When Prince Charles visited Dharavi in Mumbai (the setting for the movie ‘Slumdog Millionaire) in India in October 2010, he was impressed by the lending and savings systems in place. In many ways I can see where he was coming from – the group lending schemes, and the ways in which the MFI models have evolved have been great ... by and large.
For centuries people have needed ways of being able to save money, to squirrel it away out of temptation for everyday purchases, and have come up with innovative ways of doing this. I blogged about the story of a man who saved money in the fuel tank of his motorbike, in order to save up to buy a bigger and better one. I found a manky old sock at the back of my son’s wardrobe, was about to throw it in the bin, when I discovered it ‘clinked’ – upon further investigation found it to be filled with money. Piggy banks that have to be broken in order to get at the money... Layaway schemes for Christmas... You don’t have to look far in all walks of life to see examples.
Of course, mainly in the developed world, we address our savings needs by having accounts, and our borrowing needs by having credit cards, bank overdraft facilities and applying for loans and mortgages for the bigger expenses.
In order for businesses, no matter how large or small, to thrive, there is nearly always a need for loans in order to build or expand the business, or to take care of inevitable cash flow issues.
In developed markets, the credit cards and overdrafts operate as well-oiled machines, relying on sophisticated solutions to reduce the need for administrative input. Applying for larger loans generally involves a certain amount of paper-work and tedium, but thanks to credit agencies, the overhead is kept to a minimum. And once we have a loan approved and disbursed, we don’t necessarily need all the money immediately. That’s why we have different bank accounts.
It seems to me that it shouldn’t be so difficult to emulate a lot of the facilities that we enjoy, with the use of mobile and cloud technology. PAYG has spent the last 18 months working along these principles and we now have a product that can support an MFI / merchant / agent ecosystem that can be rolled out, either with or without mobile money, to reduce the administrative overhead of loan disbursements and repayments, and to allow customers to spend their loans only when they are needed (and so prevent unnecessary high interest charges). Benefits to merchants are to be had as well – it’s infinitely preferable for them to deal with cashless transactions, and means they are able to analyse transactions, offer loyalty and reward schemes and make use of SMS for marketing purposes, as they will have their customers’ mobile phone numbers. I think it’s a win-win situation.
Mobile money is seen as the way for MFIs to take cash out of the equation, and where a successful mobile money platform is widely deployed and adopted, I think mobile money, combined with an efficient back office system to process the repayments as automatically as possible, goes a long towards achieving efficiencies. At the risk of being controversial, where mobile money is struggling to achieve traction, there may be better ways of approaching the cashless society. The mobile is, in my opinion, undoubtedly the way to go, with a stored value account associated with it.
M-PESA in Kenya is undisputedly the most successful mobile money platform in the world, and as a result we’ve seen many M-PESA clones being rolled out. M-Pesa, although initially written to provide a solution for the MFIs, was configured as a ‘send money home’ platform, after the initial trials with Faulu didn’t prove to be that popular. ‘Send Money Home’ struck a chord, because of the Kenyan culture of youngsters going to the cities to work, and sending money back to their families back home. Very soon people realised how useful it was to have a cashless society, and the product evolved to become a virtual current account.
I’m undecided whether the ‘send money’ is a compelling need in all cultures in emerging markets. A need to keep your money safe and sound in a bank account of any type is a definite bonus. In developed markets, the competition is to see who can roll out the most successful mobile wallet – linked to spending your money on goods, with the focus on international remittance as next in line. I wonder if the emphasis on mobile money in emerging markets should be more focussed on a ‘buy goods’ and ‘pay bill’ solution, rather than a ‘Send Money’.
Anyone agree with me?
Liz is the author of Will there be another MPESA?