May 29, 2010
This post concludes my report on my trip to Kenya to see M-PESA, the mobile phone--based money transfer service. Here's the full set.Iqbal Quadir may be the original visionary of mobile phones for the masses in developing countries. In this 100-second clip from his TED talk, he tells how the vision came to him in the early 1990s:
Quadir was seized with the idea of bringing mobile phones to the poor of Bangladesh. In time, he partnered with the Grameen Bank to form GrameenPhone. And the rest is history, in Bangladesh and beyond.A bit later in the talk, Quadir lays out this causal chain:Connectivity -> Dependability -> Specialization -> ProductivityConnectivity helps people and firms work together when they are more than a stone’s throw apart---coordinate, bargain, contract. Better communication allows them to reorganize themselves step-by-step into more complex economic arrangements characterized by greater interdependence and specialization. And specialization brings productivity (think Adam Smith’s pin factory). I don't think that's all that connectivity does---it also transmits ideas and culture---but that's a big piece of it.I had the pleasure of speaking with Quadir at a symposium organized by the Legatum Institute a couple of years ago. In my mind he is the archetypal playwright. Possessed of a powerful vision, he altered the storyline of world economic development. By the same token, he is a man of strong, clear ideas---he told me he could prove in two sentences that foreign aid does not work---sometimes a bit too strong and clear for this natural-born critic.But as for the impacts of connectivity, I think Quadir has it right. In fact he has articulated something I have struggled to say well. Yes, connectivity is not universally good. If poor people sometimes spend too much on booze and cigarettes, they probably do the same when it comes to talking to friends on the phone. But I think connectivity is inherently good, especially in the forms that have mushroomed in the last 15 years---mobile devices and the Internet---which turn users into active participants.For me the thinking here is akin to that around the development-as-industry-building rationale for microfinance---really, for financial system development in general. Like financial systems, communication systems interconnect people, thereby creating possibilities too diverse for any one mind to foresee or predict, possibilities that are the essence of transformational economic development. Just as it is reasonable to argue on principle that an intervention that increases the reach, flexibility, and robustness of the financial system generally supports economic development, it is reasonable to argue the same for communications. One can encapsulate the impacts in a theory like Quadir's, but the concrete possibilities are too rich to fully foresee.Phone-based banking may be one example, one application that Quadir perhaps did not foresee for the revolution he unleashed. Only in retrospect does it seem obvious: the amount of information that one needs to transmit in order to execute a financial transaction is tiny---authentication of the user's identity, transaction type, amount, identity of the counter-party---well within the reach of low bandwidth and primitive interfaces of cheap mobile phones. And in Kenya, in the form of M-PESA, mobile phone--based financial service is itself leading to a rich variety of changes in economic behavior, many unanticipated. Here are a few I learned about while in Kenya last week, all of which arguably exemplify Quadir's maxim that connectivity is productivity:
Quadir was seized with the idea of bringing mobile phones to the poor of Bangladesh. In time, he partnered with the Grameen Bank to form GrameenPhone. And the rest is history, in Bangladesh and beyond.A bit later in the talk, Quadir lays out this causal chain:Connectivity -> Dependability -> Specialization -> ProductivityConnectivity helps people and firms work together when they are more than a stone’s throw apart---coordinate, bargain, contract. Better communication allows them to reorganize themselves step-by-step into more complex economic arrangements characterized by greater interdependence and specialization. And specialization brings productivity (think Adam Smith’s pin factory). I don't think that's all that connectivity does---it also transmits ideas and culture---but that's a big piece of it.I had the pleasure of speaking with Quadir at a symposium organized by the Legatum Institute a couple of years ago. In my mind he is the archetypal playwright. Possessed of a powerful vision, he altered the storyline of world economic development. By the same token, he is a man of strong, clear ideas---he told me he could prove in two sentences that foreign aid does not work---sometimes a bit too strong and clear for this natural-born critic.But as for the impacts of connectivity, I think Quadir has it right. In fact he has articulated something I have struggled to say well. Yes, connectivity is not universally good. If poor people sometimes spend too much on booze and