THE FINANCIAL LIVES OF THE POOR ARE VERY COMPLICATED.
The Kenya Financial Diaries, a fascinating project documenting the financial lives of hundreds of Kenyans over the course of a year, tells countless stories of people who had to forgo medical care or take their children out of school for want of a few dollars.
The reason poor people face these agonizing choices is not just that they don't have enough assets. They also don't have access to a bank to help them use their assets effectively. If their savings are in the form of jewelry or livestock, for example, they can’t very well chip off tiny pieces to cover routine daily expenses.
Mobile banking will make it easier for the poor to borrow and save.
Instead, the poor use financial services that are extremely inefficient. They save by hiding cash around the house or buying commodities that lose value over time. When they send money to friends and relatives to help them through tough times, they either take a day off and deliver the cash themselves or trust someone else to do it for them. If they need to borrow money for an emergency, they have to pay usurious interest rates to a moneylender. Not having access to a range of cheap and easy financial services makes it much more difficult to be poor.
Photo courtesy of bKash, Ltd.
Community-based mobile financial services like bKash, above, are enabling Bangladesh's low-income population to participate in the country's growing digital economy.
But in the next 15 years, digital banking will give the poor more control over their assets and help them transform their lives.
The key to this will be mobile phones. Already, in the developing countries with the right regulatory framework, people are storing money digitally on their phones and using their phones to make purchases, as if they were debit cards. By 2030, 2 billion people who don't have a bank account today will be storing money and making payment with their phones. And by then, mobile money providers will be offering the full range of financial services, from interest-bearing savings accounts to credit to insurance.
MOBILE MONEY IN THE DEVELOPING WORLD
KENYA GOT AN EARLY START WITH MOBILE MONEY—ITS M-PESA SERVICE LAUNCHED IN 2007—WHICH IS ONE REASON THE COUNTRY IS A LEADER IN THIS AREA.
Source: IMF
Traditional banks cannot afford to serve the poor because of their costs. That's why 2.5 billion adults don't currently have a bank account. In villages where people borrow or save in tiny denominations, building and maintaining a bank branch just doesn't make sense. And when most people think about financial services specifically for the poor, they think of microcredit, such as small loans to businesswomen in poor countries. Indeed, small loans have helped millions of people, but loans are only one of the financial services the poor need, interest rates are relatively high, and these services have reached only a small fraction of the poorest.
The companies pioneering mobile banking find it profitable to serve the poor because the marginal cost of processing a digital transaction is near zero. And because so many people in developing countries have mobile phones — more than 70 percent of adults in many countries are subscribers now — the volume of transactions can be very high. By making small commissions on millions and millions of transactions, mobile money providers can make a profit serving poor customers, just as brick-and-mortar banks do serving the wealthy. Once these services get going, then there will be competitive innovation in offerings like special savings or credit plans related to farming or education.
In Bangladesh, the fastest-growing financial services company is a mobile money provider called bKash. Less than four years after launching, it processes roughly 2 million transactions per day, with a total value of nearly $1 billion each month.
Culled from Bill Gate's twitter page.
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