By Bill Brindley
As a father of five, I am very familiar with remittances. When my first son went off to college, I gave him an envelope of cash. My second child got a monthly check in the mail from Mom and Dad. Never one to wait for the mail my third child opened a joint account with us so I could make deposits locally and he could make withdrawals at the local bank branch on campus. With my fourth, we moved to the world of interoperable ATMs; deposits and withdrawals then happened on any street in any city and even abroad. With my youngest, we entered the digital age and transfers were done online with immediate effect.
I have been thinking a lot about this evolution in my own family as I watch the leading role remittances are playing in the growth of mobile money systems around the world. M-Pesa was created initially to serve the market for remittances in Kenya. M-Pesa now is used by over 15 million Kenyans and in 2011 Safaricom reported that value of transactions processed through the M-PESA platform was equivalent to 20% of Kenya’s GDP. In Central America, Tigo Money makes remittances easy and even advertises its service on bags of Frito Lays chips sold in small markets around Guatemala as witnessed by Hamilton McNutt, a member of NetHope’s Payment Innovations team who traveled to Guatemala in March.
So why the uptake? One reason could be that as David Wolman pointed out in his recent book, The End of Money, the poor live deceptively complex financial lives. NetHope members know this well from their years of experience in the field. In his book, Wolman cites the recent Wharton study that found the average cost of a bank transaction is about $1.0 – a significant percentage of income for those who live on less than $2 a day. For the poor and unbanked the costs of using cash include travel and wait time to reach and receive service from a bank branch, the risk of theft in conflict prone or high theft geographies, potential loss of physical cash stored at home when natural disaster strikes, and the opportunity costs of interest on a savings account or the ability to get credit. In a cash transfer program administered by Concern WorldWide in Niger following the latest drought in 2005, researchers found that when a mobile money delivery mechanism (called “Zap”) was used it strongly reduced the variable distribution costs for the implementing agency, as well as program recipients’ costs of obtaining the cash transfer. Significantly, while cash and placebo program recipients travelled an average of 4.04 km roundtrip to obtain the cash transfer, program recipients receiving cash through Zap mobile money only travelled .9 km to “cash out” at the nearest agent. Based upon an average daily agricultural wage of USD $3.60, the researchers calculated this time savings as equivalent to USD $.92 over the cash transfer period which can purchase 2.5-3 kilograms of millet, enough to feed a family of five for one day. In studies conducted by CGAP in 2008 and 2009, a majority of respondents in Kenya reported that their income had increased by as much as 30 percent since adopting M-PESA, due to an increase in the amount of money being sent and through savings in travel costs.
So what can we do provide the populations we serve with options other than cash? A few things come to mind. First, we can use the collaborative strength of NetHope members to educate populations about the availability and potential for mobile money and electronic payments. A recent study surveying migrant workers at the bottom of the socio-economic pyramid in Bangladesh, Pakistan, India, Sri Lanka, the Philippines and Thailand found less than a quarter of respondents in India, Pakistan and Sri Lanka were aware of mobile money remittance services but indicated interest in its use. NetHope recently established a payment innovations team with staff recruited from the mobile and development sectors. In February, we launched a payment innovations working group that helps NGOs share information and knowledge while exploring common technology solutions for programs that often times find themselves distributing funds to beneficiaries via cash. I encourage you to participate in that group. The first working group session included a presentation by Sarah Rotman from the Consultative Group to Assist the Poor.
Second, NetHope members can continue to expand their use of mobile money and other electronic payment platforms in their programs. Concern Worldwide recently released a comprehensive study commissioned by the Cash Learning Partnership (“CaLP”) that evaluates in depth three types of technology currently being used in aid programming: electronic payment systems, the use of mobile phones for text and voice communication, and digital data gathering tools. The report includes interviews and case studies for a wide range of NetHope members and a variety of evaluation tools organizations can use in their own program design.
Building on the strength of our members and our common interest in delivering resources to those in need, including financial resources, I hope you will join me in identifying areas for collaboration and cooperation where NetHope can work to make access to financial resources as easy as sending a SMS. Send your ideas to me, our payment innovations team or any member of our working group and let’s get working together. While my children are grown and I now longer have a high volume of remittances, I look forward to NetHope helping pave the way so regardless of geography any parent or child can receive money in a time of need .