All things ICT and mobile germane to the base of the pyramid

The Next Great Innovation in Finance: Lee Babcock of ACDI/VOCA on the disruptive potential of mobile money

Editor’s note: As part of NextBillion Financial Innovation’s launch, we invited a number of leaders to contribute their views on where innovation is heading, and what obstacles remain. Today Lee Babcock, Managing Director of Mobile Strategy at ACDI/VOCA, describes how different stakeholders can help mobile money become the next innovation to transform finance at the BoP. Microfinance was the last big financial innovation. Mobile money will be the next. When Mohammad Yunus pioneered the Grameen Bank in 1976, nobody believed microfinance institutions (MFIs) could be commercially sustainable. But there was hope in the model’s ability to provide lending to the very poor, so donors helped start MFIs around the world. The organization I work for, ACDI/VOCA, established a dozen MFIs, with USAID support, that have disbursed more than $1 billion in loans to microenterprises, smallholders and rural families. Once it was clear that MFIs were commercially sustainable, the private sector stepped in to expand financing. Donor-financed and now privately financed MFIs have served more than 154 million clients worldwide but fall far short of serving the 2.5 billion adults that are unbanked. This is because we can’t build a physical MFI or bank in every community that needs one. Enter...
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Agricultural Mobile Finance: Understanding patterns of daily life at the BoP to leverage market solutions

Mobile phone subscriptions will outnumber the global population this year—that’s more than 7 billion subscriptions. The rapid reach of mobiles presents potential for disruptive business model innovations in many sectors at the base of the pyramid – and finance is no exception. One such innovation is agricultural mobile finance that can benefit farmers, processors, cooperatives, buyers and traders—all the participants in the field-to-fork value chain. However, connecting farmers to formal banking on their mobile phones will require multi-stakeholder alliances of telco firms, financial institutions, value chain participants and development implementers. Together, using market research and taking an end-user design approach, these partners can overcome the barriers of illiteracy, financial illiteracy and lack of trust that constrain technology initiatives at the BoP. USING MOBILE PHONES TO BRIDGE THE GAP BETWEEN FARMERS AND FORMAL BANKING SERVICES At ACDI/VOCA many of our projects connect smallholder farmers, first to one another to attain economies of scale and then, as a group, to markets. For our Cocoa Innovations Project (CIP), which is developing the Indonesian cocoa sector by aiding smallholder cocoa farmers, we crafted an input supply finance mechanism in conjunction with a commercial bank and an international cocoa buyer. The mechanism allows farmers contracted...
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Planting the Seeds of Digital Finance: Part 2 of our Digital Finance Plus series discusses why agriculture is key to building the mobile money ecosystem

Editor’s note: This is the second post in our series on Digital Finance Plus. Published in collaboration with CGAP, the series explores the ways that digital finance is being utilized to help provide basic, essential services to the BoP. Discover more in part one, part three, part four and part five of this week-long series. Think about the five sectors covered in CGAP’s Digital Finance Plus project: agriculture, utilities, water, health and education. Each of these sectors is crucially important, and each is being impacted in different ways by innovative uses of digital finance. But in most of these sectors, mobile money products are facilitating payments from, not to, BoP customers. Of the five sectors, agriculture is the only one that provides household income to a significant number of BoP families. This could give agriculture-focused payment solutions a unique role in the growth of digital finance, since their ability to facilitate income streams to low-income families provides a powerful incentive for their adoption. So why aren’t more mobile money platforms tapping this potential? I had the honor of being in Brussels in March to talk about agricultural mobile finance with an audience of European Union international development and policy makers...
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Three Steps to Jumpstart Mobile Finance: Step 1 – Researching smallholders’ financial behavior to help them transition to mobile payments

Editor’s note: This is the first of a three-part series that will run this month, laying out three steps for embedding mobile money into agriculture development at the BoP. Click here for part two and part three. Something exciting is happening in agriculture – and in mobile money. Upcoming research by The Technical Centre for Agriculture and Rural Cooperation (CTA) will reveal that there is a race among large commodity buyers to have the fastest speed of payments to their smallholder farmers. At CTA’s recent Revolutionising Finance for Agri-Value Chains conference in Nairobi, the GSMA – the apex organization for 850+ mobile network operators worldwide – agreed, declaring that transitioning payments to farmers from cash to mobile is a huge opportunity for mobile financial service providers. Other organizations such as Rockefeller Foundation, MasterCard Foundation and USAID are also looking at this intersection of agriculture and mobile money. Last year, USAID even committed to including language in all its grant and contract solicitations to accelerate the use of mobile and electronic payments globally. It’s becoming increasingly clear that cash payment schemes are obsolete in the 21st century. By definition they present a value chain efficiency gap deserving of a designed intervention...
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Three Steps to Jumpstart Agriculture Mobile Payments: Step 3 – Overcoming farmers’ illiteracy, financial illiteracy and lack of trust

ditor’s note: This is the final post in a three-part series that began two weeks ago, laying out three steps for embedding mobile money into agriculture development at the BoP. Click here for part one and part two. The first and second blogs respectively introduced the need to conduct behavioral research into how people use cash as a preamble to forming strategic alliances, and some suggestions on how to form and manage those partnerships. The third step, as I detail in this post, considers the need to overcome illiteracy, financial illiteracy and, perhaps most importantly, a lack of trust by embedding mobile payments by large buyers to farmers into agricultural value chains. Farmers are often unable to read and/or are unfamiliar with the numerous forms required to open bank accounts. They usually live nowhere near a financial institution and, in many other respects, have been otherwise disenfranchised from formal economic activity for generations. Nevertheless, research has shown a consistent pattern of interest on the part of farmers to learn how to receive and send mobile money. Herein lies an opportunity for the agricultural partner in a strategic alliance to leverage its status as a trusted intermediary to promote awareness and...
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