Thanks to initiatives like M-Pesa and Lenddo, emerging economies will be able to fully develop economically without a formal banking system

Pros

Lenddo

MPESA

Quick process of transferring funds - where otherwise transfer fees are high, little security is granted when physically transporting money and additionally high costs

Cheap compared to banks

No interest ?

All functions that banks have M-Pesa has too: M-pesa moves away from pure money transfer platform to financial services in general.

faciliates financial inclusion while giving people access to finance.

Contra

MPESA

No interest on savings (Although implicitely through lower transaction costs, especially when considering withdrawal thresholds).

Lenddo

withdraw cash from e-float (cash out)

Transfer your e-float to others

Traditional banking system is old fashioned: people considered 'unbankable' can be supported by lenddo

Capital Access to ones, which couldn't

How to provide gorwing middle class in emerging markets without lenddo?

Example Colombia: even for top decile borrowers traditional banking institutions are only 80 percent accurate as to whether loand is repaid.

Drawbacks of formal banking systems in emerging markets:

Are only willing to provide fraction of population with loans (those who have collaterals, who have a stable earning in the formal sector)

lack of trust into borrowers - lack of collaterals

Large portion of people not reflected in the financila system

lacking databases and credit bureaus to assess people’s creditworthiness: especially for smaller borrowers assessments of trustworthiness too expensive to administer.

use data from smartphones every middle class person in EM has : by 2020 everyone expected to have one. Much heavier use of social media

use people's connections and interactions to analyze and involve digital instead of "physical" community

social, mobile, analytics and cloud (SMAC) --> algorithms (predict what happnens in the future) --> big data!

borrowers who approach a financial institution need to be assessed: upon their consent, social footprint is analyzed by lenddo. Lenddo's clients, being the financial institutions can then do business with these people. --> verify identity and assess risk for clients

algorithms could create faulty data, faulty conclusions

judgement on wrong base: social footprint not congruent with reality

Needs banks and Microfinance institutions in order to function

Transaction maximum 35000 ksh roughly 300 euros. Will not replace the services of banks for larger entities or corporations

no loans are given by m-pesa : : :

doesnt equate financial inclusion: need of variety of differnet savings. M-Pesa is only about access. M-Pesa is about how inclusion can be delivered, but doesnt provide the foundation of money/loans (that is what people or banks do).

high interest rates to be paid

Storage function, cash deposited not to yield returns but to protect from being spent

Not reliable for corporations when big amounts are involved: Security issues.

Both

Just mediates/facilitates access and connection with money

both use banks as a base for their operations, which emphasizes the importance of banks

Increases the efficiency of the banking system: lowers transaction costs

just a complemetary tool and no substitute to the formal banking system. Use of M-Pesa led to 58 percent increase of bank use, but unclear if due to people holding more money or due to M-Pesa using commercial banks.

receive wage on M-Pesa account

Deposit money in return for e-float (cash-in)

Lack of ATMS as opposed to M-Pesa stands: banks can thus not serve as quick emergency transfer providers. or enable people in remote areas to step out of poverty as they lack finance.

quickest, cheapest, most reliable (as opposed to friends, post offices and money transfer companies)

World wide expansion to Tanzania, Afghanistan, South Africa , Romania, India, Mozambique, Lesotho, Egypt

Friend

Safe money (without interest payments - users were not more likely to save even with interests paid ) e.g. while travelling.

Pay for goods and services

algorithms translate nontraditional data, like social media activity, browsing behavior, geolocation and other smartphone data [13] into insights around the consumer’s behavior, network, and strength of their relationships—information that can be highly predictive of people’s willingness and ability to repay a loan.

Transaction velocity of e money could be higher than the transactions velocity of cash.: thus a small amount of M-Pesa, by circulating more frequently, would provide the same transaction services as a much larger quantity of cash. . However, the transactions velocity of M-Pesa does not stand out as being much higher than cash.

gains credibility by seeking advice from established financial institutions: how to best protect customer information, how to adhere to international best practices

monopoly of few financial institutions: high prices for any service

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By enabling users to transfer money to each other and make payments directly to businesses and service providers, mobile money platforms cut down on corruption by reducing the need to operate in a cash-only economy.

Stigmatization: people clustering around people with undesirable lending profiles may be misjudged although they may have a well fitting profile.

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