Can mobile money reach remote communities? Reflections from a very bumpy car ride

Want peace and quiet?  I know where to send you. Photo credit: Zoe So

What I'd really like to see now... a village!  We've been driving down a dirt road in northern Mozambique for hours; I actually have a blister on my hand from gripping the door handle to avoid smacking my head on the top of my car.  We're lucky it's dry season, or the whole road would be completely impassable. Occasionally we see another vehicle, or pass someone selling roasted corn, but for the most part, it's just us out here.

Mozambique is about twice the size of California with a population of 25 million. That's roughly 30 people per square kilometer, compared to Bangladesh's cozy 1,200 people per square kilometer.  Most of its citizens live in "the bush," in small, scattered communities. Coming from Dhaka, it's startling how few people there are in the entire country--Maputo's traffic feels anemic, Nampula's sidewalks deserted.  Yet all over these "big" cities, I see bright signs announcing mkesh and m-pesa, the local mobile money providers.  On many street corners, young male agents stand in colorful vests---yellow for mkesh (mcel) and red for m-pesa (vodacom). It's easy to send money home, pay a cable bill, buy airtime, or even a lottery ticket. For the first few days, I thought Mozambique might already be an unknown success story in digital financial services.

Pick your poison!  There's plenty of mobile money options to go around......if you're in town.

But once you get out of the city, it's a different story.  We met with a rural savings group that meets regularly to save and offers members low-interest loans. Savings groups are a fairly global strategy for savings primarily among communities that lack access to formal banking institutions. There are multiple models including the rotating credit and savings association (ROSCA), where all members make uniform contributions, and after each meeting, a different member takes home the whole amount for a big purchase, and the accumulating savings and credit association (ASCA), where the savings accumulate, members can take loans at their will, and the group splits the interest received at the end of the savings term (usually 6-12 months, depending on the group). The money is usually kept in a locked box, and a record is kept of the deposits.

The group we visited was an ASCA. To manage the finances, they had appointed an executive committee of three people. As is the common practice, their lockbox is kept by someone who does not have the keys to the locks; usually there are several locks and each leader only has the key to one of them. This makes it difficult for anyone to take the money unofficially.

In this group, members were really positive about saving as a group and everything seemed to be working pretty well. However, as the savings grew, no one wanted to keep the box with all of the cash deposits at home, since the security risk was too great. So a few months ago, the organizers decided to deposit the group's savings in a local bank.  Through the help of Ophavela, the local organization that assisted them in establishing the savings group, they were able to create a joint savings account at a local bank and can make deposits using mkesh. The savings program is now much more secure and accountable, and should theoretically provide even more of an investment incentive to its members.

Group leaders counting out the members' savings deposits.  One person counts, one records the amounts in the group's logbook, another in the individual saver's passbook, and others look on to make sure everything's done right.

But creating a functional mobile money system is easier said than done.  Since Mozambique lacks a widespread banking network, the draw of mobile money is to expand beyond the existing infrastructure to leverage personal mobile phones.  But even mobile money systems rely on agents to enable people to convert cash into e-money.  In remote areas, holding large sums of cash is a liability that few agents are willing to assume, and the potential profit of serving a small village community may not be worth it.  Also, many agents don't have enough income to keep a huge amount of e-credit on their phone; they tend to purchase small amounts of e-credit frequently. Finally, a financial service organization needs to serve the agent network.  Agents need access to e-money, and in turn want to minimize cash on hand.  Frequent and convenient opportunities to exchange cash for e-credit better enable them to always be in business for customers.

On the day we visited, the group's "activator," who makes the mkesh transaction to the group's bank account (which requires 2 or the total 3 PIN numbers on the account, each only known by one group member), had 300 metical (~$8) in her mkesh account. The group's total deposits were about 3,000 metical (~$80), meaning that 27,000 metical (~$72) went into the cash box.

Group activator emptying her mobile wallet to transfer
savings into the shared bank account.

In Tanzania and Bangladesh, mobile money providers have outsourced this responsibility to regional "distributors," who travel from agent to agent and allow them to purchase more e-cash, or convert e-cash into money.  The agents I met in Dar es Salaam had a distributor visit them at least once a day; this meant that they didn't have to worry very month about their cash/e-cash management because they could sort it out relatively frequently. They also didn't have to worry about having large amounts of cash at their store, which could attract theft.

In Bangladesh, as you move into smaller district towns, agents complain that distributors only come 1-2 times a week.  In the most remote corners, agents report that they actually have to go the distributors' offices themselves, greatly increasing their costs and hassles. Reduced frequency also means that agents have to manage their own cash flows much more carefully and worry more about security.

