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Even before I fully knew what mobile money was, I could tell it was going to be huge. One look at the size of immigrant remittance flows that have become the largest source of funds flowing into many developing economies (and are more stable than FDI), and you can tell that innovative ways to move money with lower transaction costs would quickly find scale.
Add to this the cumulative economic turnover at the base of the pyramid - 4 billion people without bank accounts and often any non-cash monetary instruments - and innovative ways to store money and make payments loom even larger.
Estimates for the size of the mobile money market range from $27 to $202 billion within 4 years. So I'm not the only one who thinks this will be big but doesn't know how big.
To get a handle on all this buzz and walk through what mobile payments really look like, I sat down for a tutorial with Ben Lyon of FrontlineSMS Credit while he was in the Bay Area to speak at Google. As someone accustomed to debit cards and PayPal and the like, I had to take a step back to get a feel for what the ability to send and receive money through a mobile phone - or really, a SIM card - means for someone with no other easy way to move money or convert cash into electronic form.
In Development and Base of the Pyramid circles, we often discuss remittance economies and innovative ways to send remittances home; what we don't always think or talk about is what forces people to leave their home countries in the first place and what they experience when they go abroad. In the case of Nepal, as I've written about before, migrant laborers most often travel to the Middle East and Southeast Asia, often having their passports taken away from them upon arrival and not getting paid for months at a time. So would systems that facilitate sending remittances home actually encourage and facilitate such an unjust ecosystem? In the case of Nepal, I think we are better off creating jobs at home.
I took the opportunity to interview one such laborer, Aslam, who spent 18 months in Doha, Qatar. In Kathmandu, he is a widely respected mason, but in Doha he simply broke stone and his skills were not put to full use. Aslam wanted to see the world; while abroad he went to the ocean for the first time and flew on an airplane for the first time. But in the end, the money he earned in Doha only paid off the loans he had to borrow in order to go to Doha in the first place, essentially breaking even and not profiting.
So when we in BoP circles think about remittances, let's also think about what forces people to leave their homes in the first place and what they endure and sacrifice in order to send those remittances home. We need to create jobs at home- that is certain. But when those are not available, is it a better option for people at the base of the pyramid to travel abroad where they make the same or even less money, are separated from their families, and are treated like second class citizens? Below is a video and transcription of my interview with Aslam, which offers a glimpse into the lives of the laborers that churn remittance economies.
Jenara Nerenberg, NextBillion.net: Why did you go to Qatar?
Aslam, Nepali mason: I went to Qatar to find work. I wanted to make extra money from work so I could eat happily.
JN: What did you experience there?
Aslam: Work is a lot harder there than here. It's a lot hotter over there. It's twice as hot there. They don't care how bad the weather is there; they just want you to work. If you don't go to work, they cut your pay.
JN: How did they treat you?
Aslam: Some of the managers are nice, but others are very untrustworthy. Some people don't have a lot of kindness. They tell you, "You came from Nepal to work. Whether you live or die, it's all the same. You came here to work. If you work, we give you money. If you don't work, we don't give you any money." They don't let you take any time off from work either.
JN: Why did you come back to Nepal?
Aslam: The thing is, I got placed with a really bad company. I was very unhappy, and they also turned out to be very untrustworthy. At one time they didn't pay me for four months. Even though we had a signed contract, they didn't give me any money. It's a lot harder than Nepal there. But it's harder for all the laborers, not just Nepalis.
JN: Are you happy you went?
Aslam: I went to Qatar and it was a very unhappy experience. I was happy when I went there; I was hoping to earn extra money so I can have an easier life. But I found a lot of unhappiness there. I even filed a case against the company. I even went to the Nepali embassy. After two or three days, I got into an argument with the Embassy. I asked them, "Why do you even have an Embassy here? Go back to Nepal. You're just here to spend the government's money. You're not doing anything while so many Nepalis are in trouble. While there are so many Nepalis suffering, you're just sitting in a comfortable chair and eating good food."
