Isobel Coleman

Democracy in Development

Coleman maps the intersections between political reform, economic growth, and U.S. policy in the developing world.

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An Update on Mobile Technology in Development: Part I

by Isobel Coleman
July 17, 2012

A vendor sits in her store, which sells mobile phones and phone numbers, at a shopping mall in Bangkok, Thailand on September 17, 2010 (Damir Sagolj/Courtesy Reuters). A vendor sits in her store, which sells mobile phones and phone numbers, at a shopping mall in Bangkok, Thailand on September 17, 2010 (Damir Sagolj/Courtesy Reuters).


This is part one of a two-part series taking a look at important trends in finance-related mobile technology in the developing world.

Previously on this blog, I’ve written about mobile technology as a means through which citizens in the developing world can access basic financial services, play a more active role in governance, share crucial information about natural disasters, receive better healthcare, and more. This month, I wrote a feature World Politics Review article with CFR research associate Ashley Harden called “Picking up the Slack: Mobile Technologies as Alternative Development Financing” (subscription required). We provide an overview of some of the advances in mobile technology that are revolutionizing the ways people in the developing world access financial services, obtain loans, receive government benefits, and become insured. We also discuss how organizations are using mobile technology to track the effectiveness of the services they provide to the poor. In this blog post and another one this week, I’ll highlight some of the main points from the article.

While people living in the developed world often take the easy accessibility of savings accounts and insurance policies for granted, these benefits are far more difficult for much of the world’s population to access. However, as we explain in the article, mobile phones are playing an important role in extending these services. In the past, one reason why banks did not court the poor as clients is because the cost of processing their small transactions outweighed any advantage to the bank; but mobile technology is significantly decreasing transaction costs. In the Philippines, for example, research shows that a transaction processed by a teller costs the bank about $2.50, but a transaction done through a mobile phone costs the bank just $0.50. With the savings of mobile-based transactions, banks now have a larger incentive to work with the poor.

Mobile banking (or m-banking) cuts down costs for the poor as well. Sticking with the example of the Philippines, where people in rural areas typically don’t have easy access to financial institutions, getting to a bank can be expensive and time consuming. Studies show that, using m-banking, poor Filipinos can save about $2 per transaction in terms of reduced travel costs and lost wages due to missed work. Given that over a quarter of the population lives below the poverty line in the Philippines, such lower transaction costs can make the difference between opening a bank account or saving through informal channels. Yet when people save informally, they stand to lose 15 to 25 percent of their savings each year, a loss that could play a role in determining whether a person can send his or her child to school or successfully weather an economic downturn. (For another discussion on increasing the rate of savings in developing countries, there is an interesting guest post on the CFR’s recently launched Development Channel.)

In addition to improving access to a range of financial services, banks and mobile phone carriers are working together to help expand the poor’s access to micro-insurance products. It is estimated that since 2009, the number of poor people covered by micro-insurance has increased nearly four times, growing from 135 million to almost 500 million people. In Africa especially, mobile phone operators are at the vanguard of providing the poor with life insurance, a phenomenon we also address in the article. In Ghana in 2011, the mobile phone company Tigo and the insurer MicroEnsure started a program called “Tigo Family Care” (which is growing by approximately 4,500 new customers daily); Tigo Family Care has also expanded to Tanzania as that country’s first mobile insurance product. The Tigo programs are successful for several reasons: because they are distributed through mobile phones, these programs have lower administration costs than other programs; the insurance premiums are affordable, and people can make their payments through their phones; Tigo also offers a loyalty plan that covers a customer’s premiums based on his or her mobile phone usage. A diverse range of countries—including Vietnam, India, Brazil, and Zimbabwe—have similar mobile insurance programs.

While mobile technology has already improved access to savings and to insurance for many of the world’s poor, scaling up successful programs and troubleshooting barriers to savings/insurance on a country-by-country basis remain challenges. On Thursday, I’ll discuss how mobile technology helps people in the developing world access funding more easily and also allows organizations to collect real-time data on their poverty-reduction programs in a cost-effective fashion.


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