Using Mobile Money to Help the Poor in Developing Countries
The Fletcher School, Tufts University
With Latin America becoming a new epicenter of the COVID-19 pandemic and the growth of new cases accelerating in Africa, developing countries are facing growing impacts from the coronavirus crisis. Worldwide, countries have been implementing policies designed to hamper the spread of the coronavirus, from lockdowns and border closures to quarantines. The impact from the spreading virus and from lockdown policies can disproportionately harm poor workers who work in the informal sector, both in high and low-income countries. To date, over 150 countries have implemented social safety net programs to offset the impact of these policies. Yet how will such transfers be distributed, especially to those who don’t have bank accounts and live in remote areas? The experience over the last decade of using mobile money for cash transfer payments in sub-Saharan Africa provides potential for distributing such transfers at a low cost for the unbanked. While mobile money has great potential for distributing such transfers in high- and low-income countries alike, investments in physical and human infrastructure need to be in place in order to implement these programs.
Mobile money can help to distribute cash to the poor during COVID, especially in remote areas and to those without access to financial institutions.
- Policies to contain COVID such as lockdowns, border closures, export bans, restrictions on domestic trade and social distancing measures are imposing substantial economic costs on developing countries and the poor are extremely vulnerable to these shocks. In sub-Saharan Africa alone, 43 out of the 55 countries had closed their borders by early April, with some countries recently starting to re-open as the economic toll from the measures mounted. Workers in the informal sector — those without formal contracts or benefits and without regulation or protection from the state, such as street vendors or day laborers — are particularly vulnerable. With 60% of the world’s population earning their livelihoods in the informal sector, including 85% of the population in Africa, COVID-19 restrictions may be a “double whammy” for the world’s poor: Individuals may no longer be able to earn income at similar levels, and at the same time, border and market closures can increase prices, which makes it hard for those same individuals to purchase necessities. While the impact of these policies on supply and prices has been mixed – data collection in Sierra Leone during the Ebola crisis found that traders decreased their activities, but prices were not affected, whereas similar policies between Rwanda and the Democratic Republic of Congo led to panic and increased fruit and vegetable prices – such impacts depend upon the time of the year, the type of the commodity and the interdependence of individual countries upon trade.
- Recognizing the impact of COVID restrictions, over 150 countries have implemented over 700 social protection measures, more than 200 of which involve some form of cash transfers to the poor. While some of these are extensions of ongoing programs, 59% are new programs, implying a significant increase in coverage. The key issue, though, is distribution: globally, 1.7 billion adults remain unbanked, without an account at a financial institution or through a mobile money provider. This lack of access to a financial institution not only increases the logistical challenges associated with implementing cash transfer programs for governments and non-governmental organizations, but also significantly increases the costs of accessing these transfers for beneficiaries. Some countries have dealt with this issue in their anti-poverty programs in place before COVID by distributing cash in-person; for example, 100 million unbanked adults received their payments in cash in 2017. Another strategy has been to open bank accounts on behalf of beneficiaries, mainly in urban areas. Yet many of these approaches still incur significant costs, either in money or time, and are often not available or accessible in many low-income countries.
- Digital financial services, and in particular mobile money, offer a unique opportunity to distribute cash transfers to poor populations, especially those in remote areas and without access to financial institutions. While 30% of the global population does not have a bank account, 2/3 of unbanked adults have a mobile phone. Although there are important disparities in mobile phone ownership and access – for example, wealthier households are more likely to own a phone than poorer households, and men are more likely than women to own a phone in many low-income countries – the mobile phone is, by far, the most accessible technology worldwide. The simple mobile phone can improve access to financial services via mobile money, a set of applications that facilitate a variety of financial transactions via mobile phone. Mobile money users can generally store cash, make withdrawals, make cash transfers, and pay bills without requiring a bank account. To date, there are 290 mobile money deployments (mobile money services) across 95 countries with over 1 billion registered users. Mobile money agents, the individuals or small retailers that facilitate transactions — typically by loading value into the mobile money system and converting it back out again or performing functions such as registering new users and teaching them how to initiate transactions on their phones — play an instrumental role in expanding financial inclusion. By one estimate, such agents have 7 times more outreach than ATMs and 20 times more outreach than bank branches. Research in Niger, Kenya and Afghanistan shows that using mobile money for public and private transfers are less costly than in-person or other traditional transfer mechanisms, and can have positive impacts on individuals’ well-being, suggesting a “win-win” for governments, the private sector and individuals alike.
- Many developing countries have made use of mobile money technology to help their citizens during the COVID-19 crisis. For instance, the government of Togo was able to distribute emergency financial support through mobile phones to 500,000 of its 8 million citizens in less than two weeks and Morocco was also providing payments to informal workers through their phones (see here); The government of Bangladesh is providing $30 a month to about 5 million impoverished families using one of the country’s four mobile financial services as part of its coronavirus relief efforts (see here); and the governments of Kenya, India, Cambodia and Colombia were also among those using mobile money to make transfer payments (see here).
- Despite its potential, mobile money adoption is still low in certain regions and countries, in part due to limited physical (electricity and mobile phone networks) and human (agent) infrastructure. While there are over 1 billion registered mobile money users worldwide, there is significant variation in adoption within and across countries. In sub-Saharan Africa, for example, adoption in East Africa is high, whereas the number of active users in West Africa ranges from 1% in Niger to 20% in Ivory Coast. In the United States adoption of mobile money has been relatively slow. While there are a number of reasons for low adoption in the United States, limited adoption in low-income countries seems to be related to limitations in physical infrastructure, such as cell phone coverage and electricity in some remote areas, as well as the limited density of mobile money agents. While recipients receive their cash transfer digitally, many shops do not accept “cashless” payments, and hence receiving physical cash requires visiting an agent. Yet agent density varies widely within and across countries: While there are 228 mobile money agents per 100,000 adults in sub-Saharan Africa, far exceeding bank branches and ATMs, agents are more heavily concentrated in urban areas. In one region of Niger, for example, there are four agents for a population of approximately 1 million in the region of Zinder.
What this Means:
Mobile money offers significant opportunities to distribute cash transfer programs at scale during the current crisis and beyond, especially among the poor, who tend to be less likely to have a bank account. Nevertheless, it requires significant increases in the density of mobile money agents, as well as increases in mobile money adoption among the unbanked. Increasing the density of mobile money agents may require some innovation on behalf of regulators, banks and mobile phone operators to register different entities as mobile money agents. If the number of agents cannot be increased in the short-term, then distributing such transfers can impose higher costs on cash transfer recipients. It can also add risks associated with a “rush” on mobile money agents (if there is a rush on agents then people are in close proximity and can't socially distance. Or, if an agent doesn't have enough money, then they can't pay everyone). Beyond increasing the number of agents, creative solutions may also be required to encourage mobile money adoption, especially amongst the urban poor, either by having a more flexible approach to registration or by using a technology that allows a user to send money to a non-mobile money user (which is called “envoie-code”). These issues, of course, will need to be balanced with concerns regarding corruption and leakage.