Attempts to modernize and boost the economy of East Africa have been held back by one thing: cash. For most people who live there, cash seems to be their only option for doing business, which hinders economic growth and makes it more difficult for entrepreneurs to take advantage of opportunities.
Council Lead Partner MasterCard and the Bill and Melinda Gates Foundation are teaming up on an ambitious effort to bring basic financial services to East Africa’s poor. Together, they’re working to open the MasterCard Labs for Financial Inclusion, the first MasterCard lab in Africa and the first in the world to concentrate on giving more people access to banking and the benefits it provides.
The Gates Foundation will donate $11 million to jumpstart the lab, which will open in Nairobi, Kenya. That donation will pay for the lab’s first three years of operation. After that, MasterCard will take over funding it. The Foundation is also donating $8 million to help fund local start-ups, a separate, but related effort, to boost the economy.
Dethroning the cash king
The saying may be that “cash is king,” but it’s not always so. Cash can be significantly limiting, especially for the poor. Without access to credit and the ability to pay for things with it, a bad harvest or health problems can prevent families from getting the essentials they need. The ability to save when times are good and borrow when they are not can be life changing.
And even using cash can be a challenge. In poorer areas, bartering is more common, creating even more difficulties as people have to find ways to trade livestock for goods or services. Basic banking services provide more options.
Having options and using them
In many ways, Kenya’s economy is already ripe for digital currency. Nearly 85% of people have bank accounts or access to an alternate form of payment, such as prepaid cards or mobile options. The problem is, nobody uses them. Only 2% of the transactions are made with anything other than cash.
MasterCard says it’s easy to see why this is a problem. Its division president for the area told Forbes that while Kenya’s economy is growing – its tech industry is expanding rapidly – the poor aren’t any better off.
The goal is “financial inclusion”
MasterCard has already made some progress toward what it calls financial inclusion – financial services for all – in a number of African nations. In Nigeria, for example, a pilot project includes payment technology in identification cards. Under a project in South Africa, 10 million people receiving grant payments now get them electronically. In other places, it has teamed up with banks to give more people access to debit, credit and prepaid cards.
While the new lab is based in Kenya, MasterCard and the Gates Foundation want it to have a broad impact. It’s designed to test a variety of financial services concepts, seeing which technology and services work and how well people use them. The results will help form a blueprint to roll out financial services to raise living standards throughout the developing world.