Mobile technologies are changing economic life in developing countries. Many people use cell phones for a range of financial transactions like receiving and sending money transfers. Indeed, mobile Money is deployed by banks and mobile network operators to provide millions of unbanked consumers to store and access money digitally.
Some developing countries are severely constrained by limited infrastructure and the difficulties of accessing financial institutions. According to World Bank, more than 2.5 billion adults are unbanked. The exclusion of those masses is related to barriers like cost, travel distances, and documentation requirements for opening a bank account in developing countries.
Path for unbanked people
In developing countries, other mobile money services are used mainly by people who do not have personal bank accounts. Indeed, customers often use “mobile payment” and “mobile transfer” services, which are available from their mobile phones without the need for a bank account. Unbanked mobile phone users can also pay utility bills via their mobile wallets.
Yet, unexpected and innovative uses of mobile money services have also emerged for paying personal expenses like paying school fees, public transportation and many more. Mobile money services have been deployed in developing countries to extend financial assistance to the unbanked. But more robust research is needed on the direct link between mobile money services and easier access to financial services.
So mobile money services have started operating globally, which accounts for about 40 percent of all countries in the world. According to the research, 52 percent of mobile money services are located in Sub-Saharan Africa. From 2013, mobile money services significantly expanded outside Sub-Saharan Africa. They grew in nine new markets, namely the Plurinational State of Bolivia, Brazil, Egypt, Ethiopia, Guyana, Jamaica, Tajikistan, Togo, and Vietnam.
Source: Adapted from GSMA
Consequences on micro and macroeconomic level
Mobile money services are highly accessible to all segments of society for three reasons:
- they are faster
- more convenient
- cheaper than formal financial services
A broad territorial outreach through money transfers
Mobile phones introduce financial services in remote areas where conventional banks have been physically absent or remain too expensive. The formal financial sector in developing countries suffers from structural weaknesses and restrictive conditions that practically exclude rural and low-income populations from accessing it.
Mobile transfer makes it easier for internal migrant workers in urban areas to send remittances to their remote rural communities. It has eliminated the long process of going to the bank to remit money. Therefore it represents a secure method of transferring funds than informal remittance channels. Also, it avoids the need to carry cash during long and expensive trips with the risk of the cash getting lost or stolen.
Lowering the cost of remittances
The high cost of sending remittances through formal channels is partly related to costly currency conversions. Whereas strict regulations on cross-border transfers are meant to curb illicit money flows and prohibit open markets and competition. Mobile money services allow unbanked people to transfer money both within and outside the country at lower costs than bank transfers and MTCs.
Mobile money services have the potential
(a) to improve households’ income and thus to facilitate safe savings and human capital investments
(b) to formalize the informal cash economy by facilitating trade
(c) to be a funding platform for development projects in several African, Caribbean and Pacific (ACP) countries.
Improve households’ income and facilitating safe savings and human capital investment
The reduction of remittances’ cost increases the frequency and magnitude of remittances and thus affects household incomes. According to the report in Kenya, many consumers often use their mobile wallets to save funds for short periods. They withdraw cash when needed in case of emergencies. Besides, mobile money services encourage human capital and physical investments. For instance, through cheaper transfers across distances, households send their members to distant locations and invest in skills that are likely to return.
Formalizing the informal cash economy by facilitating trade
Mobile money services give more visibility to money flows as remittances move from informal channels to formal channels. Indeed, the use of mobile money may encourage the formalization of the informal cash economy. It turns out to have an impact on economic development by making local markets more dynamic. Mobile money services can facilitate and contribute to taxes and utilities in the long run, strengthening governance and infrastructure. Also, it fosters international trading through an increased offer of financial services.
Facilitating cash transfer programmes for development projects or emergency operations in ACP countries
Mobile money services facilitate social transfer payments from governments to citizens for humanitarian uses. These mobile transfers have proliferated in various sectors, such as electricity, agriculture and emergency response. Regarding the agriculture sector, mobile money is a potentially important tool for agriculture development projects, for access to financial services, a pivotal constraint to success.
The mobile transfer systems show that mobile money services take advantage of their ubiquitous, real-time mobile communications networks and bring financial services to people’s lives. Thus alleviating the lack of banking infrastructure and filling a huge niche in developing countries. The rapid adoption of mobile money services can lead to both positive and unintended consequences. Mobile Money provides access to financial services for millions of consumers in developing countries. Mobile financial services, known as “mobile money”, allow unbanked people to use their phones as a bank account. People can also use mobile systems to pay utility bills and pay for goods in merchant shops.
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