Beyond cash

‘Where will I get cash?’ asks Mary Masika after learning about SmartMoney’s mobile money service from a local registration agent. ‘How will I buy things with money on my phone? Don’t I need to first exchange it for cash?’ Mary, a farmer in Kasese, western Uganda, grows rice and coffee and sells it to local buying agents. Mary uses the money she earns to pay her children’s school fees and buy staples like salt, soap and sugar from local shopkeepers. Mary understands that money is only useful if it is widely accepted for purchase and exchange by everyone in her community. This reality highlights an important challenge for impact-driven organisations: how to generate targeted, positive social change in complex, interconnected economic ecosystems. Is it possible, for example, to achieve this kind of change with a narrow group of beneficiaries such as smallholder farmers or are more holistic community-wide solutions required?

An affordable innovation

The case of an early-stage East African social enterprise called SmartMoney is illustrative. SmartMoney is a new mobile money service bringing violence and losses to theft while also reducing payment costs, corruption and other market inefficiencies. SmartMoney was founded by US and African social entrepreneurs to address the unmet demand for a safer and cheaper payment alternative to cash for rural African farming communities.

SmartMoney recognised that mobile money was a promising solution but that existing mobile money providers were struggling to penetrate rural markets. After 18 months of field research in rural villages throughout Uganda and Tanzania, SmartMoney identified an innovative mobile money model that overcomes the many obstacles to mobile money adoption in rural markets.

During thousands of interviews with local farmers and villagers it emerged that one of the most important obstacles to rural adoption of mobile money is cost. Existing mobile money services charge fees that are prohibitively expensive to rural people and organisations for everyday savings and micro-payments. The SmartMoney model overcomes this obstacle by introducing an entirely free mobile money service to farmers and the agricultural organisations that purchase their crops. However, it soon became apparent that farmers would not accept a new form of e-money as payment for their crops unless they could use it to make purchases in their community.

This discovery led SmartMoney to quickly expand the scope of its rollout beyond the farmers to the shopkeepers that service them. However, this too proved insufficient as shopkeepers would not accept e-money from farmers, unless they could also use the e-money to make purchases or easily convert it to cash. In turn, this led SmartMoney to expand its scope again to include local wholesalers, suppliers and banks.

A further expansion occurred when farmers and shopkeepers began adopting the SmartMoney service and demanding the ability to make deposits. This was an exciting development as it demonstrated a heightened degree of trust in the SmartMoney service and an interest in savings. In most rural communities, saving is virtually impossible because rural people lack access to banks or simply don’t trust them. As a consequence, people store their money in their homes under furniture or bury it in holes in their yard. Sometimes women wear their savings under their clothes. All of these options are dangerous and the presence of cash increases the risk of theft.

As trust in the SmartMoney service grew, people recognised the many advantages of keeping their money on their phones instead of in their homes or under their clothes. Customers wanted places where they could take their existing cash and exchange it for e-money on their phones. SmartMoney needed to expand the scope of its rollout again to provide trusted service centres where people could make their deposits. Six months later SmartMoney had recruited more than 750 local shops, savings and credit cooperatives and other businesses who provide deposit-taking services to the community and partnered with them. The foundation of an exciting new culture of rural savings through the mobile channel was being formed.

Holistic payment and saving needs

Other more established mobile money services such as M-Pesa in Kenya are achieving high adoption rates. A recent story on the World Bank website, ‘Mobile payments go viral: M-Pesa in Kenya’, suggests that M-Pesa is now being used by an astonishing 40% of Kenya’s population, and the service processes monthly transfers totalling 10% of Kenya’s entire GDP. Clearly, SmartMoney is not the first mobile money service to reach rural markets.

The technology behind SmartMoney

SmartMoney has developed a proprietary mobile money service that can be accessed free of charge from any location in the world via standard GSM mobile phones and phone networks. Users do not need to have expensive smartphones or internet connectivity to use the service. SmartMoney is safe and secure. If users lose their mobile phone, their money is not at risk because all electronic money and user account information is stored in a safe and secure data centre. To prevent someone stealing a user’s phone and accessing that user’s account, SmartMoney requires all users to enter a PIN code when logging into the service. The combination of a physical phone and a PIN code forms a reliable 2-factor security solution comparable to the security used for debit cards and ATM machines.

Established mobile money services such as M-Pesa in Kenya and Tanzania, MTN Mobile Money and Airtel Money in Uganda are investing heavily to expand their footprint from urban centres into rural markets. However, to the limited extent that these services are now being used at all by rural individuals and organisations, they are not being used as a new local money system for everyday savings and purchases.

Instead they are being used to send money between urban and rural centres separated by large distances. This is not mobile money, it is mobile money transfer. And while the more established mobile money services are no doubt reducing remittance costs and increasing security for urban and rural people, it is false to call them a new form of money for rural markets. For as soon as any mobile money is received in a rural community using an established mobile money service like M-Pesa, the receiver immediately exchanges the mobile money for cash, which remains the standard medium of exchange. SmartMoney stands apart from established mobile money services like M-Pesa by focusing more on partnerships within rural economies as opposed to just mobile money transfer. As such, SmartMoney is at the forefront of an entirely new rural economic model.

Within the span of three short years, SmartMoney has grown from a small intervention narrowly targeting market inefficiencies between rural farmers and agriculture organisations to a community-wide rural payment and savings solution with more than 20,000 subscribers. It is revolutionising local rural economies in Uganda and Tanzania, and perhaps even more exciting, SmartMoney promises to revolutionise the very concept of mobile money for rural communities throughout the developing world. The SmartMoney example provides a robust solution to the many complex interconnections that exist in a typical rural economy and why it is important to view development challenges not in isolation but within the context of the larger economic ecosystems in which they exist.

Helping rural communities

SmartMoney was established in 2010 by an experienced team of finance, technology and development experts from the United States and Africa. The project’s aim is to reduce poverty and improve lives by providing affordable, accessible and secure financial services to remote rural communities throughout the developing world. SmartMoney is a new form of electronic money called ‘mobile money’ that is stored and exchanged with mobile phones. It reduces poverty, reduces violence and improves lives by replacing cash with mobile money. SmartMoney is not just another mobile money project. It reaches beyond the more easily accessed urban population centres targeted by existing mobile money providers to introduce mobile money to the world’s most vulnerable people living in remote and underserved rural communities. It also goes beyond the mobile phone technology by working with local partners to overcome the logistical and operational barriers in each community that have so far largely prevented mobile money from reaching rural populations.