Kenya: Help Poor Harness Connectivity

Entrepreneurs, businesses, NGOs, and governments exalt mobile technology as a game-changing tool to fight global poverty.

But what if our eagerness to connect the world is inadvertently exacerbating the global economic divide?

In 2008, The New York Times reported that mobile phones may hold the key to ending global poverty altogether. The enthusiasm was–and is–understandable: From 2005 to 2010, cellphone use tripled in the developing world.

According to the International Telecommunications Union, there are now almost 6 billion mobile-cellular subscriptions worldwide.

Mobile penetration has reached 79 percent of the developing world. Multiple studies on information and communication technologies for development (ICT4D) have linked increased cellphone adoption with positive trends in economic and human development indicators, from gross domestic product to the Grameen Bank’s Progress Out of Poverty Index.

Despite the hype, a harsh new reality is unfolding. Take the case of the often glamorised M-Pesa, Kenya’s popular mobile-phone-based payment and money transfer system. In only four years, M-Pesa has grown to 14 million users.

It now processes more transactions domestically in Kenya than Western Union does globally. The use of mobile phones to transfer money and manage personal finances has provided a speedier and more cost-effective delivery system for millions of Kenyans.

The Economist reported in 2009 that Kenyan households using M-Pesa saw their incomes increase–anywhere from 5 per cent.

to as much as 30 per cent–after beginning to use mobile banking. By the end of 2009, M-Pesa had reached 65 per cent of Kenyan households.

But there’s a downside to this programme–and others like it–that’s too often ignored: These mobile money services do not effectively reach the poorest of the poor.

In a 2010 study of M-Pesa usage in Kenya, where mobile money penetration is greatest, 60 per cent of the poorest quartile did not use the service.

Part of the problem is access: Telecom companies have relatively little incentive to build out infrastructure, especially in poorer, rural markets. Coverage is not the only problem.

Mobile money services have a transaction fee structure that is prohibitive to those living below the poverty line–currently about 50 per cent of the Kenyan population.

These users are forced to pay remarkably high fees for their modest transactions. For example, a $1 M-Pesa transfer carries a 12 per cent fee; a $5 M-Pesa transaction carries a nearly eight per cent fee. It may not sound like much, but for the poorest of the poor, this is a substantial financial drain.

These fee-based business models are geared toward maximising revenue, which translates to a stunning level of resource extraction from poor communities.

A 2007 report by Research ICT Africa examined income expenditures of 17 African countries and found that many of the poorest individuals studied were spending more than 16 per cent of their entire income on mobile services.

Now is the time for a radical shift in thinking about ICT4D and the digital divide. We must find practical and appropriate solutions to support truly universal low-cost mobile connectivity.

This will require regulators and policymakers willing to fight the tough regulatory battles necessary in order to ensure that the poorest householders are able to truly harness the power of mobile connectivity.

If we do not, we run the risk of helping many at the expense of doubly-disadvantaging substantial portions of the global populace.

Source: All Africa.Com – 14 Feb 2012