Indigenous and ingenious: The roots of mobile banking in Africa

In Ghana, it’s popularly known as susu. In Cameroon, tontines or chilembe. And in South Africa, stokfel. Today, you’d most likely call it plain-old microfinance, the nearest term we have for it. Age-old indigenous credit schemes have run perfectly well without much outside intervention for generations. Although, in our excitement to implement new technologies and solutions, we sometimes fail to recognise them. Innovations such as mobile banking – great as they may be – are hailed as revolutionary without much consideration for what may have come before, or who the original innovators may have been.

The image of traditional African societies as predominantly “simple hunter-gatherer” is more myth than truth. The belief that Africa had little by way of economic institutions and processes before the arrival of the Europeans is another. As Niti Bhan pointed out during a fascinating “Life is Hard” presentation at the Better World By Design Conference a couple of years ago, many rural communities today are familiar with concepts such as loans, barter, swap, trade, credit and interest rates, yet the majority remain excluded from the mainstream modern banking system and have never heard of things like ATMs, banks, mortgages or credit cards. It’s not that people don’t understand banking concepts – it’s just that, for them, things go by a different name.

In Kenya, as few as one in 10 people may have a bank account, but that doesn’t stop many of them from using a number of trading instruments or running successful businesses. Technology can certainly help strengthen traditional trading practices, and we know this because when technology is made available, the users are often the first to figure out how to best make it work for them. Mobile technology is today showcasing African grassroots innovation at its finest.

Africans are not the passive recipients of technology many people seem to think they are. Indeed, some of the more exciting and innovative mobile services around today have emerged as a result of ingenious indigenous use of the technology. Services such as “Call Me” – where customers on many African networks can send a fixed number of free messages per day when they’re out of credit requesting someone to call them – came about as a result of people “flashing” or “beeping” their friends (in other words, calling their phones and hanging up to indicate that they wanted to talk). A lot of interesting research on this phenomenon has been carried out by Jonathan Donner, an anthropologist working at Microsoft Research. Today’s more formal and official “Call Me”-style services have come about as a direct result of this entrepreneurial behavior.

The concept of mobile payments did, too.

Researchers have for some time been observing the behavior of users in developing countries, seeking to identify the next big thing. As Jo Best recently put it, many of these ideas spring from “the fertile mind of some user who wanted to do something with a mobile that their operator hadn’t provided yet.”

Tapping into these fertile minds is a fascinating business, something that Jan Chipchase (formerly of Nokia, now with Frog Design) is famous for. Some of Jan’s earlier observations identified emerging mobile payment-style services long before the mobile operators, or even the ICT4D community, had even thought of them. The mantra “build it and they will come” seems alive and well in the African mobile context.

Whilst many traditional development approaches generally introduce alien ideologies and concepts into developing countries – sometimes for the better, often for the worst – today’s emerging mobile services are very much based on a model of indigenous innovation. Take M-Pesa, the much-touted Kenyan mobile money transfer service developed by Vodafone and the U.K. Department for International Development, as an example. Increasing numbers of African users were already carrying out their own form of money transfers through their mobiles long before any official service came into being. SENTE, from Uganda, is one of the better known indigenous systems (M-Sente is now the name of Uganda Telecom’s official mobile money service).

What M-Pesa has done is formalise and scale this kind of activity and bring it fully to market. Its impact has been spectacular, with around 17 million subscribers now using the service, and 50% of Kenya’s entire GDP expected to pass through the platform over the next twelve months. But what services such as these, rolling out in increasing numbers of African countries, have done to earlier “indigenous” systems – mobile-based, such as SENTE, or more traditional microfinance solutions, such as susu, tontines or chilembe – is not so clear, although the latter were most likely well on the decline long before mobile phones came on the scene.

Many indigenous economic systems still exist today where they haven’t been wholly replaced by modern financial structures or technologies. In “Africa Unchained,” George Ayittey states his belief that future African economic prosperity lies in traditional systems and practices:

“Women traders can still be found at most markets in Africa. They still trade their wares for profit. And in virtually all traditional markets today, bargaining over prices is still the norm — an ancient tradition. Traditional African chiefs do not fix prices. And it is this indigenous economic system, characterised by free village markets, free trade and free enterprise that Africa must turn to for its economic rejuvenation.”

