How Mobile Banking is Revolutionizing Access to Finance in Developing Countries

In America, banking is simple, there are a plethora of banks to choose from. When someone needs to deposit money, write a check, or get a loan, they can easily drive their car down to their local branch and conduct their business. In developing countries, it is not quite so simple. Citizens must compete with subpar transportation, lack of capital, poor government, and the fact that many don't live in urban centers.

For years the number of people unbanked has always been much higher in developing vs. developed countries, which is understandable because they fall behind in a lot of other metrics. While it is not always easy to fix the corrupt governments and many other issues that face developing countries, mobile banking has helped change many lives over the past few years. When it comes to banking in the developed country'46 % of adult men, say they have an account, but only 37% of women" (P, J.). This is far fewer than in developed countries. In America, for example, less than seven percent of people are unbanked.

Prior to the advent of cell phones, the only solution to getting more people banked was to open more brick-and-mortar locations. This can be difficult when there is a lot of infrastructure cost associated with buildings, and a large part of developing countries' citizens might not live in or near a city large enough to support such businesses. With mobile banking, they can use systems similar to what we have in the West, or they can rely on unique solutions designed inside their counties to facilitate the free exchange of money between citizens. Not only can mobile banking be used to send payments to other people, but "electricity bills can be paid from home instead of carrying cash to a distant office and having to wait in long queues" (Govindarajan). This is otherwise wasted time that can be used in a more productive way.

One of the number one things that help grow economies is entrepreneurship. The problem is that starting your own business takes resources, customers, and capital. Through hard work and ingenuity, the first two can be solved, but the latter isn't quite so simple. Thanks to mobile banking, this is quickly changing. According to a paper by Jay Rosengard, "Kenyans with access to a financial account jumped from 42% in 2011 to 75% in 2014. Financial inclusion skyrocketed among the poorest citizens, from 21% of people with a financial account in 2011 to 63% in 2014" (Brazzell). In just four short years, the number of people has grown by two hundred percent, from a minority to a majority. This can be life-changing to millions of people as the penetration of mobile devices increases over the intervening years.

Most of the increase in capital access has been thanks to M-PESA, which is a text-based solution to sending money. In the West, we are used to using Venmo, Paypal, or other similar person-to-person payment apps. These require a bank to be of any use. In 2007 the largest mobile network operators in Kenya and Tanzania started M-PESA as a way for you to send money to other people using text vs. relying on money or wire transfers. Instead of using banks and bank accounts, users can load accounts through airtime resellers and retail outlets.

In developing countries, cash can be the standard way that transactions are handled. This has its pitfalls because, according to Wolman, "It doesn't earn interest, it can be stolen — it's even unhygienic. Digital money is better in just about every way" (Smith). In Kenya alone, the equivalent of one hundred and fifty million U.S. dollars are sent every day using M-PESA. This has helped Kenya to be a leader in sub-Saharan Africa. When deciding how to spend money, typically, people must save to account for hardships.

The problem with cash is that it only losses value and is at risk when not properly secured. Thanks to M-PESA, when a friend is in need, it is easy for the community to able to help them out. A study found that in Kenya, people who do not use M-PESA "had to reduce their household spending by an average of 7% in response to financial challenges" (Brazzell). This is money that is not being reinvested into the economy, helping it grow. In 2015 Pew did research and found that sixty-one percent of Kenyans, forty-two percent of Ugandans, and thirty-nine percent of Tanzanians used cell phones to facilitate payments (Dobush). This is a staggering number that is sure to have saved lives.

Thanks to mobile banking systems, women are now able to participate more in the economy. Women typically tend to be better long-term planners, while men might make long-term sacrifices for short-term gains, women are more likely to plan ahead and think about the families' issues as a whole. When a family relies on cash, the man can still ruin the plans, with the advent of mobile banking, the woman is finally able to more fully control the spending, making the family better off. The problem that still needs to be addressed is the fact that women are less likely to own mobile phones. As that number rises in the growing years, more people can use the advent of mobile banking to get access to the financial market.

A cybersecurity concern that affects M-PESA, in particular, is that they rely on agents that might not always be trustworthy. "It is easy for M-Pesa agents to skim a little off the top or steal user information from under-informed customers" (Taylor). The ability to trust other people is an issue in any system and can never be eradicated. However, through better vetting and oversite, abuse can be reduced. Just like mobile phones solved the problem of developing countries lacking landline phones by making them obsolete, the mobile banking industry made brick-and-mortar stores less of a requirement. Today millions of people can use the advent of mobile banking and associated technologies to make navigating financial issues easier. While there are many problems that developing countries face, access to capital and sending of money has been getting better over the recent years.

Cite this page