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Mobile Technology Innovation and Islamic Finance

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Points of Essence:

  • The high penetration rate of mobile technology in the developing countries created opportunity for a changing pattern of banking transactions.
  • Today there are 1.3 billion mobile phones around the world and together with PDAs are expected to be 4.1 billion by 2014 providing a potential market for mobile banking.
  • Vodafone pioneered this innovate banking with its M-Pesa mobile-banking program in Kenya in February 2007 which successfully gathered 1.6 million subscribers. M-Pesa is an innovative system for sending both minutes and money via SMS . Airtime minutes automatically load onto the phone of their recipient. The cash is collected from one of the many M-PESA shops around the country.
  • Grameen Mobile in Bangladesh, as the largest national mobile operator testifies that mobile growth opportunities extend in low cost activities with expertise transferable to other traditionally “small” industries with huge growth. Low-cost sharia finance based on no-interest risk sharing could become a growth engine specific to middle-and low income Muslim economy markets.
By Guest Contributor, Athar Mian
Posted July 16, 2008

That there has been huge growth in the proliferation of telecommunications and information technologies (IT) in developing countries is plainly obvious.

From mobile phones and PDA’s (hand carried mini-computer /cellphone devices) to the availability of Internet access at home or cafes has changed the landscape for both consumers and businesses. To get an idea of its scale, consider this:

According to Telecom Trends International Inc., today there are 1.3 billion mobile phones around the world which have emerged in the past 20 years, compared to the more than the 2.5 billion landlines built over the last century. The numbers of cellphones and PDA’s is expected to be 4.1 billion by 2014. Compare this with the 1.5 billion TV sets in worldwide use today.

Illustration By

Another aspect of this trend is the role of the developing nations. According to The International Telecommunications Union, by the end of 2006, 68 percent of the world’s mobile subscriptions were in developing countries.

It is interesting to see that the #1 nation with Internet connectivity isn’t the US or some Euro nation: it is South Korea, with its high speed fiber and mobile networks all over. China too has made huge technological and market strides with its own version of third generation services, or 3G. The PDA was originally conceived by HTC, a Taiwan company. And WiFi, or urban wireless, is equally spreading in Asia and US.

Just think: Who would have predicted a few years ago that calling from a place like Lahore or Dubai to New York or London nowadays would be actually cheaper, more convenient and of higher quality than the other way around! Something is new and different here.

The emerging markets barely have had time to go through an industrial, or information revolution: they are now simultaneously facing the prospects of the later three developments while still stuck with a preponderant agricultural economy and cultural norms.

Many of these emerging markets are OIC (Organization of islamic Conference) member states and so in this article we look at unique mobile innovation opportunities for developing markets, its relevance to the Muslim world and the role of Islamic finance.

Mobile Banking and Developing Market Needs

Mobile banking seems the next big thing after micro-finance that has gathered 90 million customers in 30 years.

When Vodafone rolled out its M-Pesa mobile-banking program in Kenya in February 2007, it aimed to add 200,000 new customers in the first year but got them within a month. M-Pesa is an innovative system for sending both minutes and money via SMS. Airtime minutes automatically load onto the phone of their recipient. The cash is collected from one of the many M-PESA shops dotting the country. One year later, M-Pesa has 1.6 million subscribers, and Vodafone is now set to open mobile-banking enterprises in a number of other countries, including Tanzania and India.

Mobile DinarStandard Left: An M-Pesa service ad.

People have learned to use pre-paid cards to transfer money and engage in basic mobile banking, a trend that can quickly bring hundreds of millions of formally excluded folks into the general economic mainstream.

A 2005 London Business School study concludes that for every additional 10 mobile phones per 100 people, a country’s G.D.P. rises 0.5 percent. Many believe that pumping international aid money into poor countries is less effective than encouraging economic growth through commerce, also called “inclusive capitalism.”

