Monthly Archives: May 2011

M-PESA and Mobile Money in Kenya

I’ve now been in Nairobi for two weeks and have settled in well.  I moved into my fairly upscale apartment in Kilimani, a section of Nairobi that is the beating heart of the tech and social enterprise scene here.  Up until last Saturday, I was sleeping on a mattress on the floor.  The landlord wanted to deliver a new bed frame, so I needed to let the movers into the apartment.  It was a total gong show getting this frame up the stairs, and I had to help them move it.  When it was all done, I was instructed to call the landlord and confirm that the job was finished.  After I hung up, the phone of the lead mover made a sound, they all smiled and went on their way.  In the ten seconds that elapsed after my call, the landlord successfully paid the movers via M-PESA, the ubiquitous mobile money platform in Kenya.

For those have never heard of mobile money, it is exactly as it sounds: money that can be transferred from on cell-phone to another via an SMS platform.  The most popular platform is called M-PESA, offered by Safaricom, the leading telecom provider in Kenya with almost 80% market share.  Created in March 2007, M-PESA is a dominant force in the country.  As of late 2009, an estimated two-thirds of the households in Kenya had at least one person using M-PESA.  A recent report titled “Mobile Money: The Economics of M-PESA” details a research effort that surveyed 3,000 users.  Here, the authors, William Jack and Tavneet Suri, describe the model:

Safaricom accepts deposits of cash from customers with a Safaricom cell phone SIM card and who have registered as M?PESA users. Registration is simple, requiring an official form of identification (typically the national ID card held by all Kenyans, or a passport) but no other validation documents that are typically necessary when a bank account is opened. Formally, in exchange for cash deposits, Safaricom issues a commodity known as e?float or e?money, measured in the same units as money, which is held I an account under the user’s name. This account is operated and managed by M?PESA, and records the quantity of e?float owned by a customer at a given time. There is no charge for depositing funds, but a sliding tariff is levied on withdrawals (for example, the cost of withdrawing $100 is about $1).

E?float can be transferred from one customer’s M?PESA account to another using SMS technology, or sold back to Safaricom in exchange for money. Originally, transfers of e?float sent from one user to another were expected to primarily reflect unrequited remittances, but nowadays, while remittances are still a very important use of M?PESA, e?float transfers are often used to pay directly for goods and services, from electricity bills to taxi?cab fares. The sender of e?float is charged a flat fee of about 40 US cents, but the recipient only pays when s/he withdraws the funds.

It is effectively a system of cashless payments and money transfers without the need for a bank account.  In essence, it functions as either a replacement for or a compliment to a traditional current account.  Much of the country, however, has limited access to bank branches or ATMs, making M-PESA the alternative to opening an account with a bank that may be located far away.

Customers can register for service on their phones and deposit money at one of the 25,000+ agents located throughout the country.  Agents can be independent retailers, stores, or any other business establishment.  The person gives the money to the agent, who then transfers the e-money to their phone.  The person can then transfer money to another M-PESA user or pay for goods or services rendered from a business.  Some people use it to pay school fees, or electric bills, or even taxi fare.

The impact on the country has been significant, and will continue to be a model for future mobile money programs.  According to the authors, M-PESA has had several rippling effects that have changed the way the country operates. Continue reading

Dispatch From a Shrinking Planet

“I don’t know where I’m going but I’m on my way.” – Carl Sagan

Develop Economies, the alter ego for my life on the road, is almost a year and a half old.  I’ve been to three continents, eleven countries, and spent too many hours in buses, planes, ferries, and motorbikes.  And the people I have met along the way have been memorable.

A cliff in Malapascua

In the Philippines, I spent most of my time with Filipinos, a handful of laid-back Australians in their 20’s and 30’s, a crew of Germans fresh out of high school living on farms and teaching Aikido to street kids, sampling their first taste of freedom and being of legal drinking age in a country where liquor are cheap, and a few American Peace Corps volunteers who, for the most part, are still there and are having an increasingly difficult time finding a reason to leave.  I spent a lot of time in the bush, with loan officers from my MFI, at the bar with my co-workers, or at Siberia with the Germans, the only serious night club in town (I’m not much of a clubber, but I tend to do what the Romans do, and Germans go clubbing).  In fact, I was never a huge fan of Germans for obvious historical reasons until I met some awesome ones running around the Philippines.  Now, I’m sold.

