Mobile Phones Will Not Save the Poorest of the Poor

Friday, February 10, 2012

Entrepreneurs, businesses, NGOs, and governments exalt mobile technology as a game-changing tool to fight global poverty. But what if our eagerness to connect the world is inadvertently exacerbating the global economic divide?

In 2008, the New York Times reported that mobile phones may hold the key to ending global poverty altogether. The enthusiasm was—and is—understandable: From 2005 to 2010, cellphone use tripled in the developing world. According to the International Telecommunications Union, there are now almost 6 billion mobile-cellular subscriptions worldwide. Mobile penetration has reached 79 percent of the developing world. Multiple studies on information and communication technologies for development (ICT4D) have linked increased cellphone adoption with positive trends in economic and human development indicators, from gross domestic product to the Grameen Bank’s Progress Out of Poverty Index.

Despite the hype, a harsh new reality is unfolding. Take the case of the often glamorized M-PESA, Kenya’s popular mobile-phone-based payment and money transfer system. In only four years, M-PESA has grown to 14 million users. It now processes more transactions domestically in Kenya than Western Union does globally. The use of mobile phones to transfer money and manage personal finances has provided a speedier and more cost-effective delivery system for millions of Kenyans. The Economist reported in 2009 that Kenyan households using M-PESA saw their incomes increase—anywhere from 5 percent to as much as 30 percent—after beginning to use mobile banking. By the end of 2009, M-PESA had reached 65 percent of Kenyan households.

But there’s a downside to this program—and others like it—that’s too often ignored: These mobile money services do not effectively reach the poorest of the poor. In a 2010study of MPESA usage in Kenya, where mobile money penetration is greatest, 60 percent of the poorest quartile did not use the service. Part of the problem is access: Telecom companies have relatively little incentive to build out infrastructure, especially in poorer, rural markets.

Coverage is not the only problem. Mobile money services have a transaction fee structure that is prohibitive to those living below the poverty line—currently about 50 percent of the Kenyan population. These users are forced to pay remarkably high fees for their modest transactions. For example, a $1 M-PESA transfer carries a 12 percent fee; a $5 M-PESA transaction carries a nearly 8 percent fee. It may not sound like much, but for the poorest of the poor, this is a substantial financial drain.

Source: Slate (link opens in a new window)