Friday, May 30, 2008

Airtime as Remittances

Jan Chipchase is a Nokia researcher whose objective at the moment is to understand how the poor use mobile phones. At first glance, it shows no direct relation with the issue of remittance but on delving deeper it gets quite clear that the mobile phones used by the poor Ugandans are actually associated with the remittance industry. This is because the Ugandans use prepaid airtime as an informal money transfer mechanism, particularly to get value back to family in rural areas. The Ugandans are using prepaid airtime as a way to transfer money from place to place.

This is one of the most unique business models adopted in the African country facing severe challenges owing to the high level of poverty. The idea is simple. The earning member of the family, who works in a town/city instead of sending money back home, buys a prepaid airtime card valuing the same amount that he would have sent. But instead of entering the code into his own phone he calls up the village phone operator and read the code to her. The operator then uses the airtime of the phone and completes the transaction by giving the beneficiary the money, minus a small commission. Some African countries have already started off this with this unique scheme and others are also expected to follow suit.

Prepaid airtime as a currency substitute is quite costly in percentage terms, due to VAT), and a commission for whoever turns it back into cash. But when the other options also seem more costly, people generally opt for a better option which is more cost effective.

1 comment:

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