Institute for Money, Technology & Financial Inclusion

This is a study of the “triple intersection” of (1) smartphones; (2) social network sites; and (3) purchasing and selling online in Indonesia, the fourth most populous nation and home to more Muslims than any other country. Indonesia is at the forefront of emerging practices of online commerce, with consequences for a range of issues including consumption, payment, and internet sociality. To better understand this rapidly changing landscape of mobile social media and payments in Indonesia, research teams in the cities of Surabaya (East Java province) and Makassar (South Sulawesi province) conducted a series of interviews, focus groups, and observation of everyday practices.

Driven by a lack of opportunity, 250 million migrant workers have left rural areas to take part in the country’s manufacturing boom. Often, even when they find work, their lives are just as defined by poverty and instability as those they left behind. Financial services are a key leverage point for individual economic mobility, yet banks are becoming scarce in rural areas.

More than 30,000 branches in poor and rural regions have closed over the last few years, leaving more than 64 percent of these populations unbanked. Creating new, innovative access to savings accounts, loans, and other financial products could provide the opportunities and stability people need to improve their own futures.

Reboot undertook this study to develop and share a deep understanding of the daily lives of China’s marginalized. Our goal is to inform the development of new financial services that can tap into this immense potential market and, in doing so, greatly increase these populations’ access to economic opportunity and security. We focused on three marginalized groups of the Chinese population: 1) migrant workers; 2) rural villagers; 3) ethnic minorities.

This report, which precedes the final report for this project, explores further

discussions and research of the research terms for the “Landscaping Mobile Social

Media and Mobile Payments in Indonesia” project. It draws particularly on insights

emerging from the workshop “Landscaping Mobile Social Media and Mobile

Payments in Indonesia,” which took place in Surabaya, Indonesia, on September 28 and 29, 2012.

The development of mobile and branchless banking has been steadily gaining momentum over the last 10 years thanks to a highly innovative technological environment fostering the development of new mobile money platforms and applications.

The success of Safaricom’s M-PESA in Kenya created high expectations with regard to the benefits of mobile payments. As a result, many donors, experts and MFIs became convinced that mobile financial services (MFS) are more convenient, efficient and less costly than the traditional high-touch model for delivering microfinance services, especially when targeting the unbanked poor living in remote areas. Indeed, MFS were seen as the alternative to brick and mortar branches, allowing MFIs to improve existing services in the short term while increasing their outreach in the long term. By serving a greater number of unbanked poor, it was – and still is – seen as a powerful means of achieving greater financial inclusion.

But attempts to replicate M-PESA’s success in other countries have thus far been met with what can only be qualified as mitigated success. In Tanzania, the transfer costs have been too prohibitive to offset the users’ cost to travel to an agent. In Cambodia, it was the limited geographical outreach of agents and the shortages of liquidity (e-float). In Senegal, the restrictive regulatory environment made it difficult to roll out and reach the scale of transactions needed to make the service viable. The research revealed that without an enabling market and regulatory environment, the cost-benefit equation for mobile financial services was no longer as obvious as initially perceived.

Through direct interviews and an online survey, the research team began by conducting an overview of MFI experiences with MFS in several geographical regions. This provided the basis for identifying best practices as well as the critical factors for successfully implementing MFS. Key findings follow.

This research project, with teams in the cities of Surabaya (East Java province,

Indonesia) and Makassar (South Sulawesi province, Indonesia), began in late May

This report is based upon data collected up to July 15, 2012. In these first six

weeks of the project, the Surabaya team conducted 5 interviews and the Makassar

team conducted 7 interviews. This report summarize five key findings from thiresearch to date.

In November 2010, Digicel and Voilá both made mobile money services publicly available in Haiti. Building uponour previous research on domestic remittances and financial practices, we returned to Haiti from Decemberto April to identify mobile money’s potentials and challenges given the specific characteristics of the mobile money services offered and the needs of the Haitian population. This report presents our analysis of how the new mobile money services fit into Haiti's existing socioeconomic environment, and how customers are adapting and using the services. We identify six key insights and make recommendations for the development of mobile money in Haiti.

One would expect mobile money services to be well suited to Afghanistan: low levels of fixed banking infrastructure; rising mobile penetration; and a safer, cheaper, more convenient way of transferring money – especially one that removes the likelihood of graft. It all points to a rising adoption.

However local operator Roshan and other network operators must overcome numerous non-trivial consumer barriers to adoption including: textual, mobile and financial illiteracy; a general distrust of institutions compounded by the well established Hawala agent network; a general distrust of non-tangible assets; and the chicken & egg challenge of investing in an agent network without sufficient customers – and customers less willing to experiment with the service without there being a strong agent network. Furthermore in a county with considerable graft, to the wrong eyes – a legitimate commission may seem like an outstretched hand. Expect mobile literacy to rise over time – as people purchase their 3rd/4th/5th mobile phone; and similarly as people grow to rely on mobile services expect to see increasing trust in the operators.

Those of you interested in the broader landscape should read CGAP’s Microfinance Blog; the GSMA’s Money for the Unbanked blog; and the Bill & Melinda Gates Foundation’s Financial Services for the Poor site. One chapter in Porfolio’s of the Poor is a good primer for newcomers to this space, and for local colour check out the Afghanistan thread.

It’s worth noting that statistics for banking penetration and mobile penetration are difficult to tie down. CGAP calculates that there are 83 bank accounts per 1,000 members of the population although many of these will have multiple accounts to increase the likelihood that they will win with Bakht or lottery accounts (the principles of Sharia law forbid interest – but accounts numbers with a minimum deposit can be entered into a prize draw to win prizes such as money, cars or even an apartment). Similarly mobile penetration stats are difficult to come by – but whatever the number assume that anyone who can afford to will own and maintain 2 or 3 SIM cards/phones simultaneously – it’s simply good practice to reduce call costs between networks; to extend better coverage and/or to separate work from personal life.