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Cell Phones HaitiThe Bill & Melinda Gates Foundation and the U.S. Agency for International Development (USAID) this week announced an initiative to accelerate the arrival of mobile phone--based financial services in Haiti. In late April I testified about the potential value of such a system for, among other things, efficiently delivering cash assistance and cash-for-work payments to Haitians. Not by coincidence: I had gotten wind of this project but couldn't speak publicly about it.

The project is noteworthy in several respects:

  • The initiative represents a rare public-private partnership (PPP) for USAID, I think.
  • Instead of making up-front "push" grants to cover expected implementation costs, Gates and USAID are offering a "pull": prizes down the road to the first mobile phone company or companies that build out a system that meets certain criteria. The first company past the post gets $2.5 million, the second $1.5 million. Another $6 million will be disbursed after 5 million transactions have taken place, and will be spread proportionally among the companies that execute them.

    Undoubtedly the intellectual lineage of this project traces in part to the work of Harvard economist and CGD Non-Resident Fellow Michael Kremer. Ten years ago, he proposed that donors offer a prize for developers of vaccines for diseases prevalent in poor countries, such as malaria. Ruth Levine at the young Center for Global Development created a working group of lawyers, pharmaceutical executives, economists, and other experts to flesh out the proposal. For CGD, a key funding contact for this work was Raj Shah of the Gates Foundation. The proposal was put into effect for pneumococcal disease, and should bear fruit this year. Raj now runs USAID, and in that capacity stole Ruth from us.

    I am certain that much thought went into the design of the Haiti prize. Having prizes for the first and second past the post makes it more likely that a mobile phone company that takes an early lead will face competitive pressure all the way to the finish line. Conditioning the majority of the money on transaction volume insures against the construction of white elephants that look good but don't do much good. For more on such subtle design issues, see Kremer's paper.

  • In Kenya, I learned from the Gates Foundation that the biggest challenge to mobile money is low-tech, not high-tech. It's about building a network of agents in the slums and market towns who stand ready to convert your cash into electronic money and vice versa; and it's about backstopping them with a system for getting cash to agents that need it and collecting cash from agents that have too much. The good news is that the mobile phone operators may not need to work hard to sell Haitians on sending money by phone. Most Haitians already have phones and are comfortable with electronic cash transfer, the country receiving some $2 billion a year from Haitians abroad.

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CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.