> Posted by V. McIntyre, Freelance Writer for the Harvard Kennedy School

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.”

Enthusiasm for mobile money among the financial inclusion community is generally high, but like with most topics, when you pierce beyond the surface-level praises, the tone of the conversation becomes more mixed. As Harvard Business School professor Shawn Cole stated on day three of the HKS Executive Education course Rethinking Financial Inclusion, “Mobile money has been next year’s big thing for the last ten years.”

Comments on disappointing levels of mobile money services uptake are common, and are often paired with another dominant piece in the mobile money narrative: M-Pesa’s runaway success in Kenya. Since its introduction in 2007, M-Pesa has been taken up by 70 percent of the country’s population. And as the professors pointed out, of those who used M-Pesa in the last 12 months, 43 percent did not have formal bank accounts. This statistic exhibits how mobile money provides financial services to many who might not otherwise have them. The statistic also alludes to the question of whether the service is a good on-ramp to more financial services. Questions about on-ramps and services uptake are essential to the mobile money and financial inclusion conversations at the heart of discussions throughout the weeklong HKS program. Balancing such questions were conversations that illustrated clear, and perhaps surprising, benefits of mobile money.

Jenny Aker, a professor at Tufts University, cited a study that took place during a drought in Niger which showed that distributing government aid via mobile money versus cash not only cut costs, it increased diet diversity. In this case, when women received their government benefits through their phones, they had greater control over the use of the money, and this affected household decision-making. The study also demonstrated that with mobile money the distribution and receiving of funds was cheaper for government and the recipients.

In addition, mobile money helps users weather economic shocks. Tavneet Suri, MIT professor and scientific director of J-PAL Africa, presented the results of a study of several thousand Kenyans she conducted with William Jack of Georgetown University. It showed that M-Pesa users are better able to share risk through an increase in remittances received and a higher diversity of senders. A shock that reduces consumption of a non-user by 21 percent reduces consumption by M-Pesa users by only 11 percent. Mobile money dramatically increases the size and breadth of the user’s safety net: Suri estimates the insurance value of M-Pesa at around 3-4 percent of the user’s income.

This gave program participants an interesting side avenue to explore. Sendhil Mullainathan had observed on day two of the program, “The poor are money experts.” Given a new tool, these experts seemed to employ it to create their own value.

Mobile money has been successful in infrastructure improvement applications, too. For example, expanding electrical grids and installing village water pumps have clear benefits for poor populations, but how can the money needed to install these be generated, and once installed, who will pay for upkeep? The answer for both of these, perhaps, is the users themselves through mobile money. Suri explained ongoing work in Africa that adapts mobile money for infrastructure. Solar home lighting systems that poor customers cannot buy outright can feasibly be provided as pay-as-you-go devices using mobile payments. And a new type of pump charges villagers small fees for use in the form of “water credits,” payable via mobile money. These fees pay for upkeep and ensure that the pump won’t fall into disrepair, as happens so often with systems installed by NGOs.

Although some mobile money providers have struggled to achieve their targeted uptake, there has been enormous services growth around the world. The latest GSMA State of the Industry report shows that in June 2013, there were over 60 million mobile money accounts globally. Program co-director Rohini Pande pointed out that with telephone technology poor people leapfrogged landlines and went straight to mobile. Maybe mobile money is the medium by which they will leapfrog brick-and-mortar banks.

Rohini Pande and Asim Ijaz Khwaja of Evidence for Policy Design (EPoD) at Harvard Kennedy School will offer the “Rethinking Financial Inclusion: Smart Design for Policy and Practice” program again next May 10-15, 2015. Visit the HKS Executive Education website for details.

For more information on Financial Inclusion 2020, sign up for campaign updates.

V. McIntyre is a freelance writer based in London.

Image credit: Erik Hesman

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