tell profit motives apart from social ones? What are the risks that "social goods" will turn into "social bads"?

Like other microfinance products, mobile money has many social applications, but it also comes with risks. Assessing these risks is only possible if we have a clear view of what mobile money is, how it is delivered, who is using it, and who is driving its uptake.

When we tease apart the mobile money supply chain, it becomes clear that the stereotypical mobile money user can be rather different to the one depicted in commercial advertisements. It also becomes evident that, when assessing the ability of financial products to turn a profit and achieve social goals, we cannot simply associate the former with companies, and the latter with non-profits.

Mobile money collapses a wide range of interests into one platform, and how we assess it depends upon where we are standing. From the perspective of a Haitian trader, mobile money could be a very welcome alternative to sending money via boat. For an NGO, paying a conditional cash grant via mobile phone may be far easier, and safer, than paying cash.

But one thing is certainly clear: neither mobile money, nor other initiatives in financial products in Haiti, presents an alternative to the formal financial system. Rather, they integrate people squarely into financial globalization.

This point matters irrespective of whether you believe financial globalization is a good idea or not. Any financial product can be problematic when rolled out without thorough consideration of its intrinsic characteristics and the context in which it is being delivered.

The microcredit movement has benefited many people around the world, but the oversupply of credit has also caused a great deal of harm. Mobile money, which has the potential to reach far more people and deliver the entire suite of microfinance products, also merits scrutiny.

Both the micro context of the stereotypical user, and the macro context of finance and development, will influence if, where, and when mobile money can act as a social good as well as a private good.

Notes

[1] See Mobile Banking in Haiti: Possibilities and Challenges, by Erin B. Taylor, Espelencia Baptiste and Heather Horst (2011, IMTFI; also Monetary Ecologies and Repertoires: A Qualitative Snapshot of Money Transfer and Savings, by Espelencia Baptiste, Heather Horst and Erin B. Taylor (2010, IMTFI).

[2] In Afghanistan, USAID worked with the government to pay public servants' salaries, including those of police officers, via mobile money. This had two major advantages: it immediately added thousands of users to Vodafone’s mobile money network, and it solved a serious corruption problem.[LINK] People in the industry report that, when police officers received their salaries via mobile money for the first time, many were calling Vodafone to thank them for their pay rise. It turns out that their superiors had been skimming their salaries by as much as 30%. With mobile money, this was no longer possible.

[3] Personal communication from Greta Greathouse, Chief of Party of HIFIVE, 15 February 2012.

[4] See The cell phone: An anthropology of communication, by Heather Horst and Daniel Miller (2006, Berg).