Sunday, February 22, 2009

Why Does Mobile Banking Matter?

For the past two weeks, I have been traveling around Papua New Guinea trying to understand how money works in this economy where 87% of the people live in relatively isolated villages surviving through subsistence farming and a variety of odd jobs. Almost none of these people have bank accounts. Money that is saved is hidden carefully inside homes or wrapped in some kind of container and buried. In the past when money was made from paper, the hard earned -and carefully saved - cash often disintegrated before it was dug-up to be used. Imagine the horror that an impoverished person would feel when they realized the little money they had saved for emergencies had disintegrated. To minimize this type of tragedy, the Government of Papua New Guinea converted all its currency from paper to plastic. That helps. But if a parent dies before they can reveal their secret hiding places, their family is left bereft.

It may seem that money would not be important to a remote population who live in simple houses made of bush materials, go barefoot most of the time, and grow their own food. But that is not the case. The villagers we interviewed said that their largest expenditure was the fees they pay for their children to go to school. Community cohesion is extremely strong in PNG. When one family is in trouble, the rest of the village pitches in to help. So the second most important use of money is “social obligations.” Often considered both a blessing (because it ensures the survival of all) and a curse (because it makes it almost impossible for any one person to acquire wealth), these social obligations are the warp and woof of village life. People also need money for second-hand clothing, shoes, and incidentals like soap.

Villagers rarely go to a bank. Townspeople and those living in proximity to a town are more likely to do so. In all cases, when people in PNG got to a bank, they are forced to wait in queues under the hot sun for up to 2 or 3 hours. Coupled with the travel time required, going to the bank will take the average Papua New Guinean more than half a day. People who live farther away often have to walk some distance or take a bus that will charge them about $1.25 each way to get to the bank. That's a lot of money if you are making only a couple hundred dollars a year.

When we interviewed some of townspeople waiting in the bank pictured above, we learned that they bank a few times a week because holding onto cash – even small amounts – presents huge security risks. Theft is rampant in PNG. In the West, we are so used to our ATM, debit, and credit cards, we find the PNG realities unthinkable. Just try to imagine what your life would be like if you had to conduct all your transactions in cash, could carry only small amounts at any time to minimize loss through theft, and then had to stand in line for hours every time you needed more money. Your productivity would tank.

The potential of saving money safely, securely, and affordably whenever you want, wherever you want - even at a basic tucker shop near your village - all through a mobile phone can be life changing for people in a country like PNG. The use of phones as a mechanism to stay connected to family and obtain critical information already has changed their lives. In Cambodia where I was traveling before coming to Papua New Guinea, I learned about a new mobile phone solution that could have great potential in PNG as well. I feel very fortunate to be able to do the work I do, at the same time that I have the opportunity to explore our fascinating planet.


James Dailey said...

Janine - great to read this. I've got a couple of thoughts... As you know the liquidity management for the cash-in/cash-out part of this is key for those small mom and pop shops that participate. Having an easy way to determine cash handling requirements would seem to be a good toolset to develop. It may also go toward convincing the regulator about tracking this at the level of interfaces with the money supply,

zigmuna said...

Hi Janine,
Great blog! Keeps making me think I should write in mine again sometime this century!
So how do people put money in the bank with a cell phone? And conversely, get it out? I just don't see the full picture I guess...