John Paul

Using mobile technology to fight poverty

The latest issue of Developments, the international development magazine published by DFID, features two good stories about how mobile technology is reducing poverty throughout the developing world.

The first points to a new study by the London Business School that researched the effects of mobile phone penetration in 92 countries over more than 20 years, and found that “a rise of 10 mobile phones per 100 people boosts the rate of growth of GDP by 0.6 percentage points a year.” The poorer a country is, the bigger the positive impact becomes since – unlike more developed countries – the mobile phone isn’t a replacement for a fixed line but rather is often the only connectivity option readily available.

Mobile phones are now being used to provide many of the same services computer-enabled telecenters have been set up for – namely, providing access to timely information. Small businesses, entrepreneurs and farmers use phones to get better market information, the unemployed are being connected with job opportunities, and long and costly journeys are being replaced by a quick call. Phones are also being used for money transfers, both local and international, and pilot schemes are under way to use mobile phones to deliver micro-credit loans to poor people with no other banking options.

But unlike computers, which have greater cost, maintenance, power, training and literacy requirements, “in poor countries, mobile phones have no obvious downside and have already delivered remarkable bene?ts, in terms both of economic growth and personal empowerment.”

The second article further explores the use of phones in providing financial services. Already, mobile subscribers can transfer airtime from one phone to another, making it a kind of ’virtual currency’. Rather than just transferring airtime, however, some companies are establishing actual electronic ’e-currencies’ that promise to be a much cheaper way of transacting remittances.

Such a currency has the potential to significantly increase the amount of money that flows into developing countries. The article points out that formal remittances alone are roughly twice the total official development assistance (ODA) sent to African countries. Add in remittances sent through informal channels, and support from expats abroad totals up to six times ODA. But a good chunk of this money never reaches its intended beneficiaries. The average remittance transaction currently costs 12 per cent, but can be much higher if the amount being sent is small. A cell phone-based electronic currency could reduce this cost to as little as four per cent for small amounts.

Given the latent demand, explosive market growth and myriad of new applications that provide financial benefits to the end user, its not surprising that mobile phone manufacturers are scrambling to reduce handset costs. Motorola is already producing phones at prices as low as $35 each. Sony-Ericsson and Germany-based Infineon Technologies are also entering the fray, and handsets selling for under $20 are expected to appear beginning in early 2006.

What’s next for the mobile market in developing countries? Look for WiFi-enabled cellphones to make handsets as ubiquitous in rural areas as they currently are in urban ones. WiFi and WiMAX are increasingly looking like the technologies of choice to deliver connectivity to more rural areas at a substantially lower cost. Combined with VOIP, rural telecenters could easily function as local community telcos, helping them achieve the financial sustainability many have long lacked.