Dahabshiil and Halawa's Explorinn Wirless Phones for Money Transfers

In countries where few have access to formal banking, mobile transfers provide crucial support for families with breadwinners abroad

There are dozens of different networks by which the world's estimated 200 million migrant workers transfer money to their home towns: from transnational behemoths such as Western Union to local, traditional systems such as the Chinese fei ch'ien ("flying monkey"). Ghanaian migrant workers in Berlin can deposit cash in one of the city's transfer agencies; at the other end, a hairdresser in Accra keeps a pile of cash next to his clippers to dispense funds to the workers' families. But all networks - from hundi in Pakistan to phei kwan in Thailand - could soon be eclipsed by the humble text message.

Globally, the total amount sent home by migrant workers through remittance transfers is roughly $300bn (£170bn); money sent via informal networks and money laundering is believed to add a further $150bn. Remittances far outstrip foreign aid to the developing world and can contribute up to a third of a country's GDP.

But "mobile remittances" - small sums sent via text message - are transforming the market. This may not sound hugely significant in an age of internet banking, but in countries where few have access to formal banking, mobile transfers provide crucial support for families with breadwinners abroad.

Branded with snappy names such as GCash and M-Pesa, the first networks were launched in the Philippines and Kenya last year, with services in India and Afghanistan coming soon. Users pay cash into an "mWallet"; and whenever they want to transfer money using their phone, the recipient gets a text message, which provides them with a code to show to a local agent.

• The mobile networks are able to compete in an already crowded marketplace with low transaction costs and flexibility: while the usual wire transfer companies take a 10 per cent commission on transfers, GCash costs as little as 1 per cent.
• It is also a formal system of remittance at a time when informal networks face harassment by financial authorities.

Because of US suspicions that the 9/11 attacks were funded by money laundering, many hawala networks, supplying remittances to families in the Middle East and Africa, were shut down (though the 9/11 Commission later found that the attacks had been funded using ordinary wire transfers).

According to a 2005 UK government report: "The closure of hawala outlets in the US and UK after the 11 September terrorist attacks left many Somali families destitute."

• The Horn of Africa transfer company Dahabshiil is investigating providing mobile transfer to help workers stung by prohibitively high commissions since the traditional networks shut down.
• Paul Harvey, who has carried out research for the Overseas Development Institute into the role remittances play in development, notes: "Somalia has very widespread mobile-phone networks, considering its political instability, so there are all sorts of exciting possibilities for using mobile networks."
• The mobile transfer networks could also change the way humanitarian agencies administer aid, as a pilot scheme launched during the Kenyan post-election violence this year demonstrated.
• With the country in chaos, cattle rustlers took advantage of the security vacuum in the remote Kerio Valley to attack communities and livestock, making the transportation of food, money and materials to affected communities unfeasible. The aid agency Concern Worldwide entered into an agreement with M-Pesa and sent a total of ?36,000 to 560 households within a month.

The scheme highlighted both the advantages and the pitfalls of the transfers. Most importantly for underfunded aid agencies, it was markedly cheaper than normal wire transfer, and quicker and less dangerous than handouts.

• But although mobile-phone use has increased hugely in Africa over the past decade, 40 per cent of those who required aid in the Kerio Valley did not have access to one.
• Widespread illiteracy also provided challenges for a project that required the use of text messages.
• Concern circumvented these problems by liaising with trusted, literate members of the community who owned handsets.

In September, Concern will start a permanent scheme targeting 5,000 families around Kenya in dangerous or isolated areas. Other agencies will be watching with interest. If it takes off, aid workