&gt; Posted by Kas Kalba, President of Kalba International, Inc.

 It’s drawn largely from Kalba’s forthcoming book Mobiles We Don’t Know. In this post Kalba discusses three key obstacles impeding the proliferation of smartphones. To learn about how limited network coverage is hindering the utility of smartphones, check out CFI Fellow Leon Perlman’s <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program/763">recent report</a>.     

When a highly reputable publication announces “Almost two-thirds of the human population is connected to the internet by smartphones,” it signals how loose our assumptions about technology adoption have become. This estimate, which implies roughly 5 billion users compared to the total global population of 7.5 billion, is not even close. The actual number is about 2 billion, when counting individual smartphone users—not the same as smartphones sold to date. So why is the smartphone still not in the hands of 5.5 billion potential users—or 4.5 billion if we discount a billion as under age?

If adoption of smartphones progresses at the same pace as the initial adoption of mobile phones, connecting 3 more billion people to smartphones could take 10 or more years. Even this rate would leave 2.5 billion of us without smartphones.

Based on Kalba International’s work in Africa, Asia and Latin America, we think there are three factors involved—the language gap, the income gap, and the recharging gap. This is in addition to extending internet coverage to many areas without it.

On language, we often think everyone speaks English—or else one of the other top global languages like Mandarin or Spanish—but the native speakers of these three languages add up to only 1.5 billion, many of whom don’t read or write. Yet 80 percent of internet sites are in one of the top 10 languages (about 50 percent of sites are in English), leaving a mismatch between content and ability to access and absorb it.

So how can smartphones accommodate our 6,000 languages—or at least the 200 or so (see graphic) with 10 million or more speakers?

Over time algorithms and oral interfaces can help solve the issue, as companies like Facebook, Google, Apple and Amazon have started to show.  What’s not clear is how rapidly the solutions will come. The current focus is on a limited number of languages, for example, leaving out all but one of Africa’s 2,000 languages. And it helps explain why music, photos and videos—not internet searches—are so popular among non-English speakers around the world. Also why less than 5 percent of non-English speakers in Africa have a smartphone, according to PEW Research.

A more obvious barrier to smartphone adoption is that more than two-thirds of us live on $10 or less per day. Mobiles, available for under $30 in some poor countries with prepaid airtime bought a few minutes at a time, are affordable for most people, especially if they give up cigarettes, beer or lipstick in the process. Smartphones, even when they fall to $50 or $60, are not as affordable, and so people often choose more affordable and more reliable feature phones. Affordability is even more limited for the roughly 3 billion living on under $5.00 per day.

This brings up recharging. About 1.2 billion of the world’s population lives off the power grid. Though this hasn’t shut off mobile adoption in mostly rural areas, it has slowed it down. Yet it’s one thing to ask a person to walk to the nearest town to recharge a phone once a week, and an entirely different thing to expect this every day or two, as smartphones require. New battery technologies and power-conserving approaches are promising but remain to be proven.

Meanwhile, the grid-based population grows each year though only minutely—about 15 million persons per year. On this basis it could take 80 years to fully close the recharging gap. Solar panels and services like M-KOPA in Kenya can help as well but so far they are diffusing more slowly than are extensions of the grid. This will hopefully change soon.

How else to speed things up? The short answer is adding free WiFi at the village level along with free recharging stations. Next, there’s lowering smartphone prices and related data charges. Plus the world needs to organize more oral apps in local languages. This is why today community radio is thriving in many rural areas of the world more than the smartphone is.

Have you read?

<a href="https://cfi-blog.org/2017/04/24/mobile-financial-services-a-technology-primer-and-implications-for-financial-inclusion/">Mobile Financial Services - A Technology Primer and Implications for Financial Inclusion</a>

<a href="https://cfi-blog.org/2017/05/16/promising-developments-in-mobile-financial-services/">Promising Developments in Mobile Financial Services</a>

<a href="https://cfi-blog.org/2017/05/11/fintech-in-microfinance-in-search-of-the-high-tech-high-touch-unicorn/">Fintech in Microfiance: In Search of the High-Tech High-Touch Unicorn</a>

When Will Smartphones Reach the Last Five Billion?

[caption id="attachment_18360" align="alignright" width="331"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2015/06/cfi_by_the_numbers_final-fig10p_cropped.png"><img class="wp-image-18360" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/06/cfi_by_the_numbers_final-fig10p_cropped.png" alt="Account Use (Developing Economies) - Click to Enlarge" width="331" height="190" /></a> Account Use (Developing Economies) - Click to Enlarge[/caption]

Especially since the Global Findex report made headlines around the world with its finding that the number of financially excluded dropped from 2.5 billion to 2 billion during the period 2011-2014, I have been increasingly uneasy with equating account access as financial inclusion, and especially as equivalent to the essential concept of full financial inclusion as <a href="http://www.centerforfinancialinclusion.org/about" target="_blank" rel="noopener">defined</a> by CFI. The Center’s new publication “<a href="http://www.centerforfinancialinclusion.org/bythenumbers" target="_blank" rel="noopener">By the Numbers</a>” does an excellent job helping people to digest all the publicly available data about financial inclusion, and make sense of them. It also reinforces my unease.

