Monday, May 21, 2007

Phoney Money Honey

BBC:
The lives of many Kenyans are being transformed by an innovative mobile phone money transfer service. The free account - M-Pesa - is offered by Safaricom Kenya, a leading mobile phone service operator and is a technological breakthrough say the operators. It enables subscribers to send large volumes of money in an instant transaction. The service, which is in the process of rolling out to most major towns in Kenya, is also cheap - costing on average about $1 to send or receive money. Just a month after launch, M-Pesa is already providing cut throat competition to existing money transfer agencies, notably the government-owned Postal Corporation, a market leader with a massive network of branches.

See also this Reuters report on micro finance:
"Uganda is probably the most saturated microfinance country thus far, and still the reach to the rural areas is not strong." [So said Sam Daley-Harris, director of the Microcredit Summit Campaign.]

Technology may have some of the answers. Some operators are looking at using pre-paid phone credit and Africa's rapidly expanding mobile networks to transfer money and make repayments, reducing the need for credit agents to travel from village to village collecting tiny amounts of cash.

Better communications and credit monitoring will also help. Kenya's new law, for example, encourages lenders to pool information on borrowers' credit history, drastically reducing the risk of default....
Here's the take over at Marginal Revolution:
If you want to pay for something, just make a call to the provider and transfer cell phone credits to the other trader's account. Why should those credits be any less liquid than currency? They are easier to store and transfer and just about everybody uses them. Monetary economics in Africa is very, very difficult. It must start with the presumption that money is the asset with the highest carrying costs, if only because your relatives find it so easy to take away from you.
Hmmm. Since the phone credit system makes it less costly to send money home does MR think this is good or bad?

There are several compelling comments to MR's post:

  • Mark writes: We have been using airtime as currency in Nairobi for a while. I regularly take change from taxi drivers in airtime - they don't like carrying cash as they are at risk from thieves.

  • doctorpat writes: How do you stop your relatives from "borrowing" all your phone credit?

  • Cyrus writes: The airtime, while still subject to on-demand sharing, is not subject to its cousin, socially tolerated theft.
What if I could buy minutes as a hedge against inflation?

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4 Comments:

Blogger nzm said...

What if I could buy minutes as a hedge against inflation?

If you use du, you could buy seconds. Maybe it would be a better currency to use against Dubai's inflation!

5:14 PM  
Anonymous Anonymous said...

why would minutes hold their value over time?

10:04 AM  
Blogger John B. Chilton said...

We're thinking of a situation where I can bank minutes on my phone, not dirhams. If the price of minutes rises with inflation minutes will hold their value relative to the purchase of other goods.

10:09 AM  
Anonymous Anonymous said...

I do think minutes make an interesting and creative marginal currency, but as an inflation hedge I just don't think it works.

For a more extreme example, imagine using computer ram as a currency. In that case it's obvious the stuff gets cheaper so fast it makes a terrible inflation hedge. Phone minutes are subject to the same forces only at a more gradual pace.

2:03 AM  

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