Halfway through, a few friends who were teaching in South Korea came to visit.  I flew back from a conference in Manila, met them at the Bacolod port, boarded the last ferry to Iloilo at 5 PM, and killed time playing cards at the bar until 3 AM, when the first van left for the island paradise and party hotspot of Boracay.   When we finished the would-be six-hour drive three hours later thanks to the huevos of steel borne by the driver, the room wasn’t ready so I called it a night and went to sleep at 7 AM on the beach.

Sunset in Boracay. I'm the second from the left.

On the boat, Malapascua Island, Cebu, Philippines

At the end of my time there, I took a whirlwind scuba-diving trip around the country, exploring sunken WWII Japanese warships in a town called Coron off the coast of Palawan, where the novel, “The Beach” supposedly drew its inspiration.  I came face-to-face with a four-meter manta ray who’d come to get so fresh and so clean at a shoal in Malapascua off the coast of Cebu.  The day before, I was surrounded by a school of sardines – millions of them – in Moalboal, a beach town eight hours south on the western coast of Cebu.  I mostly traveled alone, and met some cool people along the way.  I dove with a woman representing Slovenia at the World Expo in Shanghai, a professor of comparative religion in Germany, an Italian banker, and some Filipino rastas who happened to be Rotarians.  Diving is a great way to meet people, since you’re out on a boat in the middle of the ocean for eight hours a day, three days in a row, with nothing to do but eat, drink, share stories and play cards.  In fact, some of my best memories are from either from the deck of a boat in the Pacific Ocean, or the bungalows and beachfront bars where I spent most of my nights. Continue reading

The Role of the Celebrity Activist

Aaron Burr vs. Alexander Hamilton.  Nas vs. Jay-Z.  And now, Easterly vs. Bono.  In an attack reminiscent of Jon Stewart’s epic takedown of the sheepish Jim Cramer after the financial crisis, Bill Easterly, a well-known development economist who favors bottom-up approaches to development rather than top-down technocratic solutions, uses the 30-year anniversary of the assassination of John Lennon to lament the decline of good celebrity activism.  Summing up the comparison in a sentence, Easterly pens:

Lennon was a rebel. Bono is not.

Bono is an interesting character.    I am not completely sold that he is not a completely negative force in terms of development, but I do think that he has the tendency to do more harm than good.  First, he aligns himself with a particular school of thought regarding how foreign aid should be delivered.  Then again, I do the same thing (the opposite school of Bono), so I don’t know if I can completely knock him for standing behind what he believes, even if I think he is wrong.  Second, he provides a public face for institutions and organizations that are often disingenuous when it comes to impact, as I have written about in this post about Project (Red) and the trend of cause marketing.  But Easterly sums up my thoughts nicely in his post.  Here, Easterly describes what he sees as the problem of celebrity activism in general:

Bono is not the only well-intentioned celebrity wonk of our age – the impulse is ubiquitous. Angelina Jolie, for instance, is a member of the Council on Foreign Relations (seriously) in addition to serving as a U.N. goodwill ambassador. Ben Affleck has become an expert on the war in CongoGeorge Clooney has Sudan covered, while Leonardo DiCaprio hobnobs with Russian President Vladimir Putin and other leaders at a summit to protect tigers; both actors have written opinion essays on those subjects in these pages, further solidifying their expert bona fides.

But why should we pay attention to Bono’s or Jolie’s expertise on Africa, any more than we would ask them for guidance on the proper monetary policy for the Federal Reserve?

I agree.  Raising awareness is important, and I like to see celebrities shining a light on critical issues.  I understand the desire and sense of need to use your celebrity for good, but, just like I don’t want to see Bill Easterly dance, I don’t want to hear Bono be a technocrat or an economist.  This, according to Easterly, is the role of a true celebrity dissident:

True dissidents – celebrity or not – play a vital role in democracy. But the celebrity desire to gain political power and social approval breeds intellectual conformity, precisely the opposite of what we need to achieve real changes. Politicians, intellectuals and the public can fall prey to groupthink (We must invade Vietnam to keep the dominoes from falling!) and need dissidents to shake them out of it.

True dissidents claim no expertise; they offer no 10-point plans to fix a problem. They are most effective when they simply assert that the status quo is morally wrong. Of course, they need to be noticed to have an impact, hence the historical role of dissidents such as Lennon who can use their celebrity to be heard.

We need more high-profile dissidents to challenge mainstream power. This makes it all the sadder that Bono and many other celebrities only reinforce this power in their capacity as faux experts. Where have all the celebrity dissidents gone? It’s not a complicated task. All Lennon was saying was to give peace a chance.

Amen.  Keep it simple.

Does Per Capita GDP Matter?

