Financial inclusion for the poor is a global challenge. In this episode, we dive into the story of Mojaloop, a platform that enables interoperability and transaction routing between mobile money system operators, banks, and other providers. It’s a fascinating, and evolving, story. Take a listen.
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Individual Benefits, Nation Building Impact
Financial inclusion for the poor is a global challenge. Over two billion adults lack access to financial services. While that number is declining – and in no small part because of the work done by this episode’s guests – that level of digital disenfranchisement and cash dependence suppresses well being at multiple levels:
- Individuals must spend significant time to pay bills when they must travel to the biller or its agent, never mind travel to acquire cash. Carrying cash, of course, comes with its own set of risks
- Families suffer as time away from work and home reduces family income
- Entrepreneurs and small businesses face the same time penalty, high transaction costs, and uncertain credit access
- Entire countries experience diminished GDP because of productivity losses and transactional friction. Cash-based transactions also fuel the shadow economy, making audits and taxation very difficult
While Kenya’s M-Pesa is the most well known exemplar, there are hundreds of systems around the world offering digital payments, bill pay, savings accounts, microlending, and other services to their accountholders.
Not Without Concerns
Financial inclusion efforts are not without downsides as some credit extension services, riding the e-money rails laid down by the provider, charge usurious rates. Gambling services are similarly problematic.
With success, e-money systems become systemically important to a country and, therefore, pose a level of systemic risk should the operator go offline for technical or security reasons.
And as with every digital activity that touches money, there is the problem of fraud.
But these are not insurmountable challenges. Some are candidates for regulation-based cures. Others can be addressed by providers themselves.
The Network Effect Matters
Another challenge to the growth and health of mobile money systems is interoperability among those systems. In many countries, multiple e-money systems compete for accountholders but do not interoperate. A user on one system cannot send money to a user on another. That condition adds friction, reducing the e-money value proposition for all stakeholders.
The challenge becomes even more acute, and costs rise, when the sender and receiver are in different countries.
A thriving digital ecosystem and economy requires the right conditions:
- Regulation that encourages innovation while also protecting the end user
- Low cost enabling infrastructure, and
- User-focused services that meet real needs
The Bill & Melinda Gates Foundation has taken on financial inclusion for the poor in multiple ways, through support of:
- Development of guiding principles for the delivery of financial inclusion through the Level One Project
- Creation of guidance for regulators to speed accountholder onboarding while limiting fraud and risks concerns
- Support for the development of open loop software designed to speed system interoperability. Called Mojaloop, this open source effort’s goals include the development of a reference platform
In this episode, we dive into the Mojaloop story with two leaders of the work:
- Paula Hunter, Executive Director, of the Mojaloop Foundation
- Kosta Peric, deputy director, Financial Services for the Poor at the Bill & Melinda Gates Foundation
It’s a fascinating, and evolving, story. Take a listen. And, if financial inclusion for the poor in developing markets is important to you, get involved with Mojaloop. It’s quite a team.