It’s likely that many people would argue strongly against Ayittey on this, believing that progress across the African continent is based on embracing change and the new world economic and technological order. It’s an active and fascinating debate. Whichever side of the fence you’re on, all of this does raise one important question.

Should technology solutions aimed at the developing world, and mobile solutions in particular, seek to build on and enhance indigenous, traditional activities – economic or otherwise – or, where necessary, is it okay just to replace and lose them?

That isn’t the only question, either. How does the introduction of emerging mobile services shift the balance of power in traditional African societies? Will women, for example, remain as economically active participants in the new mobile-powered world, or will men take more control? Do mobiles narrow or widen gender inequalities? Is technology exacerbating the gap between the haves and have-nots, or is it truly proving as transformational as we all believe or hope?

Very few businesses would willingly throw out all of their processes and procedures in order to implement a new IT system, however good it may be. The more astute ICT solutions providers know this and, wherever possible, aim to allow seamless integration of any new technology into their clients’ workplaces and working practices. Doesn’t it make sense that we should take the same approach with indigenous societies and seek to build on existing procedures and traditions, and not just assume that a new, modern solution is better and replace everything that went before?

It’s a fine balancing act and one people are still trying to figure out. The irony could be that while growing numbers of social scientists are turning to technology to help preserve and document disappearing cultures, the same technologies may be contributing to their ultimate decline.

Step inside the laptop bank

In the world of social innovation, many of the smartest ideas focus on “market inefficiencies” and, in particular, ways of reducing them. As increasing numbers of mobile operators implement airtime transfer systems and mobile money functionality on their networks – particularly in developing countries – opportunities also increase for locally-run microfinance institutions and their customers at the bottom of the pyramid.

In the spirit of social innovation, Ben Lyon recognised the opportunity early. The result? FrontlineSMS:Credit – a first in laptop banking – announced last week at Africa Gathering in London.

FrontlineSMS:Credit landscape

The concept is simple:

FrontlineSMS:Credit aims to make every formal financial service available to the entrepreneurial poor in 160 characters or less. By meshing the functionality of FrontlineSMS with local mobile payment systems, implementing institutions will be able to provide a full range of customizable services, from savings and credit to insurance and payroll

The FrontlineSMS:Credit system is in essence a convergence of SMS-aggregating software and mobile commerce systems, which together provide an efficient and accessible platform for microfinance institutions (MFIs) to deliver and track loans via Short Message Service (SMS). Since FrontlineSMS:Credit utilises the widely available GSM wireless telephone network, implementing MFIs need neither an Internet connection nor a permanent office to conduct business. Not only that, MFIs will be able to make use of alternative power sources such as solar panels, allowing them to operate ‘off the grid’. This could provide a comparative advantage for those working in rural and underserved areas.

FrontlineSMS:Credit Uses

Based on the successful FrontlineSMS:Medic model, FrontlineSMS:Credit is a new venture, and Ben is currently building his team. He has a range of vacancies for anyone interested in helping develop the concept. A number of large microfinance-based institutions, and major international development agencies, have already expressed strong interest in being part of his “democratising finance” movement. Further details of the project, and current vacancies, are available on the project website at

Congratulations Ben!

(You can read an earlier article on CreditSMS (now FrontlineSMS:Credit) on  PC World here)

Let’s not write it off quite yet

A couple of months ago a member of the Social Mobile Group on Facebook asked an interesting, and pertinent, question. Commenting on a picture of a payphone attached to a bicycle from the kiwanja Mobile Gallery (this bike is taken around the streets of Kampala for members of the public to use to make calls), they wondered what was going to happen to these kinds of entrepreneurs as more and more people began owning their own phones.

A recent article in Fast Company magazine has set out to answer just that. Looking specifically at decreasing income levels among Grameen’s Village Phone Operators, it points the finger of blame squarely at the proliferation of mobile phones (the same finger can be pointed by the fixed payphone network, another victim). On the surface, blaming mobile proliferation seems like a safe bet. After all, if you have your own phone then why pay to use someone elses?

