Editor's note: This is the first post in our series on Digital Finance Plus. Published in collaboration with CGAP, the series explores the ways that digital finance is being utilized to help provide basic, essential services to the BoP. Discover more in part two, part three, part four and part five of this week-long series.
With its ability to reach people with financial services where physical bank branches can’t, the mobile phone is a powerful weapon against financial exclusion. In February, GSMA reported that there are now 203 million registered mobile money accounts worldwide, with services available in most emerging markets. Many of these services have progressed to the point where they’re no longer seen as products mainly for use by banks or telcos. With an extensive infrastructure of mobile wallets and agents established in many regions, mobile money services – like M-PESA, for instance – are now viewed as platforms for reaching millions of account holders around the world. Innovative companies from many sectors are using these platforms to deliver new services that can help make tangible improvements in the lives of the poor.
At CGAP, we’ve identified more than 50 companies around the world doing exactly that. These “Digital Finance Plus” companies are going beyond simply transacting or saving via mobile money. They’re applying the technology and the infrastructure to make a dent in problem areas, such as access to water, energy, health services, education and the efficiency of agricultural value chains.
For example, about 80 percent of Kenyan households rely on kerosene for lighting because they aren’t on a national grid. But this can be expensive, inefficient and dangerous. There are several companies, like Mobisol, Angaza Design and Off:grid electric, that are tackling this problem head on by making solar lamps and panels more accessible through small-value payments, pay-as-you-go plans, and service models all powered by digital finance. They’re demonstrating that solar is a cleaner, safer option for energy than the traditional kerosene, and thanks in part to digital finance, it can be a less expensive choice.
We also see Digital Finance Plus in action with water. Grundfos and Sarvajal are two companies that are leveraging people’s mobile money accounts to deliver water access to places where it was spotty, disorganized, expensive or even nonexistent. There are a variety of obstacles that make it really hard for poor people in rural communities to access clean water, including corruption, contamination and poor maintenance. By introducing digital finance-powered products like water ATMs connected to underground wells, and purification systems that run off solar energy, Grundfos and Sarvajal have figured out a way to nearly guarantee reliable water access for people as long as they have a mobile money account. Paying for water may not be for everyone, but by requiring very small payments and funneling revenue back into the maintenance of the systems or to the community in other ways, providers are finding that people are more willing to pay – even just a tiny amount – because they know where their money is going and can see it working for them.
All of the Digital Finance Plus companies CGAP identified share two characteristics: they aim to solve a fundamental development problem and rely on digital finance to make their business work. Many of these companies are still small and have yet to prove whether their models can work at scale. However, we’re predicting that at least some of them can improve upon traditional models of providing basic services to the poor. Our assumption is that ultimately, most people at the BoP don’t want a bank account or a relationship with a financial institution, they want to be able to use what little money they have to address their needs. This week, we’ve collaborated with NextBillion Financial Innovation to publish a blog series that will introduce several innovators that are layering new services on the mobile rails to make this a reality. The series will include daily posts for the duration of this week, exploring how four pioneering companies from different sectors are using digital finance to expand their impact.
For more on Digital Finance Plus, please see CGAP’s 2013 4-part blog series. And be sure to check out the World Bank's upcoming event, Digital Finance: Innovation at the Core of Big Development Challenges, which will be webcast on Wednesday, April 9, 11:15 a.m. - 12:45 p.m. ET (15:15 – 16:45 GMT). You can submit questions for the event here, and follow it on Twitter at #digitalfinance.
Erin Scronce is CGAP's marketing manager and website editor. Camilo Tellez-Merchan leads CGAP's work in Brazil for the Technology and Business Model Innovation Team.