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June 4, 2014

Tackling Poverty With Banking

Posted by Rajashekara V. Maiya (View Profile | View All Posts) at 8:09 AM

Revolutionary mobile payment M-Pesa turns seven years old [Source: http://www.youtube.com/watch?v=EN_IN2eMmDU]

Maps of the world displaying political boundaries or topographical details - mountain ranges, deserts, and vast rainforests are commonplace. But look at a map based on a proportion of the world's population, and, you'll know why companies are thinking of ways of tapping into the Asian and African marketplaces. Up until the 20th century, these two continents did not control a remarkable amount of the world's wealth. But as their populations grow and enter the middle class, they are where any smart company wants to be in the 21st century. On a proportionate-population map, Asia and Africa would be even more enormous than they are on a political map. Most of the people on this planet - about 8 out of every ten - lives in either of those two places. Add economic power to a vast population and you can see why global enterprises are looking eastward for expansion.

The Bill and Melinda Gates Foundation recently published a table that looks at the world in a way that's not unlike those proportionate-population maps. The table envisions the world as 100 people, a very basic and clear way of delineating who is who and who has what. For example, out of the world's 100 people, 48 of them live on less than $2 a day. And 13 of them do not have access to clean, potable water. And what about English, the so-called language of the Internet? Only 5 of them are native English speakers!

But there are other aspects of the Gates table that show some remarkable examples of global growth and development in the digital age. For instance, 30 of the 100 people have access to the Internet. That's a pretty amazing number. So is the fact that 75 people out of 100 have cellular telephones. And 83 out of 100 of the world's people are able to read and write.

What "The World as 100 People" shows is that despite the many challenges of the developing world, the many people who live in those areas are undoubtedly meeting those challenges and in many cases surpassing them. Just last week an influential Internet analyst gave a fascinating presentation that shows how mobile computing platforms are far and away outpacing the desktops and laptops so common in the West. Armed with mobile telephones and a relatively high degree of literacy, people in the emerging markets are laying the foundation to become the economic powerhouses of the next generation.

The key ingredient in this success story, of course, involves financial services. The act of opening up a checking account at a local bank branch by depositing cash is foreign to much of the world's population. As well it should be: Writing paper checks to pay for goods and services is an antiquated method of commerce that is finally being phased out in Europe (but unfortunately still hangs on in North America). The emerging markets do not have these legacy burdens when it comes to banking. They will be able to utilize their mobile telephones to make deposits, transfer funds, and build local businesses.

The world's banks are recognizing this phenomenon. Some Western banks are moving slowly compared with, say, Grameen Bank. That's the bank led by Nobel Prize winner Muhammad Yunus, a financial services visionary who understands how to get the right kind of funding into remote and rural communities. Mr. Yunus understands that in order for banks to serve emerging markets, they must have the right tools and software that meet the needs of the local populations. Processing paper checks, for example, is not something a bank branch in rural Africa is going to want to accomplish as part of its set of software solutions.

Consider the success story of m-PESA, a joint venture between two of the largest mobile network operators in Tanzania and Kenya--Vodacom and Safaricom. 82% of mobile phone customers in the region, which is around 14.9 million people, use m-PESA for mobile payments. The average transaction volume for six months is around 314 billion Kenyan Shilling (3.15BUSD). The numbers are incredible, especially when compared to the traditional banking business in the region, where the average transaction volume for six months totals to 57 billion Kenyan Shilling (614 MUSD). While there are 43 physical banks and 1100 branches that provide limited employment, m-PESA has created 32000 jobs and m-PESA agents, of course, are indirect beneficiaries of the ecosystem.

Financial services are also integral to the growth of retailing in the emerging markets. The West is dominated by massive retail chain stores that provide outlets for equally large consumer packaged goods (CPG) companies. For those CPGs to reach the billions of consumers in the emerging markets, they must work within an entirely different system. Forget about huge warehouses and start thinking about how to stock the shelves of mom-n-pop stores from village to village. Those storeowners need banks that know how they do business. The top financial services firms of tomorrow are already facilitating payments with suppliers such as the CPGs in the remotest areas of the emerging markets.

When you look at the planet through the lens of 100 people, you quickly realize how enterprises will help tackle poverty by introducing the right financial services solutions. My prediction is that we will stop hearing the term "underbanked" within the next generation because of these positive developments.

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