Did you watch the amazing speech of Malala Yousafzai addressing the United Nations on July 12, 2013 as part of her campaign to ensure free compulsory education for every child? It is up to us to move from platitudes to action in realising her vision. How can Digital Money help?
As Malala puts it, extremists are afraid of the power of books, pens and the power of women. So the focus must be on channelling resources towards education, and Digital Money can play a significant role. The use of digital wallets can for instance ensure that schools get funded depending on the attendance of girl students and lower income rural children. The digital wallet for the parent may receive benefits depending on the attendance of their children. Just as digital wallets may be used by big brands to incentivise reuse and loyalty from their consumers, digital wallets can become a valuable tool to support Malala’s vision.
This must happen at multiple levels. At the Government/Central Bank level we have a great example of the co-operation between the US and Mexico that significantly improved the delivery of remittances from Mexican migrant workers. Banking and telecommunication groups and payment providers currently engaged in driving mobile money and branchless banking services have an opportunity to build features and service to make this happen. New low cost, mobile empowered financial services are being rolled out in many parts of the world. Termed “Branchless Banking” in Pakistan, “Mobile Financial Services” in Bangladesh and “Simplified-file mobile accounts” in Mexico, the core proposition is to offer simplified accounts limited to smaller value transactions but with lower entry barriers to extend the services to all individuals regardless of income or location.
There are three phases in the fund lifecycle: mobilisation, distribution and utilisation of funds. As in other cases of payments, important characteristics differ in each phase, and the policies, strategies, architecture and implementation must take each phase into account. Mobilisation of funds may often happen in a different country, jurisdiction and scale. It must be possible to aggregate small values from multiple sources, distribute these funds and trace through to utilisation in order to reduce the possibility of diversion of funds or “leakage”. At the same time it must be possible to monitor the use of very small value transactions made out of these accounts so the senders are satisfied that they were used as meant and the funds can be replenished on an appropriate cycle.
The Internet, and increasingly the mobile internet has the power to connect us all. Where people do not have access to the internet, it is possible for them to use mobile phones, their own or shared. In this way it is possible to deal not just with the intermediate entities that receive funds but with feedback from a final beneficiary who is the end user of the assistance through a digital wallet. In Pakistan today, the Digital Money SAGE reports over 23% of initiatives aim at banking the unbanked (See Figure). How then can digital money initiatives be created, that allow funds earmarked for school children to actually reach them, without being redirected by their parents, carers or even teachers put in a position of trust over such funds?
This is certainly not a new problem. Food stamps in the US are an example of distribution of benefits that can be utilized only for the purpose it is meant for. At Shift Thought we continuously monitor over 1500 initiatives around the world and we see that new initiatives such as branchless banking in Pakistan hold tremendous potential in making this happen.
However, there seem to be key elements that are missing from all of these initiatives in realising that potential. Firstly these do not provide a comprehensive solution across all three phases, and rather focus only on the utilisation phase. Secondly, the challenges in regard to creating accounts for children need to be addressed. Thirdly, the challenges in regard to assuring the utilisation of funds for the person and intended purpose also need to be addressed, which may require the ability to create different “pots of funds” within the account – to buy books, pay tuition fees, buy uniforms and the like. Finally, and perhaps most importantly the political will and organisational energy must be found to make the necessary policy, transparency, and cultural changes necessary.
Digital money has a massive potential to improve lives of the disadvantaged around the world. Called differently in different parts of the world, there is a simple underlying driver and a set of needs to be met. However if correctly addressed we believe this could greatly help set up our youngest generation with a disposition for the use of pens as their preferred tool for changing the world.