Mobile Phones promoting growth for Africa!
With so many young people procrastinating on Twitter, Instagram and YouTube, the claim that mobile phones could help to promote growth in Africa seems highly implausible. If anything, people would be distracted, much like the youth of developed nations today, and growth could in fact decline!
Many in Africa are excluded from accessing banks. This is mainly due to the fact that banks are located in towns and cities, yet most of Africa’s population live in rural areas. A lack of adequate infrastructure hinders the movement of these peoples to cities to take out loans and start saving. Indeed, this is compounded by a high incidence of financial illiteracy. Moreover, there is the further disincentive of using financial institutions because the minimum deposit in most areas is 50pc of per capita GDP, and so the very poor are excluded from using these facilities.
Entrepreneurs
How would mobile phones help? Mobile phone banking, such as M-PESA, allows users, most of whom do not have a bank account, to send money electronically to friends and relatives as well as to pay for purchases, namely water and electricity bills. M-PESA is run by Vodafone and Safaricom, and first launched in 2007 in Kenya. It is thought that M-PESA will help to increase productivity in the Kenyan economy. This is because whereas before entrepreneurial citizens who ran businesses in cities used to travel back to their rural villages to send money back to their families, they can now electronically send the money, thus saving up to 15 hours in travelling time per week which they can spend working.
M-PESA is also being developed for use internationally, so that Kenyans can send home remittance payments electronically. This would be beneficial and prove influential in Kenya's development because it would result in less money being 'lost' through the corrupt system and so would ensure that more money is received by the families of the emigrant, helping them to invest and consume in the economy.
Furthermore, M-PESA allows small
businesses, and individuals, to plan their expenditures much more carefully, so
they are less likely to fall into debt and more likely to increase their
profits. M-PESA will help to increase consumption not just in the local village
but in other towns and villages, thus helping to increase the incomes of others,
through this multiplier effect, and so increasing the standard of living
overall. For example, a Kenyan entrepreneur used to polish shoes on the streets on Kenya's capital Nairobi but M-PESA has allowed him to grow his business because his driver can drive around and collect the shoes whilst customers pay electronically through their mobiles. This increased his income, and he invested this in starting a motorcycle taxi service, thus increasing the welfare of more citizens.
Furthermore, the transaction cost for each exchange is $0.46 as opposed to $3 when using conventional banking methods. Mobile banking would thus help to increase the number of small exchanges, thus increasing aggregate demand in the economy and thus GDP. The World Bank estimating that the total increase in transactions could be between 50 and 70pc of current values. Moreover, the 2010 G8 summit noted that an extra $15 billion per year could flow through developing countries’ economies if current transaction costs halved.
Trust and Theft
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In addition, in many developing countries, such as Kenya, carrying a substantial amount of cash on your person is quite dangerous. Indeed, the brain behind M-PESA, Nick Hughes, stated that one of the benefits of M-PESA is that citizens do not need to carry large volumes of cash around with them, thus reducing theft. Citizens can purchase groceries, pay for taxi journeys and pay for utility bills using their mobile phone, reducing the need for cash. However, should they need to take cash out, there is a large distribution network of M-PESA kiosks which allow customers to take money out against the cash on their phone.
Mobile banking could also be used as a way to save money, increasing the security of many citizens’ money. Indeed, Gencer has calculated that Kenyans using M-PESA to store money saw a 9pc decrease in theft, and this ‘stolen money’ was only due to the user sending money to the wrong person. On the other hand 11pc of Kenyans have reported their money being stolen through burglary.
Banking and Saving
Moreover, as M-PESA provides businesses with
a medium in which to save money, it thus ensures that businesses collect money
and so invest in the future, increasing the productive potential of their
business. Productive potential is also increased because business owners,
rather than travelling to the nearest town or city, save time through
instantaneous transactions, meaning that they have more time to focus on
improving their business and raising revenue.
Moreover, entrepreneurial citizens in Kenya have introduced mobile banking services whereby citizens in rural areas can request a loan using their mobile phone. They specify the amount required, and how they will invest the money. Within a couple of hours their loan is processed and they receive money in order to invest in small business ventures. This is important in developing societies where rural citizens do not have collateral which would allow them to take money out with a commercial bank. In a recent report from Kenya, a group of female milk maids requested a loan to purchase a couple of cows; they needed to milk more cows to supplement their incomes because they sold the milk to a large commercial company, but the company only paid the ladies at least one month after the milk delivery. They received their loan, with an interest rate attached equal to the interest rate offered by commercial banks.
Moreover, entrepreneurial citizens in Kenya have introduced mobile banking services whereby citizens in rural areas can request a loan using their mobile phone. They specify the amount required, and how they will invest the money. Within a couple of hours their loan is processed and they receive money in order to invest in small business ventures. This is important in developing societies where rural citizens do not have collateral which would allow them to take money out with a commercial bank. In a recent report from Kenya, a group of female milk maids requested a loan to purchase a couple of cows; they needed to milk more cows to supplement their incomes because they sold the milk to a large commercial company, but the company only paid the ladies at least one month after the milk delivery. They received their loan, with an interest rate attached equal to the interest rate offered by commercial banks.
More Mobile Technology
You’re stuck with no access to mains electricity. A mobile phone is not going to be much help now… On the contrary, schemes such as M-KOPA Solar and Angaza design are providing portable solar power chargers for mobile phone units to the people in Kenya, Zambia and other African nations on pay-as-you-go. This means that rural citizens do not need to worry about having no access to electricity and so they can still benefit from M-PESA and other similar schemes.
Mobile phones are also being used in Ethiopia by coffee farmers. Apps let them track world coffee bean prices, thus meaning that they can bring and sell their produce on the market when prices are higher. A mobile messaging service also offers them advice on planting techniques and answers their questions on how to deal with pests and diseases amongst their crops. This ensures that the farmers can produce the best quality crop possible, thus earning a higher price on the market.
With 60pc of Kenya's economy owning a mobile phone but only 5pc having access to a bank account M-PESA offers a viable solution to encourage saving, lending and transactions. It has, and will continue to, encourage citizens to create and invest in a business, increasing their incomes. It will continue to ensure that more transactions are made in the economy between a greater number of people, thus increasing competition and so fostering a 'bottom up' approach to development.
You’re stuck with no access to mains electricity. A mobile phone is not going to be much help now… On the contrary, schemes such as M-KOPA Solar and Angaza design are providing portable solar power chargers for mobile phone units to the people in Kenya, Zambia and other African nations on pay-as-you-go. This means that rural citizens do not need to worry about having no access to electricity and so they can still benefit from M-PESA and other similar schemes.
Mobile phones are also being used in Ethiopia by coffee farmers. Apps let them track world coffee bean prices, thus meaning that they can bring and sell their produce on the market when prices are higher. A mobile messaging service also offers them advice on planting techniques and answers their questions on how to deal with pests and diseases amongst their crops. This ensures that the farmers can produce the best quality crop possible, thus earning a higher price on the market.
With 60pc of Kenya's economy owning a mobile phone but only 5pc having access to a bank account M-PESA offers a viable solution to encourage saving, lending and transactions. It has, and will continue to, encourage citizens to create and invest in a business, increasing their incomes. It will continue to ensure that more transactions are made in the economy between a greater number of people, thus increasing competition and so fostering a 'bottom up' approach to development.
