8 ms·

What Kenya can teach its neighbors about improving the lives of the “unbanked”

64 points by luu 5y ago

bArray 5y ago
> Instead, she takes out her phone and texts a password and a request for money. How many times do people need to be told that their assumptions about mobile phones and security are completely wrong. Phone numbers can be reallocated (sim jacking), all communications can be intercepted (by design), smart phones are not themselves secure - especially an older/cheaper phone. > A few minutes later, she meets a man with a cellphone and receives cash from him [..] I imagine there being some issue with meeting random strangers. > Agents function like an ATM: You go up to them and give them cash to get money deposited in your mobile money account, or transfer money out of your account to get cash. This requires a lot of trust. The entire point of having banking infrastructure is to remove the need for trust. Like crypto, with no oversight, how do you know your local 'phone bank' is not a rug-pull? In general I think that whilst on the surface this system seems great, it actually makes an incredibly vulnerable group of people even more vulnerable. (Slightly less related, but still worth discussion.) If you think being "unbanked" is only a problem for less-developed Countries... What if the reason you don't have a bank account is because the government froze your account due to you supporting a peaceful protest [1]? What if your government decides your social credit score is too low to allow you to have financial services [2]? [1] https://www.cbc.ca/news/politics/ottawa-protests-frozen-bank-accounts-1.6355396 https://www.cbc.ca/news/politics/ottawa-protests-frozen-bank... [2] https://nhglobalpartners.com/china-social-credit-system-explained/ https://nhglobalpartners.com/china-social-credit-system-expl...
- friedturkey 5y ago
  Justice in these countries isn't quite the same as what you're used to. In, say, America or Western Europe, you'll call the cops and they'll say "uh huh okay" and you'll just have to hope they'll launch an investigation. ATM skimmers are a common problem and basically jack shit is done about them. Muggings still happen and people aren't often caught. In poorer countries, especially ones where basic infrastructure like banking is inaccessible, often it's easier to just tell a neighbor what happened. The community will go out and "get justice" on your behalf. I'd honestly feel much safer stealing a whole paycheck in the US than I'd feel trying to steal a dollar in Kenya. Scams are still happening, but the risk is much higher if you're caught hurting someone from your community.
  - bawolff 5y ago
    > The community will go out and "get justice" on your behalf. Works great until the person who steals something is well liked enough or scary enough that the community doesn't want anything to do with it.
    - marcellus23 5y ago
      Same thing happens with cops though.
    - brokenmachine 5y ago
      Or if they're mistaken about who the culprit was.
  - kkielhofner 5y ago
    I have a friend from a developing country. One night someone broke in to their house and stole a high value item (maybe $2K US). The next day they reported it to the police. The police indicated they knew who it was. A few days later the perpetrator was found shot to death. It was well understood by everyone in the family and community that the police just went out and "handled it". My guess is the cops essentially thought "Come on, not this guy again" and summarily executed him. From what I understood they left his body in a pretty visible place - obviously to send a message. Another friend (from a different developing country) casually tells stories of bribing cops. When I acted surprised at first he said "The United States is the only country I've been to where bribing the cops isn't cool". As you say - justice in these countries isn't quite the same as what many of us are used to.
    - pinephoneguy 5y ago
- jpswade 5y ago
  Cash is only as safe as the device you hold it in.
- bawolff 5y ago
  > What if the reason you don't have a bank account is because the government froze your account due to you supporting a peaceful protest Not to get off topic, but the protest was not peaceful, and donating to people who are openly calling for the overthrow of the government is likely to get you in trouble with said government. Regardless, the bank account freezes are temporary as far as i understand (emergency act expires in 30 days) so really not the same thing.
- davchana 5y ago
