In African countries such as Tanzania and Malawi, mobile telephones are taking a first step into the formal financial system. Almost 1 million active customers in Tanzania use mobile-phone payments to transfer funds to relatives, buy supplies, pay doctors and save money for future emergencies.
The majority of Tanzania’s 41 million inhabitants live on less than $2 a day, and only 12 percent have a formal bank account. But half of Tanzanians own a mobile phone, through which they can save money and handle financial transactions without needing a bank account.
The phones are relatively inexpensive to purchase; they are, in fact, the first technology in history to have more low-income users than wealthy ones, according to Abbie Laugtug, a policy advocate for CARE, an international humanitarian aid organization.
“Mobile banking is becoming such a hot topic,” Laugtug said. “In a lot of Africa, there are large geographic distances between population centers, so it’s really cost-prohibitive for microfinance institutions or banks to set up branches.”
Tanzania covers 364,900 square miles and has fewer than 500 retail bank branches. People rely on informal networks to transfer money: They might send cash to family members through a taxi driver who will be traveling near their home village. Now, three mobile phone providers are setting up networks of agents — such as shops, petrol stations and post offices — who will transfer funds to and from a customer’s mobile money account, increasing and decreasing the electronic value stored in the phone.
“It’s great to have electronic value in your phone, but eventually you need cash to make a purchase,” said Sarah Rotman, a microfinance analyst at the World Bank. The system is only good if there’s “a very close cash in/cash out location,” she said.
The roughly $10 cost of a mobile phone is beyond the reach of some individuals. Thus, CARE trains groups of up to 30 Africans to create a village savings and loan association whose members pool their savings, often as little as a few pennies at a time, for future use. Each association stores its account in a portable memory chip, or SIM (Subscriber Identity Module) card, which can be inserted into a communal mobile phone to transfer funds or purchase agricultural supplies.
The convenience of mobile payments spares members the trip to the nearest town to pay for supplies. “It’s a way to protect their capital, a way to protect their savings,” Laugtug said.
The new system of mobile payments has made it possible for individuals to save as little as $1 or $2 at a time, amounts too small for deposits to formal banks, given the 30 cent cost of a deposit, said Dennis Ripley, a senior vice president at Opportunity International. It also can be the first step into the formal financial system for low-income Africans. The nonprofit is working with mobile phone operators to connect their payment customers to Opportunity Bank, operated out of trucks and storage containers across 21 countries in Africa, at a cost of 3 or 4 cents per transaction.
“We equip vans and trucks as banks on wheels to go into the last little communities throughout Malawi and park there and do banking once or twice a week,” Ripley said. “Most of our clients have never been able to go into a bank because the minimum deposits are so high.”
Opportunity International expects to expand from its current 305,000 savings accounts in Malawi to 1 million within three years, thereby banking with about 7 percent of the country’s population. Opportunity International can reach far more people than a traditional bank and help them avoid the long $1 bus ride into the town, Ripley said.
In a large country like Tanzania, the cost of transportation can be a barrier to receiving health care. But a hospital in Dar es Salaam that wanted to figure out a reliable way to cover patients’ costs has done so using a mobile phone system called Vodafone M-PESA. The hospital pays for the $30 (typically one-fifth of annual income) bus ticket to bring women suffering from a fistula or patients with a cleft lip or cleft palate. This year, the hospital has spent $4,300 to bring 130 patients to the hospital, resulting in a 40 percent rise in treatments for fistulas and cleft lips and palates.
Ripley calls systems for paying and storing money on mobile phones “revolutionary.” He said, “The ability to take your cell phone and transfer money or make a payment, you have changed [Africans’] lives fairly dramatically in terms of their time and their cost.”