Mobile Money in Afghanistan: An Uphill Battle

by Adam Brown

Since 2008, the Afghan mobile phone provider, Roshan, has worked to bring mobile money services to Afghanistan.  With the support of USAID, all four of Afghanistan’s major mobile phone providers are currently developing mobile money capabilities.  The highly successful rollout of Kenya’s mobile money and banking service, M-Pesa, has spurred a flurry of similar startup efforts – over 72 in 42 countries. Many countries, however, have failed to experience the kind success that M-Pesa achieved, and Afghanistan is no exception.

While the mobile money program in Afghanistan is in its nascent stages, the factors that helped M-Pesa to succeed are generally lacking. The most important of these are, 1) a dominant mobile carrier; 2) an economy that depends on long distance money transfers; and 3) customer trust in the system. The Afghan mobile phone market is too divided to create the kind of widespread network required to attain the critical mass necessary for a sustainable customer base. Further complicating the issue is the fact that Afghans generally do not rely on remittances, limiting the utility that could draw future users.  To fix that, mobile money providers should include banking mechanisms early in their programs instead of tacked on only once a money transfer system is in place.  However trust in banks, especially since the Kabul Bank scandal, may be too low for Afghans to put their money into another bank-like mechanism. While mobile money is not destined to fail in Afghanistan, proponents of mobile banking and USAID should adjust their expectations for success, or at least be ready to address the above issues.

The gold standard for mobile money is Kenya and its M-Pesa system.  Four factors facilitated success of mobile money in Kenya. First, Safricom, Kenya’s largest mobile phone provider already owned over 70% of the mobile phone market in Kenya when it began rolling out M-Pesa.  Secondly, once a user adopted M-Pesa, they could be reasonably certain that those around them would also be using M-Pesa and not a mobile money system from a competing provider.  This meant Safricom had already overcome the critical mass issue that plagues so many other mobile money startups.  Next, Kenya’s population relied heavily on remittances, with many urban dwelling breadwinners sending money back to their families in rural areas.  M-Pesa’s ability to send Kenyans’ remittances more quickly and reliably than traditional money transfer systems rapidly built up a widespread customer base.  Finally, the brand name of Safricom, along with reliable and consistent positive user experiences worked to build the trust of users, while word of mouth has helped M-Pesa add almost 12 million users since its launch.

Afghanistan offers a drastically different example.  Beset by a market divided among four major providersfamilial structures that are geographically localized, and a deep-seeded distrust of banking systems, mobile money systems are hard pressed to set up effective systems.  Unlike the near monopoly held by Safricom in Kenya, four major mobile providers share Afghanistan’s mobile market.  If a user chooses to open a mobile money account with any one of the providers, it is likely that only a quarter of the people in Afghanistan would be on the same mobile network and thus able to send and receive money with them.  With only a fourth of the market share, it is difficult for mobile money programs run by any of the mobile providers to offer the kind of widespread utility needed to attract new users.  To fix this, mobile phone companies and their foreign investors should work on developing a common mobile financial infrastructure that allows users to send and receive money across providers.  Giving users the ability to send money unrestricted by inter-company compatibility will remove the biggest hurdle to integrating mobile money.

While money mobile money has successfully been integrated into payment systems for government workers, mobile money offers limited utility to the average Afghan. While some Afghan families have some segment of the family living in a distant city sending back money, the practice is not an economic game changer as of yet.  Additionally, infrastructure is so poor in Afghanistan that many markets, especially in rural communities where almost three quarters of Afghans live, tend to be almost entirely local.  As such, the area within which the economic and social lives of the majority of Afghans are conducted is extremely limited.  In this unique level of localization mobile money will have a difficult time in finding relevance in the economic lives of Afghans.  To correct this, mobile phone providers should work on implementing widespread financial services that can benefit large numbers of Afghans.  Elements of mobile banking – mobile savings accounts, micro loans, and insurance – can appeal to a much broader section of Afghans.  Not only does this help draw in new customers, it also provides greater benefits to Afghans than the simple money transfers.  95% of Afghans don’t have bank accountswhile 80% of them do have mobile phone access.  Mobile banking can help Afghans save money and insulate themselves against economic shocks like poor crop harvest, family illness, and uneven employment.  Granted, Afghans will be deeply skeptical about putting their money into a banking system since the Kabul Bank scandal.  To mitigate this, mobile money programs should look at starting their own mobile banking operation, or utilize a reliable foreign bank.  What is important is that the mobile banking system be seen as separate and insulated the historic turmoil of the Afghan banking system.  If this can be done, then Afghans will have the kind of incentive they need to begin taking their hard earned cash out from under their mattresses and depositing it into mobile money systems.

Implementing mobile money in Afghanistan is going to be an uphill battle for the foreseeable future.  It can be done, but mobile phone providers in Afghanistan, and their backers, must adjust their strategy to overcome specific hurdles.  Deep differences in the mobile phone markets and societies of Kenya and Afghanistan indicate that attaining a Kenya-like success story is unlikely.  But like all things in Afghanistan, with thoughtful application of resources and of time, progress is possible.