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
• Pages: 50-50

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

MOBILE PHONES:

RESHAPING THE FLOW OF URBAN-TO-RURAL REMITTANCES

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