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Poverty and Access in Latin America

Judith Mariscal

Mobiles for Development: the case of M - Banking

LASA 2009, Rethinking Inequalities. Rio de Janeiro Brazil, June 2009.

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1. Underserved Population in Latin

America.

2. M - Banking

3. Conclusions

CONTENTS

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Unserved Population in Latin America: different dimensions1

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DOI, NRI and PIB per capita for some countries, 2006

Source: ITU and Harvard University.

The expansion of the economies based on information and knowledge have two sides of the coin.

They offer a window of opportunities for the poor in new productive processes…

ICT Opportunities

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Latin American countries still lag behind with respect to countries that have implemented successful ICT strategies.

Digital Opportunities Index (DOI) and Network Readiness Index (NRI) for some countries, 2006

Source: ITU and Harvard University.

Or they can increase the economic and social divides if few points of access are provided for the poor.

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1

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8

9

nri

doi

Divides in LA

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Accessibility is a key variable to explain low penetration levels in LA.Mobile tariffs represent 9% of income per capita in LA, while in other countries is less than 1%

Source: CEPAL, 2007

Fixed, Mobile

teledensity and tariffs

as % Income per

capita (2005)

Internet tariffs represent 12% of income per capita, while in developed countries is 1%.

Bb. Internet Subscribers

per 100 hab.,

Internet users per 100 hab.

and tariffs as %

Income per captia (2005)

Peru; 17.0%

Korea; 0.4%

Mexico; 2% Canada 0.3%

Argentina; 3%Honduras; 16.0%

Singapore; 0.6%Germany; 0.8%

-20

0

20

40

60

80

100

120

140

-5 5 15 25 35 45 55 65 75 85

Fixed Telephone Lines per 100 hab

Mo

bile

Tel

eph

on

e lin

es p

er 1

00

hab

Cost of access to ICT as a % of income per capita

Guatemala; 25.0%

Bolivia; 22.0%

Germany; 0.7%

Chile; 4.0%

Argentina; 5.0%

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-2

0

2

4

6

8

10

12

14

16

-10 0 10 20 30 40 50 60

Internet Users per 100 hab.

Inte

rnet

su

scri

bers

Bb

per

100 h

ab

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Government vs. Market solutions

Public initiatives have had a limited impact given its potential demand

Public and Private Telecenters in LA (2006)

Source: CEPAL 2006

CountryGovernment TC

Private TC

Total TC

Proportion of Gov. TC over the total

Potential users for each TC

Argentina 9,555 20,647 30,202 32% 889

Bolivia 10,034 50,164 60,198 17% 2,423

Brazil 9,976 1,178 11,154 89% 8,143

Chile 10,034 50,164 60,198 17% 3,454

Costa Rica 484 715 1,199 40% 2,238

Mexico 1,171 18,765 19,936 6% 1,300

Peru 54 20 74 73% 1,017

Market initiatives appear to have a larger scale

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Despite the low ICT penetration in poor areas, ICT users spend a significant amount of money on ICT .

Mexico: % of income spent on ICT by location size (2005)

3.12

4.05

4.93

less than 2500 inhab. 2500 - 9 999 inhab. More than 100 000

Source: INEGI (2007)

Percentage of income spent on ICTs is growing, old rule of thumb was 2.5 percent. Today we find up to 10 percent.

Potential Demand

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Mobile phones have rapidly spread among the lowest socioeconomic levels (D and E)

Mexico: Mobile penetration by SEL (2005)

Source:Bonina, Piedras and Verut (2006)

85%

43%

9%

ABC+ CD+ DE

89%

75%

67%

42%

27%

AB C+ C D+ DE

Business’ opportunities at the BoP.

2005

2003

Low Income groups have a growing access to mobile

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M - Banking2

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There is a lack of access to basic financial services in the developing world

Source. World Bank and Vodafone

The rapid spread of mobile phones means users already exceed the number of banked people in many developing countries.

B a n k b r a n c h e s , A T M s p e r 1 0 0 ,0 0 0 p e o p le ; m o b i le s s u s c r ip t io n s p e r 1 0 0 p e o p le ( 2 0 0 5 )

0

2 0

4 0

6 0

8 0

1 0 0

1 2 0

Ch

ina

Eg

ypt

Ken

ya

Mex

ico

So

uth

Afr

ica

Tu

rkey U

K

US

A

B r a n c h e s A T M s M o b i l e s P e n e t r a t i o n

Financial Penetration vs. Mobile Penetration

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Source. Expanding Horizons, Nokia.

M – Transactions may contribute to increase financial services in developing world.

M - Transactions

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What role can mobile telecommunications play in providing banking services?

• Mobile based banking offers the potential to fill a financial vacuum in developing countries through the movement of small amounts of money.

• Uses existing communications infrastructure that already reaches un-banked people; adding a bank account to an existing mobile phone. (stored value accounts)

• Channels the power of new distribution networks for cash transactions such as airtime merchants.

• Has the potential to be transformative.

(www.gamos.org.uk)

Telecommunications in Banking Services

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According to the IDB, LAC received remittances for USD$ 65,000 million.

Mexico is the leading receiver (23, 979 million). For Guatemala, El Salvador, Honduras and Nicaragua, remittances account for more than 10% of its GDP.

23, 979

3,085

700

125

850

2,900 7,075

920

4,520

330

4,128

2,5613,120

320

990

560

3,695

Jamaica1,975

Haití 1,830

Trinidad & Tobago 1,830

1,050

The importance of remittances

Source. IDB

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•M-PESA (Kenya) : 1 million subscribers.

•Globe Telecom and Smart (Philippines)•Smart (2000 ): 2.5m subscribers, with debit card, linked to bank•Globe (2004 ) 1.2m subscribers, with ‘virtual wallet’Accessible via 3500 merchants

$120 billion worldwide annually was sent from rich to poor

318 billion worldwide was sent from poor to poor. (WB 2007)

Size of Remittances

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Barriers for m - banking

• Uncertainties over the speed and nature of customer adoption.

• Lack of interoperability with existing payment systems.

• Regulatory barriers, i.e. lack of openness to new models and lack of policy certainty.

• Difficulties in providing security with protocols available.

• Lack of supply; in many low income countries mobile penetration is low and operators are focusing their strategies on basic services.

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Challenges for regulators:

• Enabling environment.

• Promote competition.

• Setting interoperability.

Challenges for Operators:

• Interoperability.

• Applications to allow transactions.

• M- network coverage .

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CONCLUSIONS3

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ICTs are a useful tool for a pro-poor growth, one that enables low income groups to actively participate in economic activity.

Investment in mobile services offer a high yield return in terms of pro-poor growth.

There is an untapped market where the bottom of the pyramid sector holds a significant potential as a viable business.