Mobile Phones: Reshaping the Flow of Urban-to-Rural Remittances

Author:Bethany Brown
Position:J.D. candidate, May 2011, at American University Washington College of Law
FALL 2010 50
Just as Africa has moved from nonexistent phone service to
mobile phones without ever developing telephone line net-
works,1 it is poised to bypass expensive brick-and-mortar
bank branches and the distances isolating rural remittance recipi-
ents.2 Mobile money transfers (“MMTs”) from person to person
via mobile phones stand ready to revolutionize traditional remit-
tance models, allowing a greater percentage of urban laborers’
earnings to be remitted to rural recipients. This is a vital change,
as the demographic change of urbanization evolves at the speed of
technological advancement.3 People use mobile phones in some of
the most remote parts of developing nations, where they increas-
ingly operate as communication devices and ATMs.4 MMTs are
generally low-cost,5 reliable for their electronic traceability, and
they a llow for a n increase in competition for the provision of
transfer services.6 Traditional remittances in Africa charge send-
ers over ten percent of the amount being transferred.7 By contrast,
MMTs are simple transactions that can cost as little as one percent
of the average remittance.8 Regulatory platforms that consider
these potential advantages are urgently necessary.
Remittances are a force for ch ange as working-age peop le
leave behind rural recipientsusually family members9for work
in urban areas, re mitting part of their earnings.10 Some sur-
veys have found that rural households (recipients of approxi-
mately one third of all remittances) spend nearly all remittances
received on essentials such as food, medicine, and clothing.11
African remit tances usually double the savings of recipients,12
further improving economic prospects. In 2005, the World Bank
reported that poverty in Uganda fell by eleven percent as a direct
result of remittances.13 O rdinary transfers require rural re cipi-
ents to travel to collect them, often at great cost and risk, further
driving up time, cost, and the margin of err or.14 Carrying cash
for long distances is risky as well as inefficient.15 Moreover, if a
person in a rural community must take time out of school, work,
or household maintenance to collect money, productivity is lost.
MMTs provide advantages to workers, but advantages are
not just economic and social; environmental researchers point to
decreases in deforestation, over-hunting, and soil depletion where
urbanization has taken place, creating opportunities for overused
rural land and resources to be revitalized.16 With mobile phones,
rural farmers can access databases, increasing their knowledge
and potential for productivity.17 These services allow rural com-
munities to compound benefits from decre ased erosion and a
strengthened environment already gained through depopulation.18
Such depletion can drive urbanization in the first place , with
increasingly limited productivity motivating people to search for
better prospects in cities, where efficiency has been maximized.19
by Bethany Brown*
* Bethany Brown is a J.D. candidate, May 2011, at American University Wash-
ington College of Law.
MMTs increase participatio n in economic development :
thirty to forty percent o f Africa’s remittances are received in
rural, unbanked areas.20 The urban to rural remittance marke t
has not r eached saturation; Mexico has almost as many payou t
locations for rem ittances as the cont inent of Africa.21 Nearly
every client of a microfina nce i nstitution in Africa owns a
mobile phone.22 Thus, there is huge growth potential for MMT
remittances throughout rural Africa.
Africa’s remittance flows need more research.23 National remit-
tance statistics often exclude smaller transfers, which are a large
percentage of remittances.24 There is vast market potential, with urban-
ization increasing exponentially,25 and an estimated thirty million indi-
viduals in the African diaspora living outside their home countries.26
Formal government regulation of MMTs is immediately nec-
essary. Changes in banking and technology happen quickly, and
the law must be responsive. Analogously, prior to 2007, microfi-
nance institutions were practically unregulated in Africa.27 Regu-
latory structures currently vary widely in their levels of protection
and development of MMTs.28 Every country may have slightly
different needs; therefore, schemes will not be uniform.
A few main issues affecting the quality of a scheme are the
authorizat ion of payment institutions, surveillan ce of money
transfers, and own ership of foreign c urrency account s.29 In a
2009 survey of fifty African sy stems, only four permitt ed pay-
ments at retail centers,30 a key service for the poorest poor, who
cannot afford private mobile phones.31 The prevention of money
laundering has also become a heightened concern.32 The interna-
tional Financial Action Task Force issued recommendations33 to
increase monetary flows surveillance for money laundering that
have been widely adopted throughout Africa.34 However, these
legal requirements can be barriers to entry for new entrepreneurs
seeking to start formal MMT businesses. Cou ntries must bal-
ance these interests when creating regulations.
In conclusion, remittances flow by the billions,35 and official
data may vastly underestimate their true size.36 Governments
slow to regulat e this industry are losing out on an important
source of revenue37 and opportunities to lay groundwork for sus-
tainable development in areas experiencing rural to urban migra-
tion. Innova tions in financial flows like these are transforming
urbanization in developing countries through their reach to the
rural poor, and are sure to continue as governments increasingly
harness their power for change through regulation.38
Endnotes: Mobile Phones on page 72