How might we best assist refugees? The mobile phone

Written by Paul Newall

The world is facing one of the greatest humanitarian crises since World War II. The United Nation’s Syria Regional Refugee Response estimates there are 4.39 million registered Syrian refugees globally – with the total number being much higher[1] – and that is not even including the refugees from other countries, such as Iraq, Afghanistan, Libya, and Eritrea. While there have been many instances of mass migration in human history, there is one key difference to today’s crisis, and it’s a trend that may provide an avenue to reaching, connecting, and serving those in-need: the mobile phone.

A recent article stated “we can call the huge numbers of refugees arriving in Europe in 2015 the first digitally-driven mass-migration.”[2] To highlight this point, Wael, a Syrian migrant, told Agence France Presse “our phones and power banks are more important for our journey than anything, even more important than food.”[3] According to one study, 86% of Syrian youth in refugee camps have access to a smartphone, and agencies have made it relatively easy to get SIM cards once inside.[4] In Jordan’s Za’atri Syrian Refugee Camp, for example, researchers found that 89% of respondents owned a mobile handset and 85% owned at least one SIM card.[5]

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An aerial view of Za’atri refugee camp in Jordan (Photo credit)

At a time when ignorance and fear about the refugees is at an all-time high (Hello, Mr. Trump and Mr. Cruz), the mobile phone can prove the tool to reach these populations and provide a useful lens through which we can better understand them. Through mobile phones, governments/donors can connect to those in-need, allocate cash-transfers, provide health and re-settlement information, and break down any language barrier. We can understand their social circles, their needs, their concerns, and their journey to where they are now.

The above use cases are possible if we find solutions to current questions or concerns (including Anti-Money Laundering /Combating the Financing to Terrorism, fraud, etc.). Using industry best practices, as well as leveraging recent technological innovations, we can move towards the financial inclusion of refugees while maintaining the integrity of the financial ecosystem.

There have been reports of border crossing agents removing mobile phones from refugees upon arrival to their country – it’s hard to imagine a more shortsighted action. We are in a moment when the immediate needs and concerns are so pressing – donors and governments must prioritize utilizing the one common connector between us all: the mobile phone. Responses can be better targeted using the data from the refugees’ mobile phone. Such a targeted, data-driven approach was not available in mass migrations of the past; we must make sure we make the most of this opportunity.

Following this article, we will explore elements such as security, efficiency, technology and inclusion with a series of articles that highlight solutions that could yield big results in assisting refugees.

[1] http://data.unhcr.org/syrianrefugees/regional.php

[2] http://www.zeit.de/gesellschaft/zeitgeschehen/2015-09/smartphones-mobil-phones-refugees-help

[3] http://qz.com/500062/the-most-crucial-item-that-migrants-and-refugees-carry-is-a-smartphone/

[4] http://news.psu.edu/story/350156/2015/03/26/research/ist-researchers-explore-technology-use-syrian-refugee-camp

[5] Maitland, Carleen and Ying, Zu, A Social Informatics Analysis of Refugee Mobile Phone Use: A Case Study of Za’atari Syrian Refugee Camp

The Implications of the Freedom 251 Smartphone

Written by Mark Nichols

The prototype of the Freedom 251, the ultra-budget smartphone that became available for pre-order in India in February, looks like a toy iPhone. Though it shares many characteristics of the popular device, Apple’s signature softly rounded corners, curved sides, and silver-ringed home button are rendered in white plastic. When switched on, even the app icon design recall the iPhone’s, displayed next to such pre-loaded apps as Facebook, WhatsApp and others linked to government initiatives for women, farmers, and fisherman. Above the screen, a smear of white correction fluid hides the logo of Adcom, a handset manufacturer that denies affiliation with the Freedom 251. An Indian flag, already starting to chip off of the white plastic casing, covers more Adcom branding on the device’s back.

Despite its questionable, derivative appearance, the device has received attention from media and potential customers alike: according to Ringing Bells, the company behind the Freedom 251, its website received 600,000 hits per second and 30,000 confirmed orders on the day of the launch before it crashed under the demand, and thousands showed up at the company’s office to buy the device in person (the Freedom 251 is only available for online pre-order). The cost: Rs. 251, or $3.67, the lowest price for an unsubsidized smartphone sold anywhere by a large margin.

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Applications provide smartphone users with many payment options

The Freedom 251 is the newest entrant in the budget smartphone arms race, which has recently seemed more like an all-out sprint with important consequences for mobile money services and players. As we discussed in our predictions for 2016 trends, smartphone penetration is growing quickly in key regions for mobile money, including sub-Saharan Africa. Of the world’s 7.4 billion mobile phone subscriptions, 46% are smartphones, and Ericsson predicts this figure will be 70% by 2021. Though smartphone penetration is lower in poorer countries than in rich ones, it is also growing much faster in regions like sub-Saharan Africa, helped in part by the availability of more affordable devices. MTN, Tecno, and Google already offer smartphones at or below $50.