  The local man is not any bank. He is more a converter of digital money to hard cash. Lets say the woman asks his bank app to withdraw X amount. Bank app will say go to this (or nearest) man and give him this code. Man gets the code, enters in his side of app, and sees the digital money in account, gives the hard cash. He does same in reverse for others who want to deposit money. At any point, maybe daily or weekly he either puts excessive cash in bank branch, or gets cash from bank branch. Note that app is not any phone app, its more like USSD codes and or SMS banking. The man acts like a human atm, and money & kyc details are with bank or operator. Airtel mobile company used to operate M-pesa in 2007 when I was there. Basically assume if ATT opens a mobile banking division, with just USSD & SMS codes.
  - TremendousJudge 5y ago
    >like a human atm If only there was a word for this concept
    - davchana 5y ago
      I mean, yes, a teller. But a traditional teller is more like employee of a bank. A stand alone atm machine has more resemblance. This man will have a place/shop already, like tire repair, tea/snacks, mobile repair, clothes shop etc; & then Airtel asked them to be their M-pesa agents, as a side business.
- mschuster91 5y ago
  > How many times do people need to be told that their assumptions about mobile phones and security are completely wrong. Phone numbers can be reallocated (sim jacking), all communications can be intercepted (by design), smart phones are not themselves secure - especially an older/cheaper phone. Would you go all that effort to steal a couple dozen dollars? No. The amount of money to be stolen is simply too low to make fraud worth the effort. We're talking about poor farmers in rural areas of Kenya, not Western Bitcoin millionaires. > This requires a lot of trust. The entire point of having banking infrastructure is to remove the need for trust. Like crypto, with no oversight, how do you know your local 'phone bank' is not a rug-pull? The local agent is not a bank, they are an agent. If the agent pulls the rug on you (which, again, would be unwise of the agent given that the amount of money is so low), you either complain at M-Pesa or you round up a couple neighbors and rough up the agent.
- nickmancol 5y ago
  "This requires a lot of trust. The entire point of having banking infrastructure is to remove the need for trust. Like crypto, with no oversight, how do you know your local 'phone bank' is not a rug-pull?" I think that a system that encourages trust among people is orders of magnitude better than the traditional banking. https://ourworldindata.org/trust https://ourworldindata.org/trust
- jacquesm 5y ago
  It is the agents that require trust: they are known to hold some currency and receive all kinds of visitors. Agents that screw their community don't tend to be agents for long, and you can take that any way you want.
- Aurelius3 5y ago
  >This requires a lot of trust. The entire point of having banking infrastructure is to remove the need for trust. Like crypto, with no oversight, how do you know your local 'phone bank' is not a rug-pull? Isn't the entire banking infrastructure based upon social trust? I'm confused at how you can say crypto requires alot of trust yet traditional banking does not... One is based upon mathematical principles, the other on social ones. Of course traditional banking is large and well supported, but it is still inherently a social system which requires trust.
  - cyber_kinetist 5y ago
    Even cryptocurrencies (Bitcoin, Ethereum, etc.) uses social trust when crises happen. You occasionally see forks being made when a major scam or attack has happened and most people agree that rewriting (or maybe recreating might be a better term) the history of the blockchain is acceptable. The mathematical principles that crypto uses is ultimately just a tool to mediate human interactions. There is nothing that is set in stone; if enough people developing the block chain agrees there can always be a change of the rules and protocols of the system. You see it less with Bitcoin (which is very conservative about changing things) and more with Ethereum (which is more prone to do experiments and changes). But the potential for change is always there. So one of the major problems I with most cryptocurrencies is about off-chain governance: that how decisions are made related to the rules of the system is incredibly opaque. How does consensus get reached among cryptocurrency developers? Is there enough communication between developers and the people using the currency, so the users can understand what are the effects of changes that are made in the system? Can users voice about concerns about the system and have the ability to change what developers do? At least Ethereum does have some formal processes on how people can submit proposals to changing the VM, but there is still a significant gap between technical contributions and the more pragmatic concerns ordinary users might have (e.x. about deflation or the POW/POS debate).
Kinrany 5y ago
