Beyond the Bike
The Importance of Remittance Payments & Mobile Banking in Africa…
Joseph is 29 years old and makes a living selling vehicle parts in the dusty trucker town of Igawu in Southern Tanzania. When he approached me during my breakfast and flashed 2 fresh $100 bills, I was naturally interested to know where they came from. I offered him a ride north to find out…
Show me the Money!
Although born in Igawu, Joseph’s family originates from Somalia. Like many of their compatriots in the warn torn East African country, his parents left before he was born and his extended family are now dotted around the world. He has a cousin working legitimately in Washington and an uncle seeking asylum in London. The dollars came from his cousin via Western Union.
These flows of money are what economists call remittance payments. For most developed economies, they are often a mere rounding error in the Balance of Payments dominated by trade in goods and services. Not so for many developing countries whose diaspora working overseas send their hard earned cash back to their home countries. Although the data is sketchy, some economists estimate that it makes up some 30% of Somalia GDP. No wonder that Oxfam and other charities are up in arms about potential US counter-terrorist legislation to stop remittance payments form the US to Somalia worth c $100m each year1.
As well as helping boost consumption in the receiving country, payments can also help boost investment, funding new business and other projects. Through the multiplier effect (one person’s spending becomes another’s income), they can lead to an even greater boost to economic growth.
Joseph also complained that the cost of receiving the payment was high. Western Union has traditionally had somewhat of a monopoly on money transfers between the West and parts of Africa. This is now changing2, partly due to the technological advances reducing the barriers to entry and providing cheaper, more efficient, methods to make money transfer. Mobile phone companies have spotted the opportunity to provide services beyond simply making calls. This is revolutionising the way banking and other services are carried out and could be an example where new technology actually ‘trickles up’ from developing to developed nations.
Safaricom, Kenya’s largest listed company that is part owned by British giant Vodafone, has been at the forefront of this development. Almost every village & town that I’ve cycled through in Kenya and much of Tanzania (see photo) advertises it’s MPESA service, launched in February 2007. Safaricom pay for the paint and cash poor retailers are more than happy to get a fresh coat. It at least brightens up some of the otherwise dusty roadside settlements.
21st Century British Influence in Tanzania – Vodafone & Man United!
Customers can also use their M-Pesa account balance to buy goods and services, download or withdraw cash at Safaricoms re-seller airtime distribution agents. It comes with a full transaction tracking and reporting service and anti-money laundering measures. . A user can have up to KES 50,000 (EUR 504) in their M-PESA account, with no minimum balance, and charges are levied on a pay-as-you-go basis.
As referenced above, it is also being developed to allow international use for remittances, allowing Kenyans overseas to send money home quickly and much more cost effectively than most alternative means. Interestingly, World Bank statistics suggest that remittance payments to Kenya are a much higher percentage of GDP than in neighbouring Tanzania or Uganda. $1.6bn were sent to Kenya in 2010, more than 5% of total GDP.
Competition on its way from India Giant Airtel as well as Europe's Orange
Mpesa is of course not the only service available and most of the banks & mobile phone companies are providing comparable services. Global Giant Standard Chartered (I met a Masai herdsmen wearing one of their t-shirts in the bush more than 60km from the nearest tarmac road or town), and local rivals Equity Bank are engaged in similar programmes, all trying to get a share of this fast growing market. One indirect benefit for the consumer of this competition is that mobile phone charges have collapsed in a price war. I’ve been able to call UK mobiles from Kenya for less than 20p per minute, much less than calling from Europe, for example.
Bush Banking… 24hrs a day.
Mpesa and some of the other services largely aimed at mobile customers that do not have a bank accounts. It is this fact that should excite (or scare) development economists, especially those who argue that a major constraint on development is inadequate savings & access to capital. Technology has reduced costs of providing banking services. Combined with the growth of microfinance, is this part of the solution to global poverty? Certainly it is a great opportunity for the mobile phone giants to take market share away from the (currently) untrusted banking sector. No wonder they are advertising like crazy. Cash is still King but not as we know it3.
Couldn’t we do this by mobile phone please?
 BBC News, December 2011 Somalia 'faces threat to $100m in US remittances http://www.bbc.co.uk/news/world-africa-16314368
 Interestingly, Western Union has entered into several JVs with mobile companies to take advantage of the recent trend. See “M-Pesa goes Global with Western Union”, http://www.propertykenya.com/news/1458048-m-pesa-goes-global-with-western-union
 For student readers, this is another reason to be careful which money supply definition you are using when taking about money in circulation in an economy!)
Mas & Radcliffe, “Mobile Payments go Viral. M-Pesa in Kenya”, August 2010 http://www.microfinancegateway.org/gm/document-1.9.43376/Mobile%20Payments%20Go%20Viral_M-PESA%20in%20Kenya.pdf
De Soto, Hernando. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. Basic Books, 2000
The World Bank, ‘The little data book on Africa’, 2011.
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