But even the most remote corners of Bangladesh are more populated than this village in Mozambique, and arguably easier to get to.  It's difficult to see how a distributor could serve an agent network efficiently in this region, and how an agent could even have enough business to find it a worthwhile use of time, while keeping a price point that makes the service accessible for local people. Studies in several contexts have found that indeed, agent networks tend to be densest in urban areas and follow major highways, indicating that there are still many underserved areas. They will likely stay underserved until mobile money companies can come up with better value proposition for local agents and distributors in these contexts.

This is where the whole ecosystem becomes important. How could it be easier for agents to maintain a consistent supply of e-credit and increase their value to the community (in turn increasing the transaction volume)? Maybe the distributors could let them post pay for the e-money credit, particularly as they build up a trusted transaction record. Mobile money companies can also think about both payment and cash-out options. The most successful one in Bangladesh has been buying mobile credit.

Could mobile money agents in Mozambique also act as brokers for common purchases from town, saving rural villagers time-consuming visits into the village for basic goods? People could pay via mobile money, and the goods get sent on the next bus, or with the distributors themselves when they make their rounds. If distributors have a bigger basket of products, maybe they have more incentive to visit remote agents more regularly. If access to microfinance opens up, perhaps agents could also double as credit officers and help with the repayment process.

Elephants aren't the only ones who never forget broken promises

I spent last week in Mozambique.  On Friday I went out to a village near Napula to learn about farming cooperatives and meet the members of one of these co-ops.  We were hosted by an organization called Miruku, which tries to help farmers adopt a business mindset and apply basic cost-benefit analyses and collective negotiation to improve output and income.

The members of the village co-op mentioned three organizations as their "partners;" Miruku and two others.  We asked them about what they had learned or gained from each of the partners. Miruku had given them the most, they said.  At the beginning, they'd been skeptical about working with this organization because it said it would only give them knowledge, which was in their minds less valuable than services, cash, or other benefits that they hoped for.  But now they were quite pleased with the new strategies that they'd learned, and could already see the economic benefits they gained by applying the knowledge. 

Another organization had handed out health supplies and other small goods, but all in all the cooperative found these handouts relatively useless and didn't have particularly good things to say about them. The organization that they rated lowest was one that had promised them access to credit months before, but to date had actually provided nothing.  The farmers were very critical about that organization and its apparent failures to deliver on what had been promised.

Meaningful change usually requires work from the community as much as anything else--to organize, to change behaviors, to accept new practices.  Organizations who come in and talk about what they will do for the community should beware.  Compared to the outside inputs that any program can offer, most development has to come from within.

A wise saying I learned from a colleague at BRAC is:

If you give me a fish, you feed me for a day. If you teach me to fish, you have fed me until the river is contaminated or the shoreline seized for development. But, if you teach me to organize, then whatever the challenge, I can join together with my peers… And we will fashion our own solution. (actual citation: Barefoot Guide to Working with Organizations and Social Change, Vol 1)

The cooperative's president and Miruku staff making a presentation on the group's annual production plan.

Miruku has helped the farmers form a cooperative with local leadership.  They take their knowledge of prices of crops, productivity of the land, and costs of inputs like fertilizer and seeds, to calculate out plans for each individual member.  Once these are summed up, they approach local buyers to negotiate contracts to buy the harvests.  The cooperative buys the crops from each farmer at the local market price, and sells to the buyers at a slightly higher rate.  The cooperative keeps a small percentage of the markup, which will eventually enable it to offer other benefits, either a communally-owned tractor or mill, or other benefits like insurance. Miruku staff visit once a month, but the bulk of the activities and decisions lie with the farmers.

Too often, well-meaning people go into communities and make promises, often with good intentions. I'll admit, that it can feel really uncomfortable to visit a relatively poor community, ask dozens of questions about their lives, and not offer any solution or assistance. One of my favorite authors, Katherine Boo, recounts the incisive comments of a poor woman she interviewed:

“Wait, so you take our stories and put them in a magazine that rich people read, and you get paid and we don’t? That’s some backward-ass bluffiness, if you ask me.” 

Boo agrees, and says, "Anyone with a conscience who does this work grapples with that reality, and if they don’t, I’d worry. I lie awake at night, and I think, “Am I exploiting them? Am I a vulture?” All of the terrible names anyone could call me, I’ve called myself worse."

Honesty can feel inadequate. In this case, when the community asked us what we were doing, we said that we had come to learn, and potentially to take some successful practices back to Bangladesh. That didn't really excite them.

Even if we did intend to work with them directly, I would still be fairly conservative in our promises. Sometimes, an organization truly believes that it can commit to providing assistance, but ends up being unable to get the resources, licenses, or other pieces in place in order to do so. Poverty is complex, and solutions are rarely straightforward and simple. A lot of things are hard to figure out at until you're in the thick of it. 

