Mobile Money review – Part 1: The Gates Foundation and Mexico

Details: Category: Mobile Finance; 31 March 2010; 8794 views

Mobile money is a highly topical - and highly successful - area of interest for the emerging telecom regions. As our report shows, mobile money can function in even the most inhospitable conditions. Michael Schwartz looks at some recent trends which can themselves be adopted by entrants to m-banking...

Last year’s mobile money review looked at certain specific markets and also the effects that benefactors such as Bill and Melinda Gates have had and are still having on creating affordable banking. We reported that countries such as Kenya had been very successful in enabling their citizens to enjoy money transfers from hard-working relatives overseas without marathon walks to their local bank.

A glimpse at the website devoted to the philanthropy of Bill and Melinda Gates brings home the enormity in helping the very poorest to become financial players in their own right: “less than 10% of the 2.5 billion people in the world who live on less than US$2 per day have access to formal financial tools to achieve the things that are most important to them. They pawn jewellery, sell a goat, or borrow from a moneylender - often to pay for basic needs such as seeds, school books, or a trip to the doctor.”

Microcredit has made an important difference to more than 100 million households but, in the website’s opinion, “...traditional financial services like savings accounts have been too costly and inconvenient for the poor to obtain and too expensive for banks to provide to clients who deposit just a few dollars at a time. Meeting these needs sustainably, and ensuring these services reach the poorest, will require new models and approaches.”

In Mexico, the Gates Foundation has committed US$3.6 million to bringing affordable financial services to some of Mexico’s poorest and most isolated communities. The Diconsa pilot programme will attempt to find and promote new technologies that will allow the micro-finance industry to reach new customers and efficiently deliver services over four years.

One Mexican government agency involved is Diconsa, which manages a network of more than 22,000 community-owned stores selling food and other necessities in precisely the remote areas where some of the poorest Mexicans live. Diconsa believes its stores can also serve as a powerful platform to deliver social welfare payments and savings accounts to rural poor people. Indeed, the Foundation’s pilot programme (launched in November 2008) allows villagers to take care of simple financial transactions at the very same local grocery stores.

The Mexican Government delivers cash benefits (known as Oportunidades payments) to five million beneficiaries, including 60% of Mexican rural families. Up until November 2008 these beneficiaries were required to travel for a full day to urban centres to collect their payments.

The pilot programme, which started at six test sites, has shown immediate benefits for both recipients and Diconsa store owners. Instead of travelling many miles to collect their payments on a fixed day, beneficiaries now have the convenience of picking them up minutes from home on any of five days during a designated distribution week. According to surveys, the beneficiaries, who are typically women collecting payments on behalf of their families, reported that the new payment system saves them, on average, three to six hours of travel and US$3 in travel costs.

Diconsa store owners are now benefiting from valuable training to teach them how to operate the payment system. They also noted increased sales because of the added “foot-traffic” (personal shopping) to their stores by beneficiaries.

To roll out the programme in all rural areas, Diconsa now needs to install Internet service and telephones in many of its stores to support point of sales devices, which in turn manage payment distribution and enable shopkeepers to confirm the identities of beneficiaries using thumb scans and biometrically-encoded smart cards.

The aim is to expand the program to let an estimated 3 million rural families collect their benefits payments at Diconsa stores. At the same time, the Mexican government plans to explore partnerships with financial institutions to start offering savings accounts through Diconsa stores, giving clients a place not only to collect their payments but also to save and withdraw their cash as needed for expenses and investments, make payments, and gain access to other services.

Other targets for the Gates Foundation are a group of African Countries (DR Congo, Ghana, Kenya, Malawi, Mozambique, Rwanda, Tanzania, and Uganda) which will receive loans totalling $US10 million at low interest rates. In part 2 of Developing Telecoms Mobile money review we will look at some of these markets.

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