In December, we talked about the implications of this shift on the blog:

An immediate consequence of the spread is improved user interfaces and integration with smartphone capabilities for existing mobile money services, but this shift cuts deeper. Third parties can develop apps built on the mobile money service, such as pesaDroid and m-ledger, money management applications built on M-PESA. With the service delinked from SIM cards, competitors using mobile and web-based interfaces, such as Facebook’s remittance/e-money services, can enter the market, and existing services can expand to a customer base beyond that of a specific [telcom operator].

The Freedom 251, for its part, may yet fail to fulfill its potential to provide smartphones for even the poorest of the poor. “It feels like a Rs. 3,000 smartphone,” writes one reporter, and he is not far off: the materials of the phone are estimated to cost Rs. 2,500. Ringing Bells says it plans to reduce the price through economies of scale, partnerships, and innovative marketing strategies, and aims to hold 30% of the Indian smartphone market by the end of this year. Some observers fear the Freedom 251 and its highly publicized launch may be a marketing ploy or even a scam. If the device and its price are real, they likely owe their existence to subsidies of some kind (the announcement seems to come in connection with the Make in India scheme, launched in 2014, which encourages domestic manufacturing, though Ringing Bells has denied government involvement or subsidies). Such subsidies would be effective in getting handsets into the hands of the poor, but fall short of the market-based ultra-budget smartphone we might hope for.

Yet even if it has a dirty secret, the Freedom 251 still represents the future of possibilities its name suggests. Two months ago, a $25 smartphone seemed too good to be true; in the year of the $4 smartphone, it seems too good not to be. There is also a chance the low price of the Freedom 251—why Rs. 251 when a viable handset three times that price would still be a step forward?—will end the race towards the ultra-budget smartphone, as customers and manufacturers alike grow weary of the fixation on price above quality. Last year, Mozilla backed down from its 2014 promise to develop a $25 model, choosing instead to focus on improving user experience. Datawind delivered on its Rs. 999 ($14.53) smartphone last year, but with a dip in quality severe enough to dampen much of the excitement over the price.

Retreat from the cost-fixated fervor could be welcome if an emphasis on innovative financing models took its place. Even in rich countries, a phone’s sticker price is often meaningless. I am unlikely to invest the listed price of $749 for a 64GB iPhone 6s, but I happily pay AT&T $35 a month. Pay-as-you-go financing for solar home systems, for example, already increase energy access in areas with poor rural infrastructure by allowing repayment to mirror customers’ cash flow. For some of the world’s poorest, even $3.67 is too expensive to buy outright.

And cost is not the only barrier to smartphone adoption. Feature phones will still retain a significant minority of the market share, even in rich countries: 40% of Orange’s customers in Western Europe and 40% of those in Eastern Europe use feature phones. Many purchase these simple phones with long battery lives for their children or as a second phone for prolonged stays away from charging stations. In poor countries where power supplies are scarce and those residing in rural areas may only be able to charge phones during trips to a city or by using a shared power source, smartphones’ shorter battery lives makes them impractical.

Whether Ringing Bells meets the high bar it has set for itself is in some ways secondary. Even if it fails to meet its June 30 deadline to deliver on its pre-orders, its effect on the market for low-cost smartphones may endure.

The challenges ahead for mobile financial services in Myanmar

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Written by Sachin Bansal

Myanmar has been receiving lot of attention recently. As a result of its increased openness with the global community, there have been many articles written on the country, its people, and many are looking at Myanmar to take great strides in the coming years. As a result of the increased dialogue with international players, there has been significant foreign investment in various sectors of the economy. The country is now moving towards a market-oriented economy, a change that is helping the government-driven economy to be more efficient and competitive. As an example of the increased competitiveness, entry of new players in the telecommunications space has brought down the cost of SIM cards from as high as $2,000o to $1.25 today, making it more accessible to the population. This fall in price has resulted in increased mobile penetration in Myanmar, 54.6% as of March 2015. The Ericsson Mobility Report of November 2015 states that 87 million new mobile subscribers were added globally in the Q3 2015, of which Myanmar contributed 5 million – ranked fourth globally of the fastest growing markets.