Other Examples of Emerging Mobile Driven Innovations

Not only have telecommunications and IT become more ubiquitous in developing economies, they are creating surprising new economic models.

In Africa and other markets, for example, the proliferation of mobile phones has continued unabated, with 100% cumulative annual growth rates, even though there is no power grid available!People and business have figured out innovative ways of providing battery charging via auto-batteries and solar arrays. Where there were no cell towers, folks without basic high school education have actually erected their own home grown towers and antennas.

Farmers in South India have used mobile phones with student-written software to build efficient markets for fish and agricultural crops with price discovery and rapid delivery. For a mother with a sick child in a poor country, “just in time” can have a life-or-death implication when using a cellphone to find out if the local clinic doctor, several hours away by foot, is available.

Use of mobile phone or PDA to do the following by age group, %, 2007
Actvity 18-29 30-49 50-64 65+
Send/ receive text 85 65 38 11
Take a picture 82 64 42 22
Play a game 47 29 13 6
Play music 38 16 5 2
Record a video 34 19 8 3
Access the internet 31 22 10 6
Send or receive e-mail 28 21 12 6
Send or receive instant messages 26 18 11 7
Watch a video 19 11 4 2
At least one of these activities 96 85 63 36

Source: Pew Research Centre

Not only has this unleashed astounding creativity without benefit of traditional infrastructure (clean water, healthcare, primary education, roads, hospitals,) the need for instant communications has created secondary growth industries. This is contrary to Western notions of infrastructure first (read foreign-aid based government programs) and services (and national growth) later.

According to a 2007 study by Washington, DC based World Resources Institute, as a developing nation’s family’s income grows – from $1 per day to $4, for example – their spending on communications devices increases faster than spending in any other category, including health, education and housing.

So Opportunity #1

Mobile growth opportunities extend in many other profitable industries where no red-tape exists. Most are low cost activities with expertise transferable to other traditionally “small” industries with huge growth.

A fantastic example is Grameen Mobile in Bangladesh, now the largest national mobile operator from Bangladesh with $1 billion annual revenue. The venture was originally conceived as a complement to the enormously successful Grameen bank micro-credit initiative (close to Islamic finance via its social enterprise objectives) by Muhammad Yunus, the 2007 Peace Nobel Laureate.

With micro-loans (several to dozens of dollars worth), poor and middle class folks not only started small cottage businesses but also bought cell phone kits worth $150 to become local phone operators, while expanding their networks of associates and customers to move up the wealth chain, in turn building more and bigger enterprises (the so-called network externality effect in economics.)

There are now many Islamic finance and poverty reduction programs all over the Islamic world run by both governments and private individuals and agencies. Like others, the Grameen-Jameel Islamic Finance initiative for Africa, includes a mobile technology component.

Mohammed Jameel, scion of the Abdel Latif Jameel merchant group in Saudi Arabia, and an MIT graduate, also runs MIT’s Poverty Center. Critically, sharia finance is starting to combine social enterprise with business development.

Opportunity #2

Low-cost sharia finance based on no-interest risk sharing could become a growth engine specific to middle-and low income Muslim economy markets. This would be a very entrepreneurial way to fill in the gaps where Government and big-think neglect have failed over decades.

While PDA’s are complements to the desktop PCs and laptops in the West, the market is different in Asia, Latin America and Africa.

People who had not owned a phone before and could not afford a PC/laptop in the 1990s are now simply using PDA’s as combination mobile phones/PCs/consumer devices, having jumped several technological revolutions.

The already great success of visual media here like video clips, mobile games and quotes/info has leapfrogged traditional markets, given Asia’s preference for characters over text.

Opportunity #3

In the East, mobile technology evolution has been faster and more diverse than in Western markets. It is thus bound to drive new forms of outsourcing of services and products from the high-income West to low-income but high-growth East.

Also expect a huge East-centric regional market for services outsourcing that will level the field and shift income and productivity to poorer nations by the common paradigm of the PDA as the all-in-one device, by necessity of new but economical infrastructure.

