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Mobile-izing Savings in Afghanistan

A typical mobile phone used in Afghanistan costs around $10 and has just nine symbols on it.

This no-frills model won’t thrill the average American teenager or gadget geek, but it signifies technological advancement for one of the world’s most impoverished countries. People are better connected to each other now in the isolated, mountainous region that’s continually in need of modern-day convenience. They previously had only the occasional land line at their calling disposal.

Yet a mobile phone in the hands of an Afghan has the power to do far greater good than simply enable people to communicate more freely, according to Josh Blumenstock, University of Washington assistant professor in the Information School and founding member and co-director of its DataLab.

For the past several years, Blumenstock has been working with other prominent university researchers to understand how Afghans might be encouraged to do something that has proved exceedingly difficult for those living in developing nations – save money. Through a series of projects designed to “Mobile-ize” savings in Afghanistan, they have developed and tested new ways to save money with mobile phones.

“It’s important to understand the day-to-day problems faced by people struggling to get by,” Blumenstock said. “As much as we can, we sit down and have tea with ordinary Afghans, to get a sense for what possible solutions might look like. Recently, we’ve been focused on helping design a new financial product, which is a phone-based savings account.”

The need is obvious. Less than three percent of all Afghan citizens currently have bank accounts. There are few banks to access in the country. Many of the banks that do operate are perceived as untrustworthy by a large number of Afghans.

While Afghans typically are paid in cash for work performed, it can be dangerous to carry around large sums in a country that often is lawless in places or still at war. Corruption is widespread and many employees must deal with opportunistic job supervisors who help themselves to a percentage when doling out employee wages, convinced it’s the normal way of doing business.

“For a lot of reasons that feed into this project, there are very serious constraints faced by everyday Afghan citizens,” Blumenstock said. “There is considerable potential that new technologies might be able to alleviate these constraints.”

The California native first became interested in Afghan issues after meeting Michael Callen, now assistant professor at the John F. Kennedy School of Government at Harvard University, and Tarek Ghani, currently an ESOC Postdoctoral Fellow at Princeton University’s Woodrow Wilson School. Their paths crossed when all were graduate students at the University of California-Berkeley.

They were pulled closer together by research networks and workshops that highlighted their common interests. They shared the same passion for influencing social change. They sat together and came up with ideas that addressed Afghan problems, particularly those involving financial inclusion.

Blumenstock came armed with a computer science and engineering background, and a passion for working in poor and marginalized communities. His expertise previously took him to Rwanda for several months to study the role of mobile phones in that country’s economy. He also visited China, South America and other parts of Africa in his educational pursuits.

Callen and Ghani spent considerable time in Afghanistan, developing networks with policymakers and the private sector while becoming deeply passionate about the struggling nation.

Their collective Afghan research studies have been supported from the beginning by humanitarian foundations and institutes. Outside of the University of Washington, funding and support have come from the Institute for Money Technology and Financial Inclusion (IMTFI), the Bill and Melinda Gates Foundation and Innovations for Poverty Action.

An important first step for Blumenstock and his colleagues was to form a partnership with Roshan, one of Afghanistan’s largest telephone companies and a part of the Agha Khan network well known for its mission to help the world’s poor. Roshan was interested in learning how to support its mobile phone business while simultaneously catering to the needs of the ordinary Afghans.

The researchers initially studied how 400 people responded to having their salaries placed in an electronic format over the phone, leaving them with mobile money, rather than getting paid in cash.

A dozen or so Afghan nationals were hired to conduct focus groups, help with implementation and manage survey data collection. They conducted thousands of surveys, often interviewing the same person on multiple occasions to see how opinions changed over time. Focus groups were held, three people to a room, where everyone just sat and talked for hours at a time.

Results were positive. Recently, policymakers in the Afghan government have begun to explore how mobile money accounts could help bypass different levels of theft and corruption in the government salary system. Blumenstock’s team has been involved in discussions with senior officials about the possibility of transitioning the country’s civil service – tens of thousands of employees – to this system.

The second study came next: A mobile phone-based savings account. “It was a simple idea, but one that needed to be carefully adapted to the Afghan context,” Blumenstock said. “We’ve seen lots of examples of savings technologies that worked in one place and failed miserably in another.”

Over several years, the researchers designed and tested 24 different variants of a single basic savings account. Some accounts featured automatic salary deductions and matching incentives, much like a 401(k) account. Other accounts were no frills and simply provided a safe place to store money.

Earlier this year, 1,000 people were monitored as they used their accounts over six months. Through careful tracking of account usage and with several thousand interviews, they learned which accounts worked and which didn’t.

“The end-of-the-day effect, the top-line effect, was that the 401(k)-like accounts were very popular and effective,” Blumenstock said. “People saved a lot of money.”

If given the right tools, Afghans have shown they are no different than anyone else – they will set aside funds for the future. The next step is to build similar technology into other mobile money platforms, both in Afghanistan and around the world. Today, 3.5 billion people in developing countries, including Afghanistan, use mobile phones, even if they’re crude at best; 15 years ago, it was none. That’s a lot of people who might stand to benefit. 

“That’s an incredible transformation.” Blumenstock said. “The question now is how is that transformation affecting people?”