By Nafay Choudhury

In 2012, Time Magazine published an article on how “Afghanistan Is on the Leading Edge of a Tech Revolution”.^[1] Mobile money, it was claimed, would fundamentally transform Afghan society from supposedly pre-modern conditions to one where average citizens would be connected with the wider financial system. Six years later, that revolution has yet to reveal itself as society has moved on but with little interest in adopting this new technology on a wide scale.

Mobile money became the talk of the town within international development circles after its initial success in Kenya. The country’s M-Pesa platform succeeded in penetrating deep into rural areas of the country and connecting individuals who had previously no interaction with the formal banking system. Mobile money allows for individuals to effectively use their phone as their bank account. Salaries can be sent to people’s ‘phone bank account’, and money can be withdrawn at specified agents throughout the country, whether banks or specific stores.

M-Pesa’s success in Kenya made mobile money seem like a perfect fit for Afghanistan. Like Kenya, much of Afghanistan’s rural areas remain difficult to access and often completely cut off from formal banking institutions. The overhead costs associated with banks, along with security challenges, make it impractical for them to open branches in many areas of the country. Thus, in 2008, the United States Agency for International Development (USAID) spearheaded attempts to have mobile money become the next big revolution in Afghanistan. Ten years later and with hundreds of millions of dollars having been dedicated to developing a viable system, only a trickle of mobile money can be found active in the country.

Various factors have made it difficult for mobile money to take root in Afghanistan. First, distrust for financial institutions remains widespread. Only a small portion of Afghans have bank accounts, with some estimates in the order of merely 10%. Trust in banking institutions took a major hit after the Kabul Bank scandal^[2], thought the market has slowly rebounded after years of efforts at strengthening the statutory and regulatory regime. Mobile money, however, remains largely a foreign concept with few individuals - including those highly educated - aware of how the platform operates. Building trust in mobile money remains an immense challenge, particularly given people’s general lack of awareness of the product.

Second, the country already hosts an extensive network of money exchangers who are able to facilitate transactions such as hawala or money transfers. Unlike mobile money, money exchangers are socially embedded and wield respect amongst the population. Domestic and international remittances are often facilitated by trusted money exchangers. The trust relationship allows for exchangers to be flexible in ways mobile money cannot. For example, if someone needs to send money to his family today but will only receive his salary next week, an exchanger may be willing to transfer the funds in advance based on the pre-existing relationship between the parties. Mobile money would not allow for such a service.

Third, the mobile money market remains almost totally supply driven. Some employers have turned to mobile money to pay their employees, effectively ‘forcing’ the use of mobile money. However, merchants have largely avoided adopting its use in their operations. The result is that those receiving their salary through mobile money accounts are forced to cash out the money received before being able to buy items, thus undermining the usefulness of the platform.

While mobile money may not have caused a tech revolution (at least as of yet) in Afghanistan’s flailing economy, it has been useful in other ways. Mobile money has been adopted by various government agencies as a means of addressing corruption. Instead of paying government employees in cash (which remains common practice in the country), mobile money allows for salaries to be electronically accounted for. This reduces the incidents of bribes and money ‘getting lost’ in the distribution process. Furthermore, in rural areas, many ‘ghost’ schools exist with their ‘ghost employees’ on the government payroll. Mobile money has been a means of stamping out such forms of corruption that simply drain government resources.

Mobile money has a long way to go before it becomes a widespread phenomenon in the country. Certain characteristics of Afghan society such as the aversion towards financial institutions and the continued success of money exchangers may prevent the platform from ever becoming truly widespread. However, that does not mean that mobile money has no meaningful role. Each society faces its own challenges, and if mobile money’s contribution to Afghan society is simply to help control cases of corruption, then it may be achieving its limited but value-added contribution to society.

Nafay Choudhury is a Research Fellow at the Afghan Institute of Strategic Studies and is currently a PhD Researcher at King’s College London. He has previously been a Visiting Scholar at the Max Planck Institute in Hamburg and an Assistant Professor at the American University of Afghanistan.

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