The leaders from Miruku told us that when they first approached communities and explained what they could offer, the farmers said that they weren't interested in market information and cooperatives; they only wanted to do it if they would get cash or other benefits. Miruku refused, and the farmers were lukewarm during the early activities. But just a few years later, the farmers are telling us that Miruku is the best organization they work with!

Better to be honest from the beginning, and to promise only what you know you can deliver.  The reality is that usually, that's nothing.

I saw the sign.....and ignored it

Will this sign keep hungry people from their brunch? Holey Bread, Dhaka.

Dhaka has a great new brunch place: Holey Bread.  They started a few months ago with just a bakery, but now have expanded to full-service dining.

A few weeks ago, we were having a peaceful discussion over an omelette and French toast, when an argument started behind us.  A foreign couple was really angry that a pair of local guys had taken a table that had just vacated, while they had been waiting patiently by the sign out front (pictured above).

Who is right?

When I moved here, I would have sided with the sign readers.  But now I'm not so sure. Generally, signs in Bangladesh are meant to be ignored unless there is a human being enforcing them. Bangladesh takes "you snooze, you lose" to a new level.

Every system breaks down when stressed beyond its intended limit. In Dhaka, that's the norm.  The combination of diverse needs, limited regulation, and constant change mean that chaos is perhaps more efficient than a rigid system.  At least that's what I tell myself, when stuck in gridlock traffic because vehicles from all four directions decide to go at once--first the cars, then the rickshaws, then the bikes, and motorcycles, and finally the pedestrians who can squeeze through the narrow mazes available.

When a plane lands at the Dhaka airport, the passengers rush out, and only foreigners (and the occasional Non-Resident Bangladeshi who doesn't know better) pay attention to the signs explaining in which line you belong in immigration. Recently I've realized that the "VIP and crew" line is usually the shortest, so I opt for that one. Unless there's a shorter one, there is.

I used to wonder why people didn't just obey the signs. But now I wonder, why would they?  It's kind of amazing, when you think about it, that signs are an effective form of control anywhere.  That takes huge self-regulation! Think about it: people have to learn what the sign means, buy into the importance of obeying it (either for their own benefit or to avoid the consequences of not obeying it), and then voluntarily do so.  When everyone does so, the system runs smoothly--this is why traffic lights and stop signs actually can control traffic in some parts of the world.  They can't in others.

So who got the table?

The couple following the sign, in this case. Holey Bread is committed to providing diners with a peaceful ambiance, and having incoming customers wait at a respectful distance is part of that.

I'm betting that within a month they have a guy standing by the sign to enforce it.  And if they don't, I won't be naive enough to wait there when a table opens up!

Update from our last visit: they've gotten a bigger sign.  We got there early enough that we could get the table of our choice without waiting  :)

Friday morning brief: smart phone frenzy, frugal innovations for health, and singing about mobile money

Morning-ish, depending on where you are :)

I recently signed up for the New York Times "morning briefing" and LOVE it.  The writing is witty, the news bites short and sweet, and very interesting.  I highly suggest it if you're like me and you despise reading newspapers but want to stay informed on the world.

I'm inspired to do a quick round up of my own.  These changes are more gradual than breaking news but just as significant.  And since Friday is our day off here in Bangladesh, it's a good excuse to catch up on my reading.

What's going on this week:

India has more smartphones than the United States does, and sales are climbing.  As India signals that its regulation towards mobile money is opening up, this will be the hotbed of innovation on digital payments, apps, e-commerce, and hopefully financial inclusion.  With the world's fastest growing mobile money market next door in Bangladesh moving over $50 million in daily transactions, let's hope that lessons learned can find a way across the border (and back).

The US health care system is starting to look more like that in many developing countries--and that's a good thing.  The affordable care act disrupted the status quo and changed the business calculus for the established players.  Pharmacy-based health delivery has taken off, which is unsurprising to anyone who is familiar with the health care markets in Latin America or South Asia.  For a great deal of medical needs, no hospital or physician is required, and costs are far lower for service delivery in simpler settings.  But this spells trouble for the Mass Generals of the world, for whom the big dilemma is: "If they persist with their high-cost business model even as their customers discover that cheaper alternatives are good enough, they will be in trouble."  Nothing like competition and chaos to spur new innovations!  My guess is that consumers will come out the winners.