I got into a labor dispute and I even took them to court. But they don't care what Nepalis have to say. They call Nepali people "jungly." That's how much unhappiness there is for Nepali people abroad.
JN: Are you happy to be home in Nepal?
Aslam: Yes, I am happy to be back in my own country. Once you come back to your country, you're happier whether you have money or not.
JN: What do you want to tell other Nepalis who are thinking about going abroad to work?
Aslam: If someone wants to go, it's obviously their choice. Once people don't find work in Nepal, they will go. They think that going abroad will earn them more money. I will tell them, "Don't go." Try to work in Nepal and if you can't find work, then take care of your home.
JN: Would you tell others to go abroad or stay in Nepal?
Aslam: I got some phone calls asking me if I wanted to go to Dubai. But I told them, I'm going to stay in Nepal and work. For people who want to go, they will spend at least 140,000 rupees. You might as well spend that much money here.
JN: Are you happy with the amount of money you earned while there?
Aslam: How can you be happy bringing back money that made you so unhappy? I earned about 150,000 rupees. I used that to pay back my loans.
JN: Tell me about some of your experiences.
Aslam: On Saturday they have a big get-together where people gather around and have fun and talk. The whole country gets a holiday. They eat and drink and be merry. All the Nepalis there are experiencing hardship.
I liked the gardens over there. I liked traveling around. I found the country beautiful. But what good is being in a beautiful country when you can't feed yourself?
As I was perusing my Sunday New York Times this past week, two stories stood out to me. Both mentioned migrants struggling to keep jobs in the developed nations where they were working. One article profiled Alexandrina Ciurea, a Romanian cleaning woman working in Rome; the other described Ignace Abdulx, a laid-off Senegalese metalworker worker in Paris.
Both Ciurea and Abdulx had been sending considerable remittances back to their families; Abdulx’s amounted to 200 euros per month for his wife and three children, yet neither knew if their adopted homelands would provide them with continued opportunity. I found their stories to be very interesting, and began to ponder the effects of slowing remittances and potential reverse migration to developing nations.
As many families living at the Base of the Pyramid are dependent on remittances, shifts in remittances and migration are both very timely and potentially worrisome trends. As Manuel pointed out when he wrote on two leading reports on remittances in 2008, "Remittances are estimated to have more than tripled as a share of GDP since the 1980s, rising from 1.1% of GDP to 3.6% of GDP in 2005."
Remittances - transfers of money from foreign workers to their home countries - have been a critical means of financial support for generations. These flows have generally been conducted away from formal markets. However, as more and more workers move abroad, the volume of remittances sent back home has grown and thus become an important flow of foreign currency in many countries.
Earlier this year, the International Monetary Fund published a working paper about the evolution of capital flows to Low-Income Countries (LICs). The paper sheds light on the increasing importance of remittances in development. Although the working paper is based on shaky data (on the admission of the authors), it calculates that total capital inflows to LICs increased from 4% of LIC GDP in the 1980s to more than 10% for LIC GDP by 2006. All the net growth in these inflows is due to private sources, while official inflows remained unchanged at roughly 2% of LIC GDP. (This brought me memories of when several years ago there were worldwide calls for developed countries to give 0.7% of their income to developing ones as they had promised to do. Only a couple of Scandinavian countries ended up doing so.)
I found Peter van Dijk's comments on Ana's report from the Mobile Banking Conference interesting but not convincing. Not surprisingly, the evolution of mobile phone banking has not been without false steps, fraudulent operators, and systems that have flaws. But evolution also tends to produce winners that survive because they solve those problems. And the experience with G-Cash and Smart Money in the Philippines, with M-Pesa in Kenya, and, yes, with Wizzit in South Africa is that customers on the whole find a significant value proposition.
If these systems didn't work, didn't protect their customers' money, and didn't deliver value, they would hardly be growing at the rate they are. M-Pesa already has over 1 million customers (in 9 months), and the buzz on the street is very positive. But let's not pretend that these services are perfect, yet, but rather ask: What is the alternative for the several billion people who are unbanked?