The rationale for labor mobility and migration, a politically huge global issue, will be mitigated by this virtual transformation.

Opportunity # 4:

Another insight: the “green” question. Clearly the world is burdened with deteriorating environment and climate change owing to huge economic growth without safeguards (much like the Industrial Revolution in the West; only on a grander, faster scale.) A 2008 Climate Group ( ) estimate makes the unusual claim that the spread of PCs, mobile and other electronic devices could drive down environmental pollution by 15%. While this sounds a tall order, how many believed that the only products that will consistently come down in price 10-15% every year will be electronics and not autos?

The Mobile Revolution could be a partial antidote to increasing pollution in developing markets. Reducing product and infrastructure size and power from PC to PDA can create huge savings, with entrepreneurs taking advantage of environmental credits and redesigning offerings!

Opportunity #5

Inclusive capitalism (e.g. sharia finance in the Islamic world) and mobile technology is creating regional prosperity, with mobile commerce at its core.

OIC member countries and companies are rapidly taking advantage. According to a recent Economist article, Middle East telecom firms flush with oil wealth, and those from Malaysia and Turkey have invested $20 billion globally, mostly in developing markets over the last 6 years.

Mobile Market Penetration in the GCC (First Half 2007)

Source: Arab Advisors Group; Booz Allen Hamilton

Kuwait’s Zain has been on a buying spree in recent years, spending $9.5 billion in Africa alone. It now has access to 36.5 million customers in 22 countries across the Middle East and Africa, including Nigeria, Kenya and Tanzania.

Specifically, according to a 2007 Booz, Allen & Hamilton report titled ‘Capturing the Benefit of Media and Telecom Convergence in the GCC’ (also see “Exhibit 1”), all GCC nations are now considered liberalized for telecoms.

With average per capita GDP at $18000, 1.75 times global average, and 1/3rd of the population under 18, the GCC alone represents a huge high growth market with ample room for innovation by new mobile and media companies.

The UK based research and consulting firm Analysys estimated that the Arab Middle East’s mobile sector generated revenues of $22bn in 2006, while the figure should grow at a rate of 10 per cent per annum over the next five years, reaching almost $40bn by the end of 2012.

And the Big Macro Opportunity

We are all witnessing an already considerable interplay between these markets given cross-border investments (see DinarStandard Intra-OIC Trade Report).

Here is a Vision for 2020: With mobile telecom and sharia finance innovation coupled with an economic vision, an ‘Islamic Crescent’ (including the Middle East, North Africa, Central Asia, Pakistan, Malaysia, Indonesia) trading bloc would emerge, much as the current China and Pacific Rim, India and South Asia, EU-Russia, Latin America, Africa, and the US blocs, with many overlaps and interlocking relationships.

Mobile DinarStandard
Image source:

This bloc will create new business models and services throughout North Africa, The Levant, Gulf , South Asia (India, Pakistan) and Southeast Asia (Malaysia, Indonesia, China) to deliver rising prosperity to their populations and those in the rest of the world.

The Crescent will have its own financial hubs, internet domain administrators, and a satellite consortium; with homegrown Googles, Vodafones, AstraZenecas, GEs and Toyotas. Member nations will produce energy, textile, commodity, technological (e.g. mobile communi-robots) and financial products (e.g. sharia structured derivatives.) GDPs will have doubled, and expected to double again by 2030.

Not a pipe dream anymore.

Key Learnings:
Mobile technology evolution in emerging, mostly Islamic, markets is cutting edge but distinct from traditional Western growth.
The PDA trumps the computer, cellphone and the Internet as we know it!
Islamic financial innovation (sharia investments) is giving rise to technological innovation blended with new business models.
The Islamic markets and telecom firms are now big enough to create their own opportunities, either collaborating cross-border or servicing domestic populations.

Written by Suapi Shaffaii

July 17, 2008 at 1:49 pm

Posted in General Issue

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