There are various ways of measuring the level of a country’s development.  Choosing the right methodology for quantifying economic status is critical for thinking about the problem of poverty effectively.  On a macroeconomic level, the most common indicator is per capita GDP.  But I am not sure if per capita GDP is really a good measuring stick for the relative prosperity of a country.

This thinking stemmed from a conversation I had this afternoon over lunch comparing Ghana, where I used to live, to Kenya, where I now reside.  Ghana is technically middle income status already, based on per capita GDP figures.  My friend, who had also spent time in both countries, raised this point when someone asked about the differences between the two countries.   People bring up this statistic a lot when talking about Ghana, without taking into consideration the relative concentration of wealth (or maybe doing so, but not saying it).

The obvious example is with Equatorial Guinea, a tiny country of 600,000 people in Sub-Saharan Africa.  The country has a GDP of USD $6bn, for a GDP per capita of around $10,000 GDP.   Yet, still 80% of the population lives on less than $2 a day.  It is still classified as one of the 48 LDCs (least developed countries), and is a recipient of donor funding from other governments (though, according to the Istanbul Programme of Action, the product of latest UN conference on LDC development, Equatorial Guinea, along with its neighbor Angola, is eligible for graduation – sweet!).

Continue reading

Music in Ghana: High Life, Hip Life, and Gospel

As a generalization, African music is some of the best in the world.  In fact, most of the rest of the best music in the world is derived from African music, in one way or another.  Jazz, blues, bluegrass, rock and roll, and reggae can trace their roots to an African lineage.  I’m not sure why the number of African bands to make it on a global scale is so limited, but it is a missed opportunity.  Graceland by Paul Simon put Ladysmith Black Mambazo on the map, in part because the release of the album happened during apartheid, but also because the music was so good.  Fela Kuti, the Nigerian protest singer, and Oliver Mtukudzi from Zimbabwe, and Osibisa from Ghana (and other places), all have epic catalogues, but their international success puts them in the minority.  So, now that I have left Ghana, it is a good time for me to give a rundown of the music I’ve been listening to for the last six months.

High Life:

High life is among the most popular styles of music in Ghana.  It is breezy and upbeat with a quick drum line.  The most famous highlife group is called Osibisa.  It is an old school throwback band from the 70’s, 80’s, and 90’s.  The core members are Ghanaians who studied music in the UK and formed an international super-group comprised of different nationalities.

1.  Osibisa – “Sunshine Day”

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The Challenges for Public Education in Ghana

For my last three weeks in Ghana, I have been, in the words of my brother Kwesi, absolutely chilling out and taking in as much of what this great country has to offer before I leave.  One of those incredible places was Cape Coast and Elmina, two towns a few kilometers apart in the Central Region of Ghana, where much of the citrus production takes place.  Both are beautiful towns.  On his first trip to Africa, Obama came here to speak.  The economies revolve around fishing, and fishing towns, in my experience, tend to have a pleasant atmosphere.  Cape Coast and Elmina are no exception, though they have a notorious and checkered past.   They are home to the notorious slave castles that, for hundreds of years, functioned as the last stop for African slaves before boarding the slave ships for Europe and the Americas.  The brutality with which the slaves were treated and the conditions in which they were kept is appalling.  It is hard to believe that human beings could treat one another in such a despicable way.  It is an important time in history to understand and to never forget.

When I wasn’t seeing the castles, I was either relaxing at my guesthouse, the Stumble Inn, on the beach or wandering around the town, taking in the fishing town atmosphere and digging on the vibes.  The guesthouse, a diamond in the rough with cheap rooms and an island feel, is affiliated with a charity that fields short-term volunteers from Europe and the States to work at a local primary and junior secondary school nearby.  A British girl arrived the same time as me, and I decided to go along with her one day and volunteer at the school to get a better understanding of the state of public education system in Ghana, and also to mess around with some little kids.

Continue reading

Develop Economies Moves to Kenya

As loyal readers may have noticed, the postings on Develop Economies have been sparse of late.  That is because I have been running around Ghana, seeing friends and sights and beaches that I missed while I was working.  But now, six months after my arrival in this great country, I am on my way out again.  Tomorrow morning I’ll be flying to Kenya – Nairobi, specifically – where I’ll begin to work in social enterprise (I don’t have a job lined up yet, so if you’ve got any leads, it would be much appreciated).