"I'm giving away 2 percent of my net income every month... I don't think Bill Gates is doing that." So says Turkish billionaire Husnu M. Ozyegin in an interview for a New York Times piece last Friday about the philanthropy of individuals who have recently achieved phenomenal levels of wealth in "once destitute countries."
Sounds very impressive, but I've also been perusing another report of interest today about what some other individuals are doing with their money that really knocked my socks off - and I can guarantee that they are passing on more than 2%!
Last week, while checking out some regular blogs, I bumped into a short note about a magazine called "Upsides" in the CGAP Blog.
Upsides is an FMO (the Netherlands Finance Development Company) initiative, supported by other likeminded financial institutions such as Standard Bank, Plantersbank, Triodos Bank and ShoreBank. As such, the core content of Upsides revolves around finance and development.
Every Upsides issue has, on average, three detailed articles that develop a particular aspect of development finance. These articles are peppered with several case studies that help add flesh to the bone and reflect stories from different perspectives. Additionally there is a section called 20:20 featuring interviews with important actors in the arena.
Initially, I thought that I would read the four already published issues and give an overview here, but soon it became apparent to me that the magazine is just too good to do it the disservice of a mediocre summary. Plus the contents are well thought out and they develop several important well-connected points. Clearly, the authors are experts and they have put much time into their articles.
Instead, I have chosen to give some mouthwatering tidbits of the fourth issue with the hope of stimulating readership from NextBillion visitors. There were three main topics: remittances, the brain drain in emerging economies and branchless banking.
1) Remittances:
Remittances are usually nearly totally spent. However, when remittances are channeled into savings accounts, a large portion is saved. These savings contribute to the financing of productive activities. In Nicaragua’s case, it has been proved that emigrants are more likely to return home when they know that their remittances are being invested in something meaningful.
The constraints consumers face in the remittances market are the informality of the transfers market, the cost of remitting and the lack of access to financial institutions.
In most developing countries, governments require that only banks should be allowed to transfer remittances. Rural areas with their lack of bank branches are thus underserved. Overhauling this legislation to allow non banking financial institutions such as savings and credit associations (like microfinance institutions) to pay remittances will increase the capillarity of the financial system and competition among market players.
Consumer education is crucial among the less financially literate to avoid spending on non-basic necessities.
New technologies can allow for cheaper account-to-account transactions. Mobile phone telephony or prepaid cards are an alternative to facilitate remittances.
After reading the blogpost on Construmex and productizing remittances, Roy Serventi, the President/CEO and founder of Infinity Systems International (ISI), contacted the NextBillion team. Roy, Rob Katz and I had a long talk on how ISI is also taking steps toward productizing remittances, the vast sums of money sent by immigrants to their home countries
ISI has identified a unique niche market that it believes will translate into a promising business opportunity. In both the U.S. and in Mexico ISI is formalizing agreements with organizations that currently cater to or want to offer products and services to the Latino market. These include hometown community organizations, local and national money transfer, check-cashing and pay-day loan organizations, and local and national convenience store and pharmacy chains. Mexican companies such as Gigante, Elektra and Novamedic are already part of the program.
ISI’s vision is to become the leading international merchant-based network and gateway servicing the underserved and underbanked Latino community. The ISI proposition looks to capitalize on three very large and distinct but converging trends: 1) The growth of the Hispanic demographic market 2) The growth of the international cash remittance market and 3) The growth in the use of stored value/gift cards.
ISI provides an alternative means for the transferring of hard-earned funds to family members in Mexico for basic needs: food, clothing, household items, medical care, pharmaceuticals, infant needs and housing. By cutting out the middleman, the ISI Tarjeta Más™ Program allows an immigrant to send money in the form of a stored value/gift card to a family member or friend, this way the money is targeted to a specific field or industry. In addition, it allows hard-working individuals in the U.S. to keep more of their wages by lowering the costs of money transfers.
