Villages leapfrog the grid with biometrics and mobile money

In low-tech villages, biometrics and mobile money can level market spikes and allow a way for people to bypass the grid and still eat.

A drought destroyed much of the millet harvest in Niger in 2009. Villages emptied as people left in search of money to buy food. The crisis promised to have lasting effects on already-poor rural households. But an unlikely deus ex machina blunted the crisis for some families: Cellphones allowed them to call relatives in cities for help.

"They didn't have to sell off their plow or take their kids out of school, which is going to have an impact on the longer term," says Jenny Aker, a development economist at Tufts University in Medford, Mass., who saw the drought firsthand.

Cellphone usage has exploded in Africa. In 1999, just 10 percent of Africa's population lived in areas with a signal; by 2008 that number stood at 60 percent, according to data from the GSM Association, an international mobile phone industry group.

Niger may seem an unlikely place for cellphones. Houses are made of straw; paved roads and power lines have yet to arrive. The cellphones are often shared between families. They are charged on a neighbor's diesel generator.

In countries like Niger that largely lack landlines, cellphones are having a pervasive impact. People selling millet or cowpeas in Niger traditionally traveled from market to market to learn prices – wasting money and time while the shelf life of crops ticked away. Farmers sold harvests without knowing prevailing prices. Prices of millet, the main food crop, fluctuated wildly – a potential disaster for families dependent on buying it.

People now call around for prices before buying or selling, creating what Ms. Aker calls a more efficient market. "On average, price levels went down" when cellphone service came in, she says. "But the most important thing is you don't have these extremes in consumer prices."

The rise of cellphone technology reflects a larger dynamic. Poor countries that lack expensive infrastructures like telephone lines, power grids, paved roads, and national ID systems are bypassing these massive investments and "leapfrogging" directly to lower-cost, decentralized technologies: cellphones instead of landlines. Satellite TV instead of local transmissions. Diesel generators or solar panels instead of grid electricity, and so on. In some cases, developing countries are adopting technologies that have yet to catch on in industrialized nations – such as biometrics, or digital fingerprinting.

A new form of cellphone commerce, called mobile money, is allowing rural people without access to banks to transfer money across long distances, pay electronically for supplies, or even save money through a process similar to using a prepaid ATM card. The first step toward this happened in 2005, when the Kenyan cellphone provider Safaricom began allowing people to transfer phone time that they had purchased to other customers. This transferable phone time soon became a de facto currency: People actually transferred phone time to one another to pay their debts and bills; those who received phone time from others could then convert it back to cash by selling it to informal brokers.

Safaricom followed up in 2007 with M-PESA – the world's first formal mobile money system. It replaces the brick-and-mortar bank with a man by the road, holding a cellphone, who accepts cash to charge customers' phones with electronic, or "mobile," money.

Banks couldn't previously offer financial services to families living on a dollar a day; the costs were too high compared with the minuscule amounts of money changing hands. But mobile money alters that equation, says Bob Christen, director of financial services for the poor at the Bill & Melinda Gates Foundation: "The big advantage for the bank is it can take that transaction cost down from a dollar to, say, 20 cents. [The bank] is able to do smaller transactions and not lose its shirt."

M-PESA has gained 14.5 million users in Kenya. The Gates Foundation is facilitating three dozen similar programs in other countries, hoping to increase savings among the poor.

Just as cellphones are standing in for banks, fingerprints are starting to stand in for identity numbers.

Widespread fingerprinting is controversial in Western nations, but in countries where births aren't recorded, people lack official identification, and many can't even sign their names, fingerprints might be a person's best shot at securing a bank account.

It began in South Africa during the 1990s: Large fingerprint databases that had been used to monitor citizens during the apartheid era were put to a more benevolent purpose – to facilitate the distribution of government financial aid. The fingerprint, in effect, became a person's PIN, or signature for claiming payments.

Fingerprint-based ID has found its way into many other programs since. In East Africa, the Opportunity International Bank of Malawi has used biometric ID to sign up 343,000 customers since 2003. Print-reading bank kiosks travel from village to village in pickup trucks, allowing customers to deposit money in savings accounts; take out loans; and even buy funeral insurance, life insurance, or crop insurance.

Alan Gelb, a senior fellow at the Center for Global Development in Washington, D.C., believes that biometric identification can reduce the corruption and fund diversion that hobble many programs for the poor. He points to a Nigerian pension program: When it switched to fingerprints in 2010, the number of people claiming benefits dropped from 160,000 to 115,000. Monthly payments dropped from $150 million to $84 million.

"These programs," says Mr. Gelb, "can be much more costly and much more subject to leakage if you don't have some kind of formal identifier that is unique."

Editor's note: This article is No. 3 of the  FutureFocus package "5 Innovations Changing the World".
 

 No. 1 - Small is big: a cellphone chip that allows monthly battery charge

No. 2 - Human rights: Use satellite "spy" camera for proof and prevention

No. 4 - E-fabric spools bring bullet-proof watches, paper-thin batteries

No. 5 - Where solar power can't fly, artificial photosynthesis might