Despite the progress in account openings, the report makes it clear that the number of people actually using accounts is unfortunately not growing. Even more worrying, it argues that most accounts “are not really functioning as the hoped-for ‘on-ramp’ to financial inclusion.” The risk, as I see it, is that by adopting a stunted definition of financial inclusion that emphasizes account openings, we may be measuring and incentivizing the wrong things. The report wisely urges “caution regarding the value of mass drives for account opening, such as mandated no frills accounts…”

While the available data may overstate progress in some areas, the data may understate it in others due to the tendency to focus only on transactions at formal financial institutions. As the report notes, the percentage of people in low and middle income countries who save increased from 31 percent to 54 percent -- quite a jump! -- over three years, but this “is not reflected in a commensurate increase in saving in financial institutions.” Global surveys tend to miss savings groups and microfinance institutions, which in many markets play important roles. The alarming gaps in data related to access among vulnerable populations are also noted.

[caption id="attachment_18366" align="alignright" width="330"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2015/06/cfi_by_the_numbers_r02-fig12_savings.png"><img class="wp-image-18366" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/06/cfi_by_the_numbers_r02-fig12_savings.png" alt="Saving Activity (Developing Economies) - Click to Enlarge" width="330" height="198" /></a> Saving Activity (Developing Economies) - Click to Enlarge[/caption]

Which brings us to the continuing relevance, and in my view the unique role, of microfinance in achieving full financial inclusion. Based on its assessment of the numbers and trends, especially those related to discouraging levels of inclusion and product take-up amongst the poorest and most vulnerable groups, the report posits that “microfinance providers will continue to be significant players in the delivery of financial services, especially basic credit and savings, at the base of the pyramid.”

My view, shared by many members of the <a href="http://microfinanceceoworkinggroup.org/">Microfinance CEO Working Group</a> (MCWG) that I Co-Chair, is that MFIs can play an important role in facilitating the elusive on-ramp between limited use of accounts including digital financial services and achieving the most robust vision of being fully included. This is one reason why Grameen Foundation is working hard to set up leading MFIs in the Philippines, India, and Kenya to play this essential bridging role. The MCWG is likely to have something formal to say about this later in 2015.

The report is chock full of interesting tidbits about the changing financial inclusion landscape:
<ul>
 	<li>While the gender gap in financial inclusion stubbornly persists, the urban/rural gap is slowly closing.</li>
 	<li>Countries with national financial inclusion strategies achieved double the growth in account access compared to countries without such a strategy in place.</li>
 	<li>Indian government incentives to provide microinsurance to lower income segments over the last decade have resulted in that country having 40 percent of the global total of microinsurance policies.</li>
 	<li>Four countries – Indonesia, Tanzania, Sri Lanka, and Pakistan – “became fully interoperable for mobile money” by the end of 2014.</li>
 	<li>Nokia recently released a $29 smartphone, which could presage the acceleration of the use of apps that make it easier for illiterate (or even non-English speaking) people to use digital financial services more.</li>
 	<li>Global actors in financial inclusion have tended to focus on large countries and countries where relatively easy progress was thought to be possible. Left unsaid is how many countries have been largely ignored and what their fates may be.</li>
 	<li>Most adopters of mobile money were already “banked.”</li>
</ul>
This excellent report should underscore the importance of shifting our attention from account access to the quality and value of financial services available to the base of the pyramid. In other words, our “north star” should be full financial inclusion. Furthermore, it shows that we ignore the real and potential contributions of actors other than formal financial institutions and mobile money operators – such as microfinance institutions, savings groups and other informal approaches – at our collective peril. To again quote the report, “full financial inclusion should consider informal services an important, ongoing part of the mix.”

At the outset of the report, the authors state that they have always considered the notion of <a href="http://www.centerforfinancialinclusion.org/fi2020" target="_blank" rel="noopener">Financial Inclusion 2020</a> as a “thought experiment.” To me, this notion calls to mind Professor Muhammad Yunus’ idea of creating a social fiction literature akin to science fiction, since so many things we imagined as science fiction a generation or two ago are realities today. What we imagine can become reality, and often does. How important then, that we train our imaginations on the robust notion of full financial inclusion rather than on something much more limited, and potentially limiting, than this bold and compelling vision.

Figures credits: "<a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/by-the-numbers">By the Numbers</a>" - CFI

Have you read?

<a href="http://cfi-blog.org/2015/06/04/by-the-numbers-benchmarking-progress-toward-financial-inclusion/" target="_blank" rel="noopener">By the Numbers: Benchmarking Progress Toward Financial Inclusion</a>

<a href="http://cfi-blog.org/2015/04/22/financial-inclusion-by-2020-it-depends/">Financial Inclusion by 2020? It Depends</a>

<a href="http://cfi-blog.org/2015/04/28/global-findex-offers-next-steps-for-how-to-give-people-bank-accounts/" target="_blank" rel="noopener">Global Findex Offers Next Steps for How to Give People Bank Accounts</a>

&nbsp;

Considerations for the Pursuit of Financial Inclusion - Beyond Account Access

Alex Counts

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Access Usage Gap

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The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

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When Will Smartphones Reach the Last Five Billion?

Considerations for the Pursuit of Financial Inclusion - Beyond Account Access