Mr. Serventi has a Mexican background and he is committed to helping the people at the BoP and the Latino community in the U.S. He has a strong business reputation working in the areas of international business and investment with an emphasis on Mexico and Latin America. Mr. Serventi is the Managing Director of The Miramar Group, an international investment and corporate management firm and has worked in investment banking and venture capital. He has been instrumental in helping launch and manage a number of start-ups in the diagnostic health, Internet, and technology fields.
It is excellent that Mr. Serventi is taking advantage of this business opportunity, because as I said before on NextBillion, people that send money want to make sure that the money they send is spent well, not wasted. This is a good way for immigrants to ensure how their money is spent and at the same time, cut the excessive costs that other companies charge. In the long run, if more companies start investing and competing against this remittance transfer business, costs will be reduced and there will not be such a monopoly anymore.
Many immigrants come to work in the US, and when they do, they usually leave family behind. Often, their primary objective is to make money and provide for their families back home. Some companies - like the Mexico-based multinational cement giant CEMEX - are taking advantage of this situation and are starting to productize remittances. Instead of sending cash to their families back home, immigrants using a program called Construmex send aid in the form of housing materials.
Money transfers can be expensive, and family members back home frequently spend the money on other things. And many immigrants don't know how much cement to buy or how to build a roof, so their hard-earned savings often are wasted. That's where Construmex comes in: Its architects help clients design home plans and calculate how much material to deliver and at what time intervals. The company also finances the purchase of the construction materials.
In my opinion, this system is very intelligent, because, after all, it is the money of the person who is sending it and this system allows him to decide how it is spent. It ensures that the people back home get what he wants them to get - in the case of Construmex, a house.
According to Business Week, in two years, Monterrey-based Construmex has helped 4,500 migrants living in the U.S. build homes or small businesses in Mexico. This year it expects $3.8 million in revenue, a mere hint of the potential. "We're certain that there's a very large, unsatisfied demand out there," says Hector Ureta, CEMEX’s director for low-income programs. The company's studies show that 58% of Mexican migrants to the U.S. intend to build in their home towns.
Of course this is not CEMEX’s first foray into the BOP space; they already have a program in Mexico targeting the BOP called Patrimonio Hoy. Although both programs work with the BOP, the difference between Patrimionio Hoy and Construmex is that the first works domestically in Mexico, while the latter works with the immigrants in the US to provide housing materials. The interesting fact about CEMEX’s BOP programs is that they are neither operated nor subsidized by the Mexican government nor a by a NGO. CEMEX can be considered one of the leaders in the BOP space; they have experienced success and this is why they are looking to diversify their BOP holdings.
Critics of this system might have mixed-feelings about businesses catering to illegal immigrants, because of their illegal status.Editor's note - The previous sentence has been crossed out, since it reflects inaccurate information about the Construmex program. NextBillion.net apologizes for the factual error - CEMEX adheres to all laws and regulations regarding immigration status. I guess that if the workers have the option of starting to build assets back in their home countries, they have something to look forward to when they return. They are not just coming to work here, but they are building a future in their home towns for their return.
The Next 4 Billion includes a whole chapter on a topic for which we were unable to present a single, real number from our analysis of household surveys. Not surprisingly, the chapter is short. So, why did we include it, if we couldn’t report any numbers? And why do we recommend it to you?
Well, as these pages have shown numerous times, we believe that financial services are a breakout sector - for the BOP, for business, and for the development community. For the BOP, access to financial services means new jobs and income; the creation of formal identity (perhaps for the first time); the reduction of physical risk (it’s dangerous to carry cash on your person, or store it in your home, in many parts of the world); the economic empowerment of women, perhaps the single most critical element of development; among other positive impacts.
I found 
"I'm giving away 2 percent of my net income every month... I don't think Bill Gates is doing that." So says Turkish billionaire Husnu M. Ozyegin in an interview for a 
Last week, while checking out some regular blogs, I bumped into a short note about a magazine called "
After reading the 
Many immigrants come to work in the US, and when they do, they usually leave family behind. Often, their primary objective is to make money and provide for their families back home. Some companies - like the Mexico-based 
