Through foreign aid, the United States helps to lift millions out of poverty, creating a path to prosperity through education and training, and supporting American interests here at home. But because half of the world operates without a formal banking system, assistance often reaches farmers, employees, and families as cash-in-hand. Cash is messy. It puts people at risk of theft, enables graft, and takes time (and additional money) to transport. We can do better.
We need to find ways to help the 2.5 billion adults who manage their money primarily as cash to leapfrog into a cashless marketplace.
To accelerate the replacement of cash with inclusive electronic payments, the US Agency for International Development (USAID) created the Better Than Cash Alliance, a group of countries and private companies all over the world committed to solving the “messy cash” problem. In keeping with this effort to accelerate the replacement of cash with inclusive electronic payments, our White House-supported Presidential Innovation Fellow (PIF) decided to focus on Afghanistan; a country dominated by a cash economy. In Afghanistan, the cost of building out a traditional banking structure is prohibitive in the largely rural, often insecure country. But almost all Afghans now have cell phones. The near-ubiquity of mobile phone coverage offers a tantalizing opportunity to connect millions of Afghans to the economy and move both public and private sector payments into efficient, transparent “cash” channels.
However, expansion of mobile money was running into two problems. One was getting critical mass adoption. Think about the early days when few had cell phones and there was no one to call. And the second problem was interoperability. Mobile money would catch on like wildfire, if only you could send or receive cash electronically no matter which mobile operator you subscribed to.
Mobile payment services were first introduced to the Afghan market in 2009 by the largest mobile network operator, Roshan, who launched a product that essentially tried to replicate Safaricom’s phenomenally successful M-Pesa mobile money transfer service in Kenya. Though operationally successful and a proven tool for reducing corruption (as demonstrated by a pilot program to pay police by mobile instead of cash that netted a 30% increase in received salary for the officers), getting more government ministries to pay their employees was proving too slow.
USAID, through an innovation fund of public-private partnerships, addressed the adoption problem; we decided to simultaneously take on the interoperability problem. Today, phone companies in Afghanistan don’t typically function cooperatively—they don’t provide “roaming” services, for example— and aren’t equipped to share user minutes across networks. The same problem will hinder the growth of the broader mobile money sector if each phone company’s mobile money service develops in a silo, and customers are unable to transact with peers and businesses using other networks. We also know that a mobile-money ecosystem can only grow if managers on the ground can effectively track and evaluate cash-flow to employees. In the United States, Federal employees are paid electronically every month, in full, and on time. We want to work with our Afghan government partners to ensure that Afghan public employees receive the same—and this will require tools to better evaluate and manage information.
Today, 100,000 Afghan teachers still receive their salaries in cash, a cumbersome process that often results in delayed and incomplete payments. That’s why we created a text-message survey tool which ministries and program officers can use to ask employees whether they have been paid correctly, and begin building a database of phone numbers as employees transition to mobile paychecks. We’ve also worked on solutions to drive broad adoption of mobile phone-based financial services. Getting paid by mobile phone is great, but if basic life necessities can only be bought with cash—then a cashless marketplace will not flourish. USAID’s on-the-ground mission in Afghanistan enables Afghans to sign up to pay their electric bills via mobile phone, vastly improving convenience for customers and beginning to improve revenue collection, a critical requirement for maintain and expanding access to the electrical grid. So far, more than 100,000 individuals have joined the program.
Many countries around the world could benefit from an enhanced mobile-money marketplace. In fact, Tanzania and Indonesia (PDF) are already working to build their own electronic payment ecosystems. There is much more work to be done. As we continue to lay a framework and accelerate progress in Afghanistan, we plan to share lessons learned with other countries and work toward a more efficient foreign aid system that is, in many ways, better than cash.
Karl Mehta is a Presidential Innovation Fellow working on Better Than Cash at USAID.
Seth Wainer is a Program Analyst at the White House Office of Science and Technology Policy.
Learn more about or apply for the Presidential Innovation Fellows program.