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After Haiti’s devastating earthquake in January, people around the world whipped out their mobile phones to send millions of dollars in aid via text message to charities including the Red Cross. Now a new $10m fund aims to help Haitians use their own mobile phones to send, receive and store money – services known as “mobile money” or “mobile banking”.

The fund, a partnership between the Gates Foundation and the US Agency for International Development (USAID), will award cash to companies that set up mobile banking services in Haiti. More than a third of the island nation’s banks, ATMs, and money transfer locations were destroyed in the quake, according to the Gates Foundation – and few Haitians had access to traditional banking in the first place.

“Before the earthquake, fewer than 10 per cent of Haitians had ever used a commercial bank”, said Rajiv Shah, USAID administrator. “A mobile money system can restore and remake banking in Haiti and serve as an engine of inclusive growth.”

Such mobile money services are becoming increasingly popular across the developing world, particularly in Africa. As the FT’s Richard Lapper reports, “more and more banks are competing for the business of the 15m adult South Africans who had previously been excluded from the financial system” by offering insurance policies, micro loans – and mobile banking. And telecoms groups are offering services, such as Vodafone’s M-Pesa initiative in Kenya (which is soon expanding to South Africa).

The practice “has grown out of the widespread custom of using prepaid calling credit as an informal currency”, The Economist explained last fall in a special report on emerging markets telecoms:

Once you have signed up, you pay money into the system by handing cash to an agent (usually a mobile operator’s airtime vendor), who credits the money to your mobile-money account. You can withdraw money by visiting another agent, who checks that you have sufficient funds before debiting your account and handing over the cash. You can also send money to other people, who will be sent a text message containing a special code that can be taken to an agent to withdraw cash. This allows cash to be sent from one place to another quickly and easily.

Advocates say these services make transferring money cheaper by lowering commissions and cutting transportation costs, encourage savings and increased access to credit.

“Making financial services widely available to the poorest families in the developing world can help break the cycle of poverty by giving them a safe place to save, guard against risks, build assets, and provide opportunities for the next generation”, said Mark Suzman, who heads the Gates Foundation’s Global Development Program.

Related reading:
Banks find potential in mobile phone growth, FT
Special report on telecoms in emerging markets, The Economist
Africa leads the way in mobile money, The Globe and Mail