An econophysics non-monetized theory of value. The case of micro-finance in Sub-Saharan Africa
| DOI | https://doi.org/10.1108/JIC-01-2017-0001 |
| Published date | 14 May 2018 |
| Pages | 519-535 |
| Date | 14 May 2018 |
| Author | Wolfgang Baer,Ahmed Bounfour,Thomas J. Housel |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & Finance,Accounting/accountancy,Behavioural accounting |
An econophysics non-monetized
theory of value
The case of micro-finance in
Sub-Saharan Africa
Wolfgang Baer
Nascent Systems Inc., Carmel Valley, California, USA
Ahmed Bounfour
University Paris-Sud, Sceaux, France, and
Thomas J. Housel
Naval Postgraduate School, Monterey, California, USA
Abstract
Purpose –Mobile phones are radically transforming micro-finance in Sub-Saharan Africa, and Kenya, in
particular. The introduction of the micro-financial transaction mobile phone application, “MPesa,”created a
means to facilitate micro-transactions without the need for an intermediary, such as a banking system.
The purpose of this paper is to posit an econophysics model to predict the value of Mpesa for Kenyan and
South African consumers. The econophysics framework posits several fitness matrices and a distance
measure that can account for the concepts of mass, distance, momentum, velocity, action, and force. The
authors begin with a table of the match between the physics concepts and the economic concepts followed by
the vector model that utilizes these concepts for the MPesa application case. In this paper, the authors will
argue that MPesa succeeded in Sub-Saharan African countries, such as Kenya, because the fit between what
this group of customers needed and the solutions Safaricom’s MPesa offered was a better fit with a smaller
distance to adoption than in the South African case.
Design/methodology/approach –The research develops an econophysics approach to the assessment of
micro-finance development in Sub-Saharan countries.
Findings –The research shows clearly the reasons of the success of MPesa in Kenya in comparison of its
relative failure in South Africa: the distance between customers’expectations and the system supply.
Research limitations/implications –The research is limited to two case studies and needs to beextended
to other contexts, in order to demonstrate its robustness, especially with regard to the intangible dimension,
e.g., the distance between a system potential and what it really offers.
Practical implications –The research shows the importance of system’s characteristics in its success.
Social implications –The social implications are very high, especially in this case, where micro-finance is a
high stake for developing societies.
Originality/value –This is one of the first works to develop an econophysics approach for the evaluation of
the key characteristics of a system.
Keywords Value, Modelling, Economic theory
Paper type Research paper
Introduction
Mobile phones areradically transforming micro-finance in Sub-SaharanAfrica, and Kenya, in
particular.Because so much of the populationis poor, by Western standards,individuals have
not had access to the incumbent banking system. This prevented small entrepreneurs from
raising the necessarycapital to form new business enterprises. In addition, citizens of Kenya
could not perform a simple financial transaction that is common in more developed societies
that have easy access to credit and banking infrastructure. Because of this exclusion from
standard financial mechanisms, citizens of these countries did not have the routine ease of
making financial transactions that more developed societies enjoy on a daily basis:
Financial inclusion means having an account of some sort, either at a traditional institution like a
bank or credit union or through a mobile money account. (Mobile money accounts are phone-based
Journal of Intellectual Capital
Vol. 19 No. 3, 2018
pp. 519-535
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-01-2017-0001
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
519
Econophysics
non-monetized
theory of value
services, untethered to a financial institution, for paying bills and sending cash.) Either method
allows people to pay bills more efficiently; to send and receive remittances; and to take the first step
toward accessing credit to make larger purchases or start a business. (Andrew Flowers, Financial
Inclusion 4:12 p.m. April 15, 2015, Mobile Phones are Revolutionizing Personal Finance in
Sub-Saharan Africa)
The introduction of the micro-financial transaction mobile phone application, “MPesa,”
created a means to facilitate micro-transactions without the need for an intermediary, such
as a banking system. “In 2007, Safaricom launched MPesa, a pioneering micro-finance
program built on mobile cash transfers”(Andrew Flowers, Financial Inclusion 4:12 p.m.
April 15, 2015, Mobile Phones are Revolutionizing Personal Finance in Sub-Saharan
Africa). Since the introduction of MPesa, mobile-phone-based micro-financial transactions
have increased to 12 percent of all non-banking financial transactions in Sub-Saharan
Africa compared to 2 percent for the rest of the world. For example, in Kenya,
approximately 58 percent of the adults have mobile phone MPesa financial accounts
( Jack and Suri, 2010).
The introduction of this new financial application has been attributed to improving the
growth of gross domestic product (GDP) metrics in Sub-Saharan Africa. The GDP
attributable to MPesa in Kenya in 2014 was approximately 60 percent:
At present MPesa’s has 15 million users conducting more than 2 million daily transactions, which
by some estimates adds up to as much as 60 percent of the country’s gross domestic product.
(“The apparent MPesa monopoly may be set to crumble,”Erik Heinrich, Fortune Magazine,
June 27, 2014)
The introduction of MPesa in South Africa, the continent’s largest economy, has not been
successful as of 2015. The question is why it would be so successful in other African
countries and not in South Africa:
With just one million subscribers at the end of March 2015 –the uptake of the mobile money
platform M-Pesa has been labelled a failure in South Africa […] M-Pesa had already enjoyed
unprecedented success in in its home country Kenya where it was launched by mobile network
Safaricom with more than 20 million subscribers. In Tanzania, its second biggest market, M-Pesa
boasts some 7 million subscribers. (Why South Africa’s largest mobile network, Vodacom, failed to
grow M-Pesa, http://qz.com/467887/why-south-africas-largest-mobile-network-vodacom-failed-to-
grow-M-Pesa/)
In this paper, we will argue that MPesa succeeded in Sub-Saharan African countries, such as
Kenya, because the fit between what this group of customers needed and the solutions
Safaricom’s MPesa offered was a better fit with a smaller distance to adoption than in the
South African case.
In South Africa, there were more aggressive attempts to provide banking services for
their poorer customer base. It is possible that in the South African case, MPesa solutions
were not clearly articulated for the customers’needs:
Throughout its relaunch attempts, the company has marketed the platform differently: first as a
mobile money solution, then as a mobile money wallet, which allows customers to store their money
safely, and finally at last year’s relaunch, as a platform that allows you to swipe and buy with a
Visa card linked to your mobile phone. (Why South Africa’s largest mobile network, Vodacom,
failed to grow M-Pesa, http://qz.com/467887/why-south-africas-largest-mobile-network-vodacom-
failed-to-grow-M-Pesa/)
To compare these two cases, this paper will provide an econophysics framework that
provides a means to analyze the fit and distance for each African country’s case. The focus
is on demonstrating how the new framework can be used to review and predict how
customer needs and provider solutions can be compared with regard to the distance
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