Mobile phones and a modern economy for Malawi
Malawi's largest piece of currency is the 500 kwacha note. The 500 kwacha note is worth just about $4. Nobody here takes credit cards and paying by check is neither common nor easy. Practically this means that you have to carry around really fat wads of cash, and make frequent visits to the bank.
This sort of economy has huge implications for how business is done. A lot of time is wasted counting bills and moving money. More importantly cash makes for easy corruption. For example, you are asked to purchase some paper for your office. You buy the paper for 500 kwacha, but you give the cashier an extra 20 kwacha and ask her to make the receipt for 1000. Reimbursal therefore makes for an easy 480 kwacha payoff. This sort of thing is far too common.
This week I received the following text message on my phone:
With TNM you can now recharge your friends mobile using TNM direct top up service. Just use the following command: *112*phone number*recharge pin*. Its that easy
What does this have to do with the cash economy in Malawi? Well, I think the developing world is going to leapfrog over the world of credit cards and checkbooks that the developed economies rely on and go straight to payment for everything via mobile phone and I think the above announcement is the first step.
Mobile phones are already must-have devices in Malawi. I think it is fair to say that just about everybody making at least $200/month and living in one of the cities with mobile phone coverage will have a mobile phone. Often people making much less money will have one as well. Instead of receiving a bill at the end of every month, most people here are on a pay as you go scheme. You simply buy a plastic card on the side of the road for a couple hundred kwacha, scratch off the code and enter it into the phone for a dozen minutes of talk time.
But now, I can buy one of these cards and send the credit to anyone with a phone anywhere in the country. Behold electronic currency. Well almost. This system has already hurdled over the most difficult parts of building an electronic currency - the hardware is distributed on a grand scale (phones everywhere), it is backed by something with value (time on the phone) and the system to transfer and account for transactions is in place and working. The limitation is that a unit can only be transferred once and then used only by that recipient. It is the difference between receiving a twenty dollar gift certificate for one store (which only sells one thing) and receiving a twenty dollar bill from grandma. The value is reduced because you can't use it where you like nor transfer it to someone else.
There is just one more step required to make Malawi's electronic currency system the envy of the world, and it is actually quite simple. Allow the unlimited transfer of units from one phone to another. The current system only allows units to transfer from a card to someone else's phone, effectively limiting a unit to one transfer and then it is frozen. Once this restriction is removed a vendor could buy and sell units for cash taking a profit on each transaction. This would make the currency cash convertible and infinitely more useful. Really large conversions from units to cash might be done through the mobile company itself as vendors might not want thousands of dollars of units. Either way, each new unit purchase is profit for the mobile company, and subsequent conversions profit for the vendors. The profits will be paid for by the people transferring units - which they will happily pay because carrying electronic currency is safer than carrying wads of cash.
I am not sure when it is going to happen, but I am confident it will, and there will be no turning back. Perhaps a leapfrog like this will be the kind that can bring Africa up to par with the world economy.
This sort of economy has huge implications for how business is done. A lot of time is wasted counting bills and moving money. More importantly cash makes for easy corruption. For example, you are asked to purchase some paper for your office. You buy the paper for 500 kwacha, but you give the cashier an extra 20 kwacha and ask her to make the receipt for 1000. Reimbursal therefore makes for an easy 480 kwacha payoff. This sort of thing is far too common.
This week I received the following text message on my phone:
With TNM you can now recharge your friends mobile using TNM direct top up service. Just use the following command: *112*phone number*recharge pin*. Its that easy
What does this have to do with the cash economy in Malawi? Well, I think the developing world is going to leapfrog over the world of credit cards and checkbooks that the developed economies rely on and go straight to payment for everything via mobile phone and I think the above announcement is the first step.
Mobile phones are already must-have devices in Malawi. I think it is fair to say that just about everybody making at least $200/month and living in one of the cities with mobile phone coverage will have a mobile phone. Often people making much less money will have one as well. Instead of receiving a bill at the end of every month, most people here are on a pay as you go scheme. You simply buy a plastic card on the side of the road for a couple hundred kwacha, scratch off the code and enter it into the phone for a dozen minutes of talk time.
But now, I can buy one of these cards and send the credit to anyone with a phone anywhere in the country. Behold electronic currency. Well almost. This system has already hurdled over the most difficult parts of building an electronic currency - the hardware is distributed on a grand scale (phones everywhere), it is backed by something with value (time on the phone) and the system to transfer and account for transactions is in place and working. The limitation is that a unit can only be transferred once and then used only by that recipient. It is the difference between receiving a twenty dollar gift certificate for one store (which only sells one thing) and receiving a twenty dollar bill from grandma. The value is reduced because you can't use it where you like nor transfer it to someone else.
There is just one more step required to make Malawi's electronic currency system the envy of the world, and it is actually quite simple. Allow the unlimited transfer of units from one phone to another. The current system only allows units to transfer from a card to someone else's phone, effectively limiting a unit to one transfer and then it is frozen. Once this restriction is removed a vendor could buy and sell units for cash taking a profit on each transaction. This would make the currency cash convertible and infinitely more useful. Really large conversions from units to cash might be done through the mobile company itself as vendors might not want thousands of dollars of units. Either way, each new unit purchase is profit for the mobile company, and subsequent conversions profit for the vendors. The profits will be paid for by the people transferring units - which they will happily pay because carrying electronic currency is safer than carrying wads of cash.
I am not sure when it is going to happen, but I am confident it will, and there will be no turning back. Perhaps a leapfrog like this will be the kind that can bring Africa up to par with the world economy.
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