cigarettes, they probably do the same when it comes to talking to friends on the phone. But I think connectivity is inherently good, especially in the forms that have mushroomed in the last 15 years---mobile devices and the Internet---which turn users into active participants.For me the thinking here is akin to that around the development-as-industry-building rationale for microfinance---really, for financial system development in general. Like financial systems, communication systems interconnect people, thereby creating possibilities too diverse for any one mind to foresee or predict, possibilities that are the essence of transformational economic development. Just as it is reasonable to argue on principle that an intervention that increases the reach, flexibility, and robustness of the financial system generally supports economic development, it is reasonable to argue the same for communications. One can encapsulate the impacts in a theory like Quadir's, but the concrete possibilities are too rich to fully foresee.Phone-based banking may be one example, one application that Quadir perhaps did not foresee for the revolution he unleashed. Only in retrospect does it seem obvious: the amount of information that one needs to transmit in order to execute a financial transaction is tiny---authentication of the user's identity, transaction type, amount, identity of the counter-party---well within the reach of low bandwidth and primitive interfaces of cheap mobile phones. And in Kenya, in the form of M-PESA, mobile phone--based financial service is itself leading to a rich variety of changes in economic behavior, many unanticipated. Here are a few I learned about while in Kenya last week, all of which arguably exemplify Quadir's maxim that connectivity is productivity:- The woman running the M-PESA point just in front of the Kisumu Municipal Market showed us her transaction log book. Mixed in with the small deposits and withdrawals were deposits in (if I recall correctly) the tens of thousands of shillings (hundreds or thousands of dollars), which she said were payments for goods to be shipped from elsewhere in the country and sold in the local market. I believe it was Frederik Eijkman who explained how distant wholesalers and local retailers developed trusting relationships that made such prepayments possible. I realized that we were observing the monetary counterpart of trade: goods go one way and money goes the other. By making such payments cheaper and more secure, M-PESA has reduced the cost of internal trade in Kenya. That seems profound.
- In the Holo market, Stuart Rutherford interviewed many people, including this metal smith's assistant about whether and how they wove M-PESA into their use of informal financial arrangements such as merry-go-rounds. Most did; and I think he will blog his findings for the Financial Access Initiative. (Update: he did.)
- Our Gates-sponsored tour included a visit to Bridge International Academies, a breath-takingly ambitious for-profit venture to start thousands of affordable schools in Kenya and beyond. The business plan has it opening a school a day within a year or so. Tuition is an extraordinarily low $4--8/student/month. I dubbed the approach "microeducation" because like microfinance it is all about stripping costs down through mass production of formulaic products. And I don't mean that as a criticism: only such managerial aggression can keep costs below what the poor can afford, which in turn allows for scaling to serve millions. Talented, creative Stand and Deliver-type teachers need not apply; Bridges wants cheaper people who can follow a script, for it has literally scripted the entire school year, minute by minute. Schools are built of rough wood and sheet iron. And for efficiency and security, Bridges does not take cash: all tuition must be paid via M-PESA. (In case you were wondering Kenyan kids are cute too; but notice how many are wearing rubber boots to navigate the mud of the Kingston slum they call home.)
- On our last day in Kenya, we met with a group of local researchers. Among them, Tonny Omwasa said he is writing a book of 100 stories of unexpected uses of M-PESA. One example, as best I can recall: A man was robbed, away from home, of everything but his national ID card. With that alone, he approached an M-PESA shop, borrowed money from the shopkeeper to buy a new SIM card, used that in the shopkeeper's phone to withdraw money, then bought a new phone, which put him back in business, as it were. Central bank regulator Steve Mwaura offered a story of a trucker who bought gas with M-PESA early one morning: he no longer carried cash on his long-haul, overnight routes, thus immunizing himself against highway robbery. It was asserted in fact that the robbery rate has plunged in Kenya.
- M-PESA just became a better banking platform, promising to extend savings, credit, and even insurance to the previously unbanked through a partnership with Equity Bank. Ignacio Mas has the details.
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CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.