Over the past six months, I have learned a lot of things about more than I could have ever imagined.  I delved deep into the agriculture sector in the country, analyzing the forces and dynamics, both external and internal, that have led to the industry that exists today.  I have thought about supply chains in rice, maize, soya, and fruits, and thought about how information is delivered to and received by farmers.  I’ve thought about different agri-business models and which are the best positioned for scale.  It has been a great learning experience, I’ve met smart and interesting people here, and it is going to be sad to leave.

Tomorrow I fly to Kenya to begin the next chapter.  From there, I will cut my teeth in the world of social enterprise in East Africa.  It is an exciting time, and it will be a pleasure to keep my readers posted about what I learn.

The Economics of Solar Lanterns with Mobile Charging Stations

Develop Economies is back after a brief hiatus.   I have finished up my work on my current project and am now taking some time to appreciate some of the aspects of Ghana I hadn’t had a chance to enjoy previously.  I spent a few days living with a rice farmer about 45 minutes by motorbike from Atsusuare in a small community along a lake fed by the Volta River.  I did some work in the field (very minor – I can’t say I’m a great farmer), came across two cobra snakes, and biked an hour each way to the next village with electricity to charge my cell phone and camera.  It was the first time I have ever actually experienced rural living, with no electricity, no running water, limited transportation (you have to call a motorbike to pick you from the neighboring town), and the persistent threat of snakebites, malaria, and other calamities that hang around waterlogged fields of paddy rice.  I have discussed on this blog the different solutions to the problems of rural energy delivery and distributed power generation, to the problem of inefficiency of burning charcoal and the use of clean-burning cookstoves, and others.  But I had never actually seen any of it or experienced it with my own eyes.

In terms of solar lanterns with mobile phone charging capacities, there is a huge need.  People have to travel an hour each way to get to the nearest community that is connected to the grid.  Once there, they have to pay 50 pesewas (about 30 cents) to charge their phones, and need to wait for two hours for the charge to complete.  They do this routine three times a week.  That means that 12 hours out of every week are spent on the activity (unless they couple it with a trip to the market, where they may also have electricity, or to see Manchester United play Chelsea, which is also necessitates the trip).   That is 12 hours of lost productivity, plus $1.20 for charging the phone each week.

For lighting, they use battery-powered lanterns, which provide a lot of good light.  They cost 3 Ghc (~$2) and require two batteries, which cost 80 pesewas (~$0.50) for the pair.  The batteries last for three weeks.  So, the upfront cost of the lantern is low, but the all-in cost per year is closer to $15.  That is relatively low for a quality source of light, and has a low weekly cost, which is amenable to the cash flow of farmers and other people living in rural communities and working in the informal sector. Continue reading

Weekend at Bin Laden’s: Foreign Aid to Pakistan

The big news of the day is that Osama Bin Laden is dead.  Hooray!  He was killed in a special-forces operation coordinated and executed by the United States without the knowledge of the Pakistani government or the military.  Bin Laden was found in a medium-sized city 35 miles north of Islamabad living in a compound on the outskirts of town that is valued at $1 million and is said to be eight times the size of any other houses in the area, complete with twelve-foot walls surrounded by barbed wire.  And the strangest part of it all is the proximity of the late Bin Laden’s neighbor – the largest military academy (the Pakistani equivalent of West Point) – to the place he was killed by U.S. forces.  Specifically, it was located 800 meters away.

For the last ten years, the Pakistani military has been on the receiving end of some very generous military aid from the United States government, which was actually intended to aid in the capture of Bin Laden.  But now, that aid is in jeopardy:

The presence of Bin Laden in Pakistan, something Pakistani officials have long dismissed, goes to the heart of the lack of trust Washington has felt over the last 10 years with its contentious ally, the Pakistani military and its powerful spy partner, the Inter-Services Intelligence.

With Bin Laden’s death, perhaps the central reason for an alliance forged on the ashes of 9/11 has been removed, at a moment when relations between the countries are already at one of their lowest points as their strategic interests diverge over the shape of a post-war Afghanistan.

For nearly a decade, the United States has paid Pakistan more than $1 billion a year for counterterrorism operations whose chief aim was the killing or capture of Bin Laden, who slipped across the border from Afghanistan after the American invasion.

The circumstance of Bin Laden’s death may not only jeopardize that aid, but will also no doubt deepen suspicions that Pakistan has played a double game, and perhaps even knowingly harbored the Qaeda leader.

When I think about the incentives around capturing Bin Laden, which means that the U.S. military will have less of a strategic interest in building good will and equipping the Pakistani military (which is notoriously difficult to deal with), and harboring him in the country, which means they have a steady stream of $1 billion in military aid every year, it makes sense to me that they hid him as long as they did.   Continue reading