> It was a combination of the right technology, at the right time, rolled out in the right way, with the right decisions from the Kenyan government to allow the system Right, the government was too slow to regulate this system before it got popular. When a country has financial infrastructure but people are not allowed to use it, the main selling point of a new system is escaping centralized control.
- mschuster91 5y ago
  > Right, the government was too slow to regulate this system before it got popular. The thing is, there seems to have been no major incident requiring regulation. Almost all government regulations are not proactive but reactive, simply because of the "prevention paradox"... the most well-known case is fire codes, where the common saying is that they were written in (a lot of) blood. And as long as M-Pesa doesn't get used to finance terrorism, the provider disappears into thin air with all the funds or mass hacking leads to people losing their savings, why should a reasonable government risk too much regulation and thus the protest of the people?
  - Kinrany 5y ago
    If the government was reasonable, there'd be no need for an alternative banking system.
    - mschuster91 5y ago
      Traditional banking systems require resources that are pretty expensive. You need somewhat decent roads, electricity for ATMs and branches everywhere, public transport so that people can go to a bank... M-Pesa and friends just piggyback on the existing phone network.
jacquesm 5y ago
So, I know what this article is about without reading it :) M-Pesa, Swahili for M-Money, the first 'M' stands for Mobile. Very much a game changer, in some ways Kenya is now ahead of the 'developed' world, it's not just its neighbors that it can teach, but the rest of us as well. I put developed in quotes because I don't like this artificial division, Nairobi is as much a world capital as say Bucharest is. You probably would not recognize its skyline as African without context.
- PoignardAzur 5y ago
  > You probably would not recognize its skyline as African without context. Yeah, it's kind of scary how indistinguishable business districts' skylines are these days.
  - drra 5y ago
    I used to find myself forgetting a country I'm visiting during a chain of business trips. It's surprisingly hard to find when in taxi traveling through generic business district. RL Geoguessr.
- estsauver 5y ago
  Since I happen to be sitting in a tall Nairobi office, here's a view from the Apollo Agriculture office. (All of our customers payments are in Mpesa as well.) https://ibb.co/bQtLYFT https://ibb.co/bQtLYFT
  - HeyLaughingBoy 5y ago
    My first thought is that it looked like driving into Minneapolis (https://en.wikipedia.org/wiki/Minneapolis https://en.wikipedia.org/wiki/Minneapolis) from the South on I35 :-) Probably feels a lot different though. It was -9F when I woke up.
  - jacquesm 5y ago
    Neat!
  - 5y ago
MoSattler 5y ago
When I visited Kenya a year ago, and I was surprised how M-Pesa was the primary means of payment. That was light years ahead of my native, European country, where in many places nothing but cash goes. Even the Maasai have widely adopted it.
i67vw3 5y ago
https://www.bhimupi.org.in/ https://www.bhimupi.org.in/ A kinda similar thing which revolutionized money transfer in India.
- legutierr 5y ago
  This is a government initiative, is it not?
BirAdam 5y ago
I would love to be able to mobile banking type stuff on a dumb phone, but services on SMS and the like and 2g/3g are dead in the west. Have to have more expensive new-fangled BS to be a member of society. I’ve long felt that new technologies hitting undeveloped areas could lead to better outcomes than the slow accretion that the West had. Of course, this also requires Western intelligence agencies not killing every new leader with an idea.
pinephoneguy 5y ago
After having "Truist" close my account without telling me (but still let me deposit a ton of money into it) I think you might be better of without a bank account. All they do is fuck around with you and they're never open. Crypto absolutely is the future weather the well connected people in the FED and their customers like it or not.
boh 5y ago
For all it's positive PR, banking the unbanked who are less financially savvy and have weak institutions to protect them, has also made them prime targets for predatory banking practices. Similar to western countries, high yield loans target the most financially vulnerable, but unlike the US, Kenya doesn't have consumer protections or adequate bankruptcy laws. More details: https://www.bloomberg.com/news/features/2020-02-12/tech-startups-are-flooding-kenya-with-apps-offering-high-interest-loans https://www.bloomberg.com/news/features/2020-02-12/tech-star...
oversocialized 5y ago
Imagine thinking banks are a good thing