The increase in mobile ownership has certainly had an impact, but any time you mix economics, technology and human behaviour together, some pretty surprising things can happen. And this is where my love for anthropology comes in handy.

I was fortunate to have spent four weeks in Uganda last month, working with Grameen on their Village Phone Program at the same time that Business Week researched their own article on mobiles and economic development in Africa. Nothing beats being on the ground, and I’m very lucky to regularly get the chance to spend time in developing countries where I’m able to get a really good sense of what does and doesn’t work.

Many of the blog entries circulating the web in the last week or so – citing the Fast Company magazine and touting the ‘end of the Village Phone’ – fail to appreciate some of the subtler issues at play. The assumption that people will stop using a Village Phone the minute they own their own is not the open and shut case you might think. During my month in Uganda, I would regularly see people walking up to a Village Phone Operator, mobile in hand, look up a number and read it out to the phone lady to key into her own handset. From my own observations, this seems to happen for a number of reasons.

Firstly, for many owners, mobiles double-up as glorified contact managers, clocks, alarms, torches and, finally, a device which enables them to be contacted any time of day or night for work, or to stay connected with family or friends. Few maintain enough credit to make calls. Many taxi drivers, for example, hold just enough credit to enable them to ‘flash’ a phone (ring and hang up) to indicate that they are outside and waiting.

The reason for the lack of credit leads onto the second point. Few mobile owners want to spend a dollar or more topping up their phone – the amount needed to get enough credit for about 5 minutes of calling – when all they want to do is quickly touch base with a business contact or family member. Instead, a couple of hundred shillings gets them a 40-second call with a Village Phone operator, a smaller amount of money for a small amount of time which is utilised to the full with amazing skill.

And thirdly, call rates are actually cheaper through the Village Phones. Whether the caller has a mobile or not, and whether that phone has credit or not, many people still seek out a Village Phone to make their call because it saves them money. That’s the bottom line.

Try telling these people that the Village Phone is dead.

Mobile ownership may be increasing at a phenomenal rate in the developing world, but more people still don’t own phones than do, and most people earning a dollar-a-day are still a long way off affording one. The Village Phone has been a huge success – there is little dispute about that – but, as with any business, market changes force a period of re-evaluation and adjustment, and the mobile market has moved quicker than most.

Village Phone might well be a victim of its own success, but let’s not be too hasty in condemning it to the history books quite yet…

Joining the dots the Kiva way

An old expression, maybe, but “that idea is so simple I don’t know why I never thought of it” applies almost on a weekly or monthly basis when you’re tapped into the Silicon Valley technology/academic environment. Take YouTube. The idea seems like a no-brainer, but to take it from nothing to a $1.6 billion venture in less than two years really gets you thinking… What will be next? Can I get a slice of the action? Will Google spot me?

For a few years now I’ve been racking my brains trying to come up with ways technology can be used to connect donors and recipients, and build social networks to support and sustain it. I’m convinced that people would take more of an interest in what their money does if they can give it, or in the case of Kiva lend it, directly to the person that needs it. Traditional donations are relatively untargeted and given with an almost blind faith. How many people know what happened to the $10 they gave to the Asian tsunami appeal? Has it bought someone a fishing net, or helped them repair their boat, or their home? Or is it still sitting in a bank account waiting to be spent?

Kiva is, dare I say it, such an amazingly simple yet brilliant idea it’s pretty amazing that no-one (me included!) never thought of it earlier. Kiva lets you lend to a specific entrepreneur, or small business-person, in the developing world – empowering them to lift themselves from poverty. Not only does it provide a platform to make that virtual connection, it also creates an emotional one. Furthermore, it’s a loan, not a donation, so your $50 or whatever can be used over and over again. And you get to see it working.

Kiva is relatively new – it will celebrate its second birthday around Easter – yet it continues to expand both geographically (it recently launched in France) and in reach (new microfinance institutions are coming on board the whole time). It’s a perfect example of how technology can be used in a positive, constructive way. And it’s sustainable.

Who knows what’s next. Maybe I’ll think of something. But Kiva certainly raises the bar, and long may it continue to do so.