Bitcoin for the poor – a no-cash business plan for the ‘next billion’

Changing money Flickr, Institute for Money, Technology and Financial Inclusion

“Cash is the enemy of the poor,” says Rodger Voorhies, director of the Bill & Melinda Gates Foundation’s program aimed at improving financial services to the poor.

Sounds odd, since most poor people would be glad to have more cash.

But what Voorhies meant, speaking last week at a Seattle confab called the Next Billion, is that the poorest people on the planet routinely suffer from the insecurity of mostly dealing in cash, the inability to bank or protect their funds and the lack of credit when dealing with financial shocks or disasters (like a failed crop).

He said some 2.5 billion people, including  nearly nine out of ten Africans, operate on a cash-only basis today. The solution and the future of money, perhaps largely driven by the needs of the poor rather than the rich, may be digital.

Rodger Voorhies, from the Gates Foundation, talks with Quartz' Gideon Lichfield about mobile money.
Rodger Voorhies, from the Gates Foundation, talks with Quartz’ Gideon Lichfield about mobile money.

“Lack of access to financial services is incredibly risky for the poor,” Voorhies told a crowd of mostly digital entrepreneurs gathered at the Seattle Art Museum by Quartz. The nearly two-year-old online news organization was created by Atlantic Media to cover globalization, mostly from a business perspective.

“Our mission is not to go out and save the world,” said Jay Lauf, publisher at Quartz. “We do believe economic enfranchisement makes the world a better place. But we’re not looking at this through the bleeding-heart lens; we’re looking at this maybe with more of the cold-eyed and pragmatic sense.”

Yeah, so the primary focus of the Next Billion gathering was not so much to help poor people, but for the entrepreneurial digerati crowd to explore the many web-oriented opportunities for investment and business development worldwide. But it turns out this dovetails nicely with the aid and development agenda because most of the next billion ‘consumers’ are likely to come from middle- or low-income countries.

One of the chronic debates in the humanitarian community is if it is better to fight poverty through business development in poor communities than through the traditional ‘aid’ approach of directly providing what they need – food, water, vaccines, teachers or engineers.

It’s a stupid debate, of course, because both are needed. But many anti-poverty advocates remain dubious of corporate social responsibility projects, or the new-and-improved version known as ‘social enterprise,’ given that profit-making often tends to trump ‘social’ goals. In fact, corporations with shareholders are legally required to put profits first. So there’s often an inherent conflict in mission.

Yet the more far-sighted (and, dare we say, progressive) business leaders have been saying for many years that the developing world is where they expect to see the most potential for growth. Many of the countries with the most rapid increases in their GDP over the past decade have been in the developing world, in sub-Saharan Africa. Just look at the explosion of cell phones in poor countries.

In Kenya, the ubiquity of mobile phones has also fueled an explosion in the use of ‘mobile money’ – using your cell phone as a means for storing, transferring and documenting monetary exchange through the much-lauded M-Pesa program. Here’s a recent story from Bloomberg Businessweek that provides an entertaining look at how mobile money has become routine in Kenya.

But, as Voorhies and others note, mobile money is not a ‘build it and they will come’ thing. That’s a Hollywood story. M-Pesa has succeeded in Kenya largely because of deliberate support by both the business community and government. Prior to M-Pesa, the hot item for bringing business and poverty alleviation together was the microfinance, mostly microcredit – the strategy of making small loans available to the poor.

“The microfinance movement tried to bring banking the way we experience down to poor people,” Voorhies said. “We felt that none of that was going to work unless you could solve the underlying economics and change the cost of delivering financial services … We thought the only way to solve that problem is to go from cash to digital.”

The Gates Foundation has in the last few years invested a lot of time and energy (and money) in assisting other countries to build on Kenya’s experience with mobile money. In Bangladesh, Voorhies said, they have helped the BRAC Bank (which formerly was known mostly for championing microfinance) in its efforts to develop bKash, a mobile money service. Here’s a video of the talk he gave at the Quartz event.

“Within a year or two, I predict bKash will be even bigger than M-Pesa,” Voorhies said. Mobile money is catching on, he says, and studies show it does have a positive impact on the lives of the poor – enhancing financial stability and security, which translates into other benefits for the poor that one might not expect.

“A study we  did in Malawi showed that just giving people a safe and secure place to save increased household income by 17 percent,” Voorhies said. Another study done in Ghana improved the ability for smallholder farmers to invest for the future, the use of self-insurance by families to protect against crises and even increased attendance in schools.

But this is no simple techno-fix that minimizes human element, Voorhies noted. One of the critical factors for success in creating a market for mobile money, he said, is to create a vast network of people who can act as agents for the mobile money system to cash or accept mobile money.

“They are like human ATMs,” Voorhies said. The lack of an adequate human network, he said, is one of the reasons Nigeria’s efforts to promote mobile money has not taken off. In addition to Bangladesh’s bKash efforts, he said Tanzania is also moving forward with an approach that looks likely to succeed.

Just as happened with cell phones in sub-Saharan Africa, which saw phone use take off without ever developing much of a land-line phone system, many are predicting mobile money will leapfrog any plans to develop a traditional bricks-and-mortar banking system with big vaults of paper money.

The rich world may be late to this party, but mobile money appears to be taking off all around the world. At the Quartz meeting, someone in the audience asked Voorhies about also using the web-based and totally virtual currency Bitcoin in the developing world.

“Yeah, we’re excited about that possibility also,” Voorhies said.

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Tom Paulson

Tom Paulson is founder and lead journalist at Humanosphere. Prior to operating this online news site, he reported on science,  medicine, health policy, aid and development for the Seattle Post-Intelligencer. Contact him at tom[at]humanosphere.org or follow him on Twitter @tompaulson.