64 points by luu 5y ago

> Instead, she takes out her phone and texts a password and a request for money. How many times do people need to be told that their assumptions about mobile phones and security are completely wrong. Phone numbers can be reallocated (sim jacking), all communications can be intercepted (by design), smart phones are not themselves secure - especially an older/cheaper phone. > A few minutes later, she meets a man with a cellphone and receives cash from him [..] I imagine there being some issue with meeting random strangers. > Agents function like an ATM: You go up to them and give them cash to get money deposited in your mobile money account, or transfer money out of your account to get cash. This requires a lot of trust. The entire point of having banking infrastructure is to remove the need for trust. Like crypto, with no oversight, how do you know your local 'phone bank' is not a rug-pull? In general I think that whilst on the surface this system seems great, it actually makes an incredibly vulnerable group of people even more vulnerable. (Slightly less related, but still worth discussion.) If you think being "unbanked" is only a problem for less-developed Countries... What if the reason you don't have a bank account is because the government froze your account due to you supporting a peaceful protest [1]? What if your government decides your social credit score is too low to allow you to have financial services [2]? [1] https://www.cbc.ca/news/politics/ottawa-protests-frozen-bank-accounts-1.6355396 https://www.cbc.ca/news/politics/ottawa-protests-frozen-bank... [2] https://nhglobalpartners.com/china-social-credit-system-explained/ https://nhglobalpartners.com/china-social-credit-system-expl...