The Central Bank of Myanmar is eager to leverage this now omnipresent tool to expand financial services to the un(der)banked citizens of Myanmar. In July 2015, it issued draft Mobile Financial Services (MFS) regulations and the final regulation is expected soon. In spite of all the efforts being made by the government, central Bank, financial institutions and telecom companies, the journey to launch MFS will not be easy in Myanmar. There are several challenges facing uptake and usage:

Lack of trust in the banking system: 

There is a very high level of mistrust with the banking system in Myanmar and most people still do not have bank accounts. The lack of trust is so ingrained that several big institutions pay their staff in cash, as the employees are not willing to accept a bank transfer. This lack of trust in banks can mainly be attributed to the 2003 Myanmar banking crisis but there have also been several recent rumours of banks failing, leading to people withdrawing all their money from the banking system. The MFS players will have to work very hard to overcome this challenge to change people’s perception.

Low level of perceived risk for carrying cash:

People in Myanmar do not perceive carrying large amount of cash on their person as a huge risk, unlike in other countries. This lack of risk is evident in the country as you can see money changers sitting on the roadside of Yangon streets, with minimal security arrangements, counting large US Dollar bills out in the open. As the perceived risk of carrying cash is low, people may be unwilling to pay fees/charges to store their money in MFS wallets for just safety reasons.

Low pricing of existing formal channels of money transfer:

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Money Transfer Charges of Myanmar Post

Most successful MFS offerings have person-to-person money transfer (P2P) as their core product offering as it is cheaper than transferring money through a bank. In Myanmar, however, the money transfer service offered by many formal institutions has a very low transfer fee. The Myanmar Post Office, for instance, has an extensive presence throughout the country and offer money transfer service in 335 of their branches. The fee is lower compared to other countries at 0.05% to 0.5% of the amount remitted plus fees. Indian Post Office by comparison charges 5% on low-ticket money order service. Establishing a business case to compete with such low pricing is going to be a challenge for MFS players in the near future. However, there is limited geographical coverage of such formal services available to the citizens and customers may be willing to pay for convenient services if the price was appropriate.

Prevalence of Hundi system (informal remittance channel)

There are several informal channels , such as the Hundi system, that also offer money transfer services to citizens of Myanmar.  The Hundi system has been used and trusted for several decades. As per The Economist, people migrating outside the country perceive the traditional hundi system to be cheaper, quicker and safer than anything the banks can offer. The new MFS offering will have to beat the advantages offered by such informal systems.

To launch successful MFS operations in Myanmar, the providers will have to work on an innovative business model and develop customer-centric products that learn a lot from the informal offerings. Pricing will also play an important role as customers may be willing to pay for accessibility and convenience.

 

Mobile Money in Uganda

Written by Paul Newall

Discussion between Khurram Sikander (KS) and Paul Newall (PN)

The recent ruling in Uganda to declare mobile money illegal has surprised many and caused quite a commotion in the digital financial services (DFS) space – and much conversation in the Enclude offices. I talked with Khurram Sikander, Enclude’s Global Group Lead for Digital Payments, to discuss some of the major topics and gain his insights on the matter.

PN: The recent ruling in Uganda has thrown into uncertainty one of Sub Saharan Africa’s most promising mobile money environments. What are your initial takeaways?

KS: I do not believe that the views shared by Member of Parliament Katunu and Justice Madrama are entirely correct. While the regulations in Uganda could be more clearly articulated and could include a more comprehensive set of guidelines, they do mandate that mobile money operators (referring to non-bank providers such as MNOs) partner with financial institutions to apply for a license. It is then the responsibility of the financial institution to carry out due diligence on the mobile money operator, including proof of financial position; and review of the operator’s business plan, risk management proposal, technology system, and AML/CFT measures. Once approval from the Bank of Uganda (BoU) is obtained, mobile money is treated as a financial institutions business regulated under the Financial Intelligence Authority.

PN: There does seem to be some recurring confusion with how the money is reconciled between the two parties in this relationship. This confusion has led the MP and Justice to consider MTN a financial institution. Can you expand upon that – once transferred, how is the money reconciled between the bank and the telco?

KS: The regulations clearly state that the mobile money operators have to hold, in an escrow account in their partner financial institution, the equivalent value of the mobile money / wallet they sell to their customers. The parties are expected to reconcile the balances of the escrow account and the mobile money accounts to ensure the net effect is always zero. Negligence in this area is where the fraud often takes place.

PN: This all seems like a misunderstanding of the regulations. Keeping in mind how successful Uganda’s mobile money market has been, why do you think the MP and Justice took it upon themselves to declare it illegal?

KS: It seems that there is a fundamental lack of clarity from those reviewing the regulations. In any case, I do not see the government suspending a $6 billion per year business (as of 2014) and a large source of tax income anytime soon, and in fact, the BoU has responded to the situation by issuing a statement confirming that mobile money is lawful and secure.