If you’ve always had access to banking services, it’s hard to imagine how critical they are to leading secure, happy lives, says Jan Chipchase, a researcher with UCI’s Institute for Money, Technology & Financial Inclusion (IMTFI).  The use of bank cards and credit cards, as well as confidence in the financial institutions that facilitate the  transactions, have become second-nature for consumers in industrialized nations; for those in developing countries like Afghanistan, such immediate and reliable access is a luxury.  In 2010, Chipchase, who is also the global insights director at Frog Design, was awarded an IMTFI research grant to study current monetary practices in Afghanistan and the country’s potential as a new market for a cell-phone based money transfer system, similar to Kenya’s highly successful M-PESA which now boasts more than 12 million subscribers. Through in-depth interviews conducted on the city streets and in the homes of farmers, police officers, schoolteachers and entrepreneurs, Chipchase gained unique access to the everyday monetary practices of Afghan residents.  He has presented his research at conferences convened by the U.S. Department of State, the Mobile World Congress in Barcelona and other key international organizations, and published his findings and documentary photos online. Below, Chipchase discusses his work, its importance and how it could change the lives of Afghanis and others in developing countries around the world.

Q: What general advantages do banking services provide?
A: Savings allow us to decrease our risk in handling and storing cash, and insurance allows us to protect against economic shocks. Payment services help us save time that can be spent in more productive ways, and basic credit allows us to use current assets to seize upon future opportunities. Those without are often forced to seek out comparable alternatives through informal, unregulated markets, often at greater burden, risk, and cost to themselves. There is always the underpaid government official with palms extended or the daylong line at the utility company. Lack of access to primary financial instruments contributes to the marginalization of those already most vulnerable, and exacerbates the cycle of poverty.

Q: What is the current state of financial services in Afghanistan?
A: Basic banking services are out of the reach of most of the world’s poor, and certainly of most Afghans. Official figures indicate there are 83 bank accounts for every 1,000 people, but the penetration figures are inaccurate. The few Afghans that are able to get bank accounts often have more than one, but most of the population doesn’t have access to savings accounts, let alone insurance, payment services, or formal lines of credit. As with many countries where there is limited access to formal banking infrastructure, in Afghanistan we found many formal and informal stores of value ranging from banknotes to airtime and goats to gold. Similarly for those on the breadline, credit was delicately drawn from any source where there was sufficient give, and borrowers balanced sometimes extreme financial and social burden in deciding where or from whom to borrow.  The most common form of money transfer conducted in Afghanistan occurs through informal couriers or hawala brokers who operate on an honor system.

Q: How would gaining access to basic banking services impact the lives of Afghan citizens and others in developing countries?
A: Access to basic money transfer services will help poor families save time and money that can be spent in more productive ways. Basic credit will allow them to use current assets to capitalize on future opportunities. Appropriate insurance schemes will allow them to protect against economic shocks. The ability to save, and to do so securely, will allow them to decrease their risk in handling cash. Taken in sum, access to basic financial instruments will allow families to pursue economic opportunities, generate greater income, and accumulate amounts of net worth. As a result, they will be more able to meet their life and emergency expenses. People already have access to mobile phones, however; so harnessing that access to provide other services might go a long way to changing things for the better.

Q: Mobile banking seems like an advanced option for those who have existing accounts with well-known banks.  How can such a sophisticated service be the first step in largely un-banked areas like Afghanistan?
A: Many people associate mobile banking with cities like London or New York, but its potential impact is far greater in countries where there is limited access to fixed banking infrastructure. Afghanistan is a prime candidate for a cell-phone based money transfer system because of the country’s rise in mobile subscriptions, the stubbornly low level of fixed banking infrastructure, and the widespread distrust in formal banking institutions. Building on research such as Portfolios of the Poor, which highlighted the strategies the poorest members of societies use to manage their limited resources, as well as the sector-galvanizing discussions led by the World Bank’s Consultative Group for the Poor and the GSMA’s Mobile Money for the Unbanked Initiative, our research aim is to learn about traditional money and emergent mobile money practices in Afghanistan, and to contribute to the knowledge base of the mobile money community.

-Heather Wuebker, UCI Social Sciences Communications
-photos by Jan Chipchase, www.janchipchase.com