As smartphones become more prevalent in the United States, countries in Africa may finally be catching up with the use of mobile technology, according to Tavneet Suri, a professor at Massachusetts Institute of Technology’s Sloan School of Management.
Suri, who was named one of the world’s 40 best professors under 40, gave a talk titled “Technology and Poverty Alleviation” on Thursday evening in Fulton 511. The event was sponsored by the Shea Center for Entrepreneurship and the Tech Trek Ghana program.
Suri discussed the rising popularity of mobile devices that support the money-transfer service M-Pesa, which she studied in 2009. M-Pesa primarily functions on old, secondhand Nokia phones, she said.
“You know, the ones where you have to press a number three times to type the letter ‘C,’” Suri said.
M-Pesa has become quite popular in Kenya in the last few years, she said. Suri herself is a fourth-generation Kenyan and studies the impact of technology in developing countries in Africa.
She stressed the importance of finance in poor countries when it comes to credit, saving, and insurance. M-Pesa has created an easier system by which poorer Kenyans can manage their money.
Through the Nokia phones, M-Pesa allows people to transfer e-money between each other via text message. The virtual money is backed up by real money in a bank account not owned by the user. This is a great service for people who do not want to manage a personal bank account because the bank is too great a distance from their home, Suri said.
Users withdraw cash by selling the e-money, or deposit cash and receive e-money through M-Pesa agents. The agents are usually small-business owners or microfinance institutions, and they receive small commissions when managing transactions.
According to Suri, 96 percent of households where M-Pesa was available had an M-Pesa account by 2014 in Kenya.
“I decided to study how this affected people’s’ lives,” she said.
Mobile money has created a safer and cheaper financial intermediation process, Suri said. Before M-Pesa was popular, many people would have to travel for miles to reach a bank. To avoid this journey, people would give their cash to someone in a van who would drive it to the bank and deposit it for them. This was a risky process, however, as drivers could steal money for themselves or be robbed at gunpoint. For years, she said, people did not feel safe with their finances.
“M-Pesa lowered transaction costs dramatically,” she said.
M-Pesa has also helped Kenyans create local businesses and take other financial risks by allowing for the creation of comprehensible insurance plans, Suri said. Users can make insurance plans that allow family members or friends to assume liability for the user. Often, family and friends will insure each other through their M-Pesa accounts.
The process of linking insurance plans with trusted family and friends, Suri said, has created a more entrepreneurial spirit. People are now more likely to use their money to create their own businesses and help grow GDP, as failure has become less risky. Suri has noticed a shift of a population of poor farmers to local businessmen driven by the economic incentive of profit.
She was surprised when she discovered that unfortunate events lead M-Pesa users to increase consumption. For example, if a disease is spreading around a village, M-Pesa users will spend their money to purchase medicine, thus increasing consumption.
People who do not use M-Pesa tend to save money for future food purchases to combat an expected decline in health. Users, however, are willing to take the financial risk and purchase medication, stopping the contraction of the disease early on.
Looking toward the future, Suri believes that e-payments will reduce corruption between the government and private businesses.
“Mobile money has really improved financial resilience,” Suri said.
Featured Image by Jordan Pentaleri / Heights Senior Staff