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Parliamentary BriefFinancial services are critical toeconomic growth and human development.Banking, savings, investment,insurance, debt and equity financing all helppeople to build assets, guard against uncertainty,generate income and create optionsfor their futures. But the world’s poor — thefour billion or so living at the so-called ‘baseof the economic pyramid’ (BOP) — aretoday largely excluded from the market forformal financial services.There are many interconnected reasonsfor this including informality, insufficientinformation, inadequate infrastructure,inappropriate regulation, and cultural biasamong financial services firms and the poorthemselves.As a result, workers in Nairobi must taketime off work to bring money back hometo the Kenyan countryside, enduring thephysical risk of carrying cash. Owners offamily-run stores in the Philippines mustpay for inventory deliveries in cash, puttingthemselves and delivery drivers at risk.It takes Bangladeshis three or four hoursto travel and queue at designated banksto pay their gas bills. Employers in SouthAfrica often direct-deposit their employees’paychecks into bank accounts, forcing thoseamong them with lower incomes to queue atthe ATM on payday because ‘bank money’ isnot accepted at the places they do business.Fewer than one billion out of 6.5 billionpeople worldwide have bank accounts at all.In contrast, nearly four billion have mobilephones. The ubiquity and convenience of themobile phone has given the mobile channelgreat potential to open up the market forformal financial services of all kinds — fromsimple payments to insurance, savings andcredit — to poor people who are currentlyexcluded.In Kenya, M-PESA offers migrantworkers the ability to send money home viatheir mobile phones. The service gained 2.37million subscribers in little over a year. In thePhilippines, Smart Communications enablessmall shop owners to pay for deliveries withmobile money, allowing them to reduce risk,aggregate orders and receive discounts forbuying in bulk with the equivalent of cash.In Bangladesh, GrameenPhone’s gasbill payment pilot has proven a resoundingsuccess, even though customers must stilltravel and queue at the banks to pay theirelectricity bills.In South Africa, Wizzit enables employersto deposit employees’ paychecks directly intotheir mobile money accounts, which theycan use to purchase airtime and other goodsand services.Today’s examples do not yet add up tofinancial sector inclusion but they point towhat is possible. It is not too early to start26Beth JenkinsPhoto: IDRC/Sy, DjibrilThe fielddaybeckoningthe moneymarketsthinking longer-term about laying the foundationsfor growth on a global scale.I recently had the opportunity to interview15 CEOs and other leaders in themobile money sector in connection withthe inaugural Mobile Money Summit inCairo, co-hosted by the GSM Association,International Finance Corporation, ConsultativeGroup to Assist the Poor, and theUK Department for International Development.They identified three keys necessaryfor global growth: utility, capacity and anenabling environment.UtilityMobile money cannot enable financialsector inclusion without much greaterintegration into customers’ economic lives.Remittances and remote payments are thecurrent ‘killer apps’, but they must catalyse anorder of magnitude increase in the number ofways and places it is possible to use mobilemoney. A greater diversity of applicationsmust be developed, including savings, credit,and insurance. Mobile money must eventuallybe accepted wherever money is accepted.CapacityThe end goal of ubiquity requires a wholeecosystem of players to become involved,developing mobile money applications,accepting mobile money, and using mobilemoney, from the biggest, slowest-movingbanks down to the smallest, grassroots kioskowners and individual consumers. They willall require capacity-building. Big developingcountry banks might need to increase theircultural openness to serving the poor. Microfinanceinstitutions might need to improvetheir tech-readiness. Small businesses andindividual consumers might need to buildfinancial literacy and basic business skills.Enabling EnvironmentMobile money is real money. It is theresponsibility of the regulator to protect consumersand ensure financial sector stability.At the same time, to achieve financial sectorinclusion, regulators must permit innovation— indeed, they must encourage and facilitateit. The right regulatory approach willbe proportional, weighing the potential gainagainst the potential damage. It will also beincremental, allowing the channel to emergeand adding regulation as risks manifest thusenabling mobile money to blossom in waysthat might not be predictable.Cross-sector partnership and public policydialogue will be critical to building all threefoundations. Mobile network operators andtechnology providers must collaborate toensure that services move toward interoperability.While mobile network operators havebeen the primary drivers so far, now banks,microfinance institutions, insurers and manyothers must take some initiative in developingnew applications and services.To meet the capacity-building challenge,international financial institutions, developmentdonors, government agencies, NGOsand corporate CSR departments can contributeresources and expertise, particularlywith regard to small businesses and BOPconsumers. And business and governmentmust engage in ongoing, open dialogue toachieve the delicate balance that regulatingthis emerging channel requires.As UNDP reminds us, human developmentis about expanding people’sopportunities to live the kinds of lives theyhave reason to value. Financial sector inclusionis a necessary step. Using the powerof business and technology, mobile moneypromises to accelerate our progress in thiscritical direction.Beth Jenkins is Learning Director of the FullEconomic Citizenship Initiative at Ashokaand a non-resident Fellow of the CSRInitiative at the Harvard Kennedy School.OCTOBER 2008