Research shows: social enterprises usually requiring a functional government, and international scale up is a difficult endeavor.  Usually social enterprise is touted as the a solution to a weak state and the inefficiencies of the non-profit sector.  Too many aspiring social entrepreneurs describe their "solution" as globally applicable with very little proof beyond a very convincing elevator pitch and some nice financial projections.  This article digs deeper into the relationship between the welfare state and social enterprises, and why it's so hard to transfer innovations from one organization or context to another. In conclusion, "What is needed may instead be simply a renewal of the public sector, where reorganisation and more efficiency is the solution. In any case, it is not wise to be bemused by new initiatives and epochal social innovations."   Good food for thought as I gear up for our 3rd annual Frugal Innovation Forum on scaling sustainably.  Follow the discussions on twitter with #scalefrugal.

  

Yesterday was BRAC Day.  When you employ close to 100,000 people and reach 135 million more, I guess you're entitled to a little self congratulations.  We contributed by putting together a pala gaan (folk song) on the BRAC value of innovation and mobile money, complete with a music video (and yes, I'm in it!).

What did I miss?  What did you read about this week that is eventually going to rock the world?

mobile money--adding convenience or transforming lives?

Last Friday, the New York Times ran a great piece on the Gates Foundation's investments, including $11 million in bKash, a mobile money company in Bangladesh.  In the past few months, thanks in part to Bill and Melinda Gates' mention of bKash in their annual letter, the global visibility of mobile money in Bangladesh has grown tremendously.  They write,

In the next 15 years, digital banking will give the poor more control over their assets and help them transform their lives. 

The key to this will be mobile phones. Already, in the developing countries with the right regulatory framework, people are storing money digitally on their phones and using their phones to make purchases, as if they were debit cards. By 2030, 2 billion people who don't have a bank account today will be storing money and making payment with their phones. And by then, mobile money providers will be offering the full range of financial services, from interest-bearing savings accounts to credit to insurance.

As they mention, the premise behind mobile money is simple: most people in Bangladesh and many other developing countries don't have bank accounts, but they have mobile phones. So if financial services, like savings, transfers, and payments, can be transacted on  mobile phones instead of requiring in-person services or a physical bank, access can improve significantly. In essence, people can have a "wallet" on their phones, and can add money to their wallets through agents functioning as "human ATMs". bKash has set up a network of 110,000 agents across Bangladesh, who serve roughly 16 million clients and enable $70 million worth of monthly transactions.

Big, impressive numbers. But what does this look like at the client level?

Lather. Rinse. Repeat. If only replicating successful development programs was that easy

What if we could take what was working one place and spread it globally?  Wouldn't progress happen so much faster?  Luckily, many are working on just that.  For example, the Center for Global Development puts out a regular publication on "Millions saved," cataloging successes in health delivery from around the world.  There are websites and entire organizations dedicated to identifying practices and making them more visible globally.

But here's the catch: few practices highlighted in these resources seem to catch on and spread widely.  Those that do are often supported by a lot of hand-holding and financial resources, and potentially even a lot of nudging from donors.

But why is this?  Is it that hard to figure out what works and what doesn't?

Unless you're talking about a drug cocktail or a vaccine that has essentially the same effect on everyone who receives it, heck yeah it is!!

Empty pockets in the morning

This morning, I was in a bit of a rush when I headed out the door for work.  A cursory glance at the content of my wallet indicated a problem: the smallest bill I had was a 100 (roughly $1.25).  This was going to create problems.

I walked down the street to the place where we usually catch a rickshaw.  At least half the time, we get one of the three rickshaw-wallahs that are regulars and know our route and rate (R&R).  But they only stick around until 8:30AM.  After that, I have to go with whoever is there.

This morning, it's one of the guys I know.  I hop into the rickshaw.  As he pulls after I ask, "Do you have change for 100?"  He laughs.  No!

Most rickshaw drivers start the day with just a few taka in their pocket.  Some mornings they don't even have tk 5 change.  By the end of the day, most go home with tk 200-300 ($2.50-4.00).  Many sleep on top of the rickshaw garages to avoid paying rent, allowing them to save more money to send home to their families in the village.

In fact, most of the time it's actually really difficult to get change.  One time I went into a small store to buy a bottle of water (tk 20) to break a tk 1000 note ($13), and the owner told me to take the water and come pay him later; he didn't have that kind of change.  When I have a tk 100 or tk 50 note that a rickshaw driver can't break, usually I appeal to the tea stall owners.  Usually they'll help me out in those cases, but not for a bigger note.

Is there more money at the end of the day?  Is it easier to repay loans or make bill payments if office hours are in the evening?  Are there disadvantages to having so little cash at a business, or is it just me?  How do distributors time their deliveries?

As it turns out, upon inspecting my wallet more thoroughly, I actually had the tk 25 change ($0.32) needed to pay the driver.

I asked him if he had 5tk change, to see if I could give him tk 30 and get a valuable tk5 note as change, but he pulled out his money to show me that he only had two twenty-taka notes.
Guess today I can't be the change I want to see.....