friedturkey 5y ago
Justice in these countries isn't quite the same as what you're used to. In, say, America or Western Europe, you'll call the cops and they'll say "uh huh okay" and you'll just have to hope they'll launch an investigation. ATM skimmers are a common problem and basically jack shit is done about them. Muggings still happen and people aren't often caught. In poorer countries, especially ones where basic infrastructure like banking is inaccessible, often it's easier to just tell a neighbor what happened. The community will go out and "get justice" on your behalf. I'd honestly feel much safer stealing a whole paycheck in the US than I'd feel trying to steal a dollar in Kenya. Scams are still happening, but the risk is much higher if you're caught hurting someone from your community.
- bawolff 5y ago
  > The community will go out and "get justice" on your behalf. Works great until the person who steals something is well liked enough or scary enough that the community doesn't want anything to do with it.
  - marcellus23 5y ago
    Same thing happens with cops though.
  - brokenmachine 5y ago
    Or if they're mistaken about who the culprit was.
- kkielhofner 5y ago
  I have a friend from a developing country. One night someone broke in to their house and stole a high value item (maybe $2K US). The next day they reported it to the police. The police indicated they knew who it was. A few days later the perpetrator was found shot to death. It was well understood by everyone in the family and community that the police just went out and "handled it". My guess is the cops essentially thought "Come on, not this guy again" and summarily executed him. From what I understood they left his body in a pretty visible place - obviously to send a message. Another friend (from a different developing country) casually tells stories of bribing cops. When I acted surprised at first he said "The United States is the only country I've been to where bribing the cops isn't cool". As you say - justice in these countries isn't quite the same as what many of us are used to.
  - pinephoneguy 5y ago
jpswade 5y ago
Cash is only as safe as the device you hold it in.
bawolff 5y ago
> What if the reason you don't have a bank account is because the government froze your account due to you supporting a peaceful protest Not to get off topic, but the protest was not peaceful, and donating to people who are openly calling for the overthrow of the government is likely to get you in trouble with said government. Regardless, the bank account freezes are temporary as far as i understand (emergency act expires in 30 days) so really not the same thing.
davchana 5y ago
The local man is not any bank. He is more a converter of digital money to hard cash. Lets say the woman asks his bank app to withdraw X amount. Bank app will say go to this (or nearest) man and give him this code. Man gets the code, enters in his side of app, and sees the digital money in account, gives the hard cash. He does same in reverse for others who want to deposit money. At any point, maybe daily or weekly he either puts excessive cash in bank branch, or gets cash from bank branch. Note that app is not any phone app, its more like USSD codes and or SMS banking. The man acts like a human atm, and money & kyc details are with bank or operator. Airtel mobile company used to operate M-pesa in 2007 when I was there. Basically assume if ATT opens a mobile banking division, with just USSD & SMS codes.
- TremendousJudge 5y ago
  >like a human atm If only there was a word for this concept
  - davchana 5y ago
    I mean, yes, a teller. But a traditional teller is more like employee of a bank. A stand alone atm machine has more resemblance. This man will have a place/shop already, like tire repair, tea/snacks, mobile repair, clothes shop etc; & then Airtel asked them to be their M-pesa agents, as a side business.
mschuster91 5y ago
> How many times do people need to be told that their assumptions about mobile phones and security are completely wrong. Phone numbers can be reallocated (sim jacking), all communications can be intercepted (by design), smart phones are not themselves secure - especially an older/cheaper phone. Would you go all that effort to steal a couple dozen dollars? No. The amount of money to be stolen is simply too low to make fraud worth the effort. We're talking about poor farmers in rural areas of Kenya, not Western Bitcoin millionaires. > This requires a lot of trust. The entire point of having banking infrastructure is to remove the need for trust. Like crypto, with no oversight, how do you know your local 'phone bank' is not a rug-pull? The local agent is not a bank, they are an agent. If the agent pulls the rug on you (which, again, would be unwise of the agent given that the amount of money is so low), you either complain at M-Pesa or you round up a couple neighbors and rough up the agent.
nickmancol 5y ago
"This requires a lot of trust. The entire point of having banking infrastructure is to remove the need for trust. Like crypto, with no oversight, how do you know your local 'phone bank' is not a rug-pull?" I think that a system that encourages trust among people is orders of magnitude better than the traditional banking. https://ourworldindata.org/trust https://ourworldindata.org/trust
jacquesm 5y ago
It is the agents that require trust: they are known to hold some currency and receive all kinds of visitors. Agents that screw their community don't tend to be agents for long, and you can take that any way you want.
Aurelius3 5y ago
>This requires a lot of trust. The entire point of having banking infrastructure is to remove the need for trust. Like crypto, with no oversight, how do you know your local 'phone bank' is not a rug-pull? Isn't the entire banking infrastructure based upon social trust? I'm confused at how you can say crypto requires alot of trust yet traditional banking does not... One is based upon mathematical principles, the other on social ones. Of course traditional banking is large and well supported, but it is still inherently a social system which requires trust.
- cyber_kinetist 5y ago
  Even cryptocurrencies (Bitcoin, Ethereum, etc.) uses social trust when crises happen. You occasionally see forks being made when a major scam or attack has happened and most people agree that rewriting (or maybe recreating might be a better term) the history of the blockchain is acceptable. The mathematical principles that crypto uses is ultimately just a tool to mediate human interactions. There is nothing that is set in stone; if enough people developing the block chain agrees there can always be a change of the rules and protocols of the system. You see it less with Bitcoin (which is very conservative about changing things) and more with Ethereum (which is more prone to do experiments and changes). But the potential for change is always there. So one of the major problems I with most cryptocurrencies is about off-chain governance: that how decisions are made related to the rules of the system is incredibly opaque. How does consensus get reached among cryptocurrency developers? Is there enough communication between developers and the people using the currency, so the users can understand what are the effects of changes that are made in the system? Can users voice about concerns about the system and have the ability to change what developers do? At least Ethereum does have some formal processes on how people can submit proposals to changing the VM, but there is still a significant gap between technical contributions and the more pragmatic concerns ordinary users might have (e.x. about deflation or the POW/POS debate).

