A mobile banking boom is boosting remittances to Bangladesh’s countryside
Kamal Quadir, a serial entrepreneur, is often on the money. After introducing e-commerce to Bangladesh via CellBazaar, an electronic marketplace sold to Norway’s Telenor in 2010, he joined forces with his brother to launch bKash, a mobile banking network. The six-year-old company now counts 29m accounts, the lion’s share of a national total of 58m. By providing unbanked people with an affordable solution to stash their cash, says Mr Quadir, bKash’s CEO, the payment system has become “the collective mattress for the whole country”.
The boom is not without precedent. M-Pesa, a mobile money service launched a decade ago, is now used by at least one person in 96% of Kenyan households. But Bangladesh could catch up fast. More than 80% of its population has no bank account (compared to 38% in India). A country half the size of Italy with nearly three times the headcount, it is dense enough to surmount mobile banking’s classic “cash-in, cash-out” problem (to make or receive payments, users need access to physical outlets where they can convert cash into digital money). An energetic push by operators has further reduced this barrier: bKash runs a network of 180,000 mom-and-pop shops that serve as agents around the country.
Fresh research suggests this could do much to reduce rural poverty. As they seek higher-paying jobs, Bangladeshis are moving to cities at an accelerated pace: Dhaka, the country’s capital, is projected to grow from 18.3m last year to 27.4m in 2030. In theory, this could mean more money for rural folks, as remittances flow back to the countryside. But sending money home has long required hours-long travel, meaning irregular and costly transfers. Mobile banking drastically simplifies the process: a text message is all it takes to dispatch dollars to far-flung relatives.
In a paper finalised this month, a group of economists from New York University and the World Bank try to estimate how much richer villagers stand to become from this progress. After selecting 817 rural households living in one of Bangladesh’s poorest regions, paired to family members who migrated to the capital, they taught a random sub-sample how to sign up for mobile banking. The training induced a much stronger take-up: 70% of those who received guidance ended up using mobile money services, compared to 22% for those who did not. This resulted in a 30% increase in remittances.
Most important is how recipients used the money. Instead of consuming more, the group of trained villagers reduced their debt load and were more likely to save, with positive impacts on health, education and agricultural productivity. When faced with adverse shocks - a major illness, say, or crop-destroying weather - they maintained consumption levels, suggesting part of the extra bounty also served as insurance money. More mixed was the lot of urban migrants: though they earned more and increased savings, they also worked longer hours and reported worse health.
These may be the trade-offs of rural gains. Still, mobile banking’s effect on remittances may well encourage further urbanisation. The difficulty to imagine one’s future as a city dweller sometimes acts as a break on migration; mobile banking’s “demonstration effect” may facilitate decision-making among hesitant villagers, says Jonathan Morduch, a co-author of the paper. Using the extra money as a safety net, families that already have a member dispatched in the capital could also be more willing to sponsor the relocation of a second relative. Failed migration can be very costly. Bangladesh’s digital mattress may help put fears of bankruptcy to bed.