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With growth, development and financial inclusion high on the agenda at the recent World Bank/IMF meetings in Lima, Peru, this week's podcast looks back at an innovation that helped bring millions of people in Kenya into the financial system. Economist and former governor of the Central Bank of Kenya Njuguna Ndung'u, who is also a member of CGD's Task Force on Regulatory Standards for Financial Inclusion, discusses the changes brought to Kenyan society by the introduction of the mobile money transfer service M-Pesa.
In 2007, "15% of the currency [in Kenya] was outside the banking sector," Ndung'u said. "The first impact of M-Pesa is to bring money outside the banking system into the banking system.” Users register their SIM cards and pay cash into – or take cash out of – a single M-Pesa trust account using their mobile phones.
Since the process does not require users to open individual bank accounts, skeptics predicted crisis: "Liquidity was shifting away from the other banks to the bank that was holding the [M-Pesa] platform." But the solution, Ndung'u said, was simple enough: "Distribute the platforms."
Rather than viewing platforms like M-Pesa as a threat, Ndung'u continued, banks should view them as long-term investments that promote financial inclusion and actually help strengthen the banks themselves. By supoprting M-Pesa, the banks "increase the number of participants in their market, they increase their deposits, and the deposits give them the capacity for future growth," Ndung'u said. "Strong banks are going to weather shocks. And what makes banks strong is actually bringing in people to participate in the banking sector.”
In the push for electricity access in the developing world, many policymakers are trying to figure out where on-grid or off-grid solutions make the most sense. My new paper asks 39,000 consumers in 12 African countries about their energy use and demand. The big takeaway: African consumers don’t view grid versus off-grid as a binary question.
Viral videos, crowdsourced donations, digital cash transfers for refugees—what opportunities do digital technologies present for development, and how can those of us working on policy innovation make better use of them? Mobile phones were a good start, Devex's Raj Kumar says, but we could be doing a lot more.