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Mobile money gaining steam, but for what purpose?

In the McKinsey online piece "Mobile money: A game changer for financial inclusion," the authors discuss the many successes of Kenya's well-regarded M-pesa, including the remarkable 55 percent increase in access to financial services within the first 3 years of M-pesa's launch. Of course this is good news, but there are other points to consider. In the graph accompanying the article, it is clear that even though mobile money has helped bring many of Kenya's poor into the formal economy, access remains limited. One of the obstacles for mobile money to overcome is that those at the very bottom—those who need help most—are often left behind. In addition, access alone will not bring families out of poverty. Access must be supplemented with effective products, like savings services, so that people can begin to build a cushion for emergencies and wealth for the long-term. These and many other concerns will need to be addressed in order for mobile money to be truly successful, especially in light of its recent increase in popularity.

For instance, USAID, AusAID, and Visa are collaborating with the GSMA mWomen Programme to increase mobile phone ownership among women in the developing world, which lags behind that of men. According to Secretary of State Hillary Clinton, who has long been a supporter of gender equality, "It's not simply because it's too expensive . . . but it's because of an array of economic and social barriers, from a lack of literacy to a lack of income to the all-too-common belief that cell phones afford more freedom to women than they deserve." Ensuring that women, who are often the breadwinners of their households, have access to mobile phones that allow them entrée into the formal economy is a step in the right direction. But it is only a step.

Similarly, last week it was announced that HDFC bank was partnering with Vodafone India to launch M-paisa, a mobile bank account modeled after M-pesa, in Rajasthan. The purpose of M-paisa is to promote financial inclusion among India's unbanked population, as HDFC plans to bring 10 million families into the formal economy over a 5-year period. M-paisa will undoubtedly be effective in helping to reach that goal, because it overcomes one of the greatest hurdles that India struggles with in addressing the unbanked: too many people, too few banks. As a recent article in the New York Times points out, there are only about 33,500 bank branches to accommodate the roughly 600,000 villages in the country—meaning almost 50 percent of India's population has no access to a bank. Allowing people to access their money from their phones removes this difficult barrier to financial inclusion, but for M-paisa to have a meaningful impact on poverty alleviation, HDFC will need to target the ultra-poor and ensure that they not only have access but that they are able to create wealth. Otherwise, its mobile money for mobile money's sake.