Kinrany 5y ago

> It was a combination of the right technology, at the right time, rolled out in the right way, with the right decisions from the Kenyan government to allow the system Right, the government was too slow to regulate this system before it got popular. When a country has financial infrastructure but people are not allowed to use it, the main selling point of a new system is escaping centralized control.

mschuster91 5y ago
> Right, the government was too slow to regulate this system before it got popular. The thing is, there seems to have been no major incident requiring regulation. Almost all government regulations are not proactive but reactive, simply because of the "prevention paradox"... the most well-known case is fire codes, where the common saying is that they were written in (a lot of) blood. And as long as M-Pesa doesn't get used to finance terrorism, the provider disappears into thin air with all the funds or mass hacking leads to people losing their savings, why should a reasonable government risk too much regulation and thus the protest of the people?
- Kinrany 5y ago
  If the government was reasonable, there'd be no need for an alternative banking system.
  - mschuster91 5y ago
    Traditional banking systems require resources that are pretty expensive. You need somewhat decent roads, electricity for ATMs and branches everywhere, public transport so that people can go to a bank... M-Pesa and friends just piggyback on the existing phone network.

jacquesm 5y ago

So, I know what this article is about without reading it :) M-Pesa, Swahili for M-Money, the first 'M' stands for Mobile. Very much a game changer, in some ways Kenya is now ahead of the 'developed' world, it's not just its neighbors that it can teach, but the rest of us as well. I put developed in quotes because I don't like this artificial division, Nairobi is as much a world capital as say Bucharest is. You probably would not recognize its skyline as African without context.

PoignardAzur 5y ago
> You probably would not recognize its skyline as African without context. Yeah, it's kind of scary how indistinguishable business districts' skylines are these days.
- drra 5y ago
  I used to find myself forgetting a country I'm visiting during a chain of business trips. It's surprisingly hard to find when in taxi traveling through generic business district. RL Geoguessr.
estsauver 5y ago
Since I happen to be sitting in a tall Nairobi office, here's a view from the Apollo Agriculture office. (All of our customers payments are in Mpesa as well.) https://ibb.co/bQtLYFT https://ibb.co/bQtLYFT
- HeyLaughingBoy 5y ago
  My first thought is that it looked like driving into Minneapolis (https://en.wikipedia.org/wiki/Minneapolis https://en.wikipedia.org/wiki/Minneapolis) from the South on I35 :-) Probably feels a lot different though. It was -9F when I woke up.
- jacquesm 5y ago
  Neat!
- 5y ago

MoSattler 5y ago

When I visited Kenya a year ago, and I was surprised how M-Pesa was the primary means of payment. That was light years ahead of my native, European country, where in many places nothing but cash goes. Even the Maasai have widely adopted it.

i67vw3 5y ago

https://www.bhimupi.org.in/ https://www.bhimupi.org.in/ A kinda similar thing which revolutionized money transfer in India.

legutierr 5y ago
This is a government initiative, is it not?

BirAdam 5y ago

I would love to be able to mobile banking type stuff on a dumb phone, but services on SMS and the like and 2g/3g are dead in the west. Have to have more expensive new-fangled BS to be a member of society. I’ve long felt that new technologies hitting undeveloped areas could lead to better outcomes than the slow accretion that the West had. Of course, this also requires Western intelligence agencies not killing every new leader with an idea.

pinephoneguy 5y ago

After having "Truist" close my account without telling me (but still let me deposit a ton of money into it) I think you might be better of without a bank account. All they do is fuck around with you and they're never open. Crypto absolutely is the future weather the well connected people in the FED and their customers like it or not.

boh 5y ago

For all it's positive PR, banking the unbanked who are less financially savvy and have weak institutions to protect them, has also made them prime targets for predatory banking practices. Similar to western countries, high yield loans target the most financially vulnerable, but unlike the US, Kenya doesn't have consumer protections or adequate bankruptcy laws. More details: https://www.bloomberg.com/news/features/2020-02-12/tech-startups-are-flooding-kenya-with-apps-offering-high-interest-loans https://www.bloomberg.com/news/features/2020-02-12/tech-star...

oversocialized 5y ago

Imagine thinking banks are a good thing