M banking closes the poverty gap" says the BBC website and "Could Mobile Banking End Poverty in Africa?" another website proclaims. Both articles elaborate about the new m-Kesho product recently launched by Safaricom in Kenya (I also referred to it in this blog). The connection between providing an electronic means to save and the eradication of poverty shows a massive lack of understanding of the challenges of the poor. Poor people save anyhow (with our without electronic saving accounts). It is not their ability to now suddenly be able to save electronically that is going to make poverty go away.
It is my (unscientific) opinion that poverty is fundamentally caused by two factors:
- The cost of money to poor people are much too expensive. The cost of storing, moving and multiplying money is extremely expensive, especially if the indirect cost (loss of money, transport to get to money etc.) is taken into consideration. This cost of money has been estimated to be as high as 25% of the income of poor people. Mobile Money can (without a doubt) reduce this cost.
- The skill with which money is used often lead to an increase in poverty. Inappropriately timed loans, wasteful spending or badly balanced portfolios always destroy wealth. Even in more affluent communities this behaviour leads to poverty. If the skill in using money can be improved in poor people, poverty will also be dealt a death blow. And, yes, Mobile Money can help in many ways to increase money management skills.