Leapfrogging Development: Mobile Banking

For those new to the phenomena I’ll try to explain it briefly:

In most “Developing” countries cell phones works through a “top-up” system. You simply buy a little voucher off one of the street vendors who stands at basically every corner, and use this voucher to add credit to your phone. Or – you pay a vender to “send” you credits electronically. (The vender will send credits from his phone to your phone).

At some point people figured out that this “credit” could also be used as a currency. So instead of paying people in cash, they paid in “credit”. They simply sent credits from their cell to the salesperson’s cell, when they purchased something. This means that people do not have to carry cash, which in an almost purely cash based economy is a major step forward.

Yet, the true ingenuity with mobile banking is the transfer of credit (money) between relatives. In many African countries family members often live far apart. Perhaps the dad is a seasonal migrant worker, or the mother moved to the city to see that the kids could go to school. For whatever reason family members often live far apart. Earlier this meant that transporting money was a tedious process.

To continue with our example:
Imagine the husband seeking work in the city, while leaving the family behind in the rural areas. In the city there are better work opportunities and higher wages. Earlier, when he wanted to send remittances (money) back to his dependants (children, wife etc), he would either have to give up a few days of work and travel all the way home with a big stack of cash. In this way he did not only loose valuable days of work, but traveling with a big stack of cash is not very safe in countries where poverty is widespread and theft or pick pocketing happens on a wide basis. With mobile banking, he can simply send the money back home electronically.

Since the start of just sending “credits”, the system has developed so you now have a separate mobile bank on your phone. I added 10Cedi (about 8 USD) to my account. When I owed my friend Kaisa 2 Cedi, I simply sent them to her from my phone. If you need to cash to the money, you simply drop by one of the many official venders or co-operating banks and send them your money, which they in turn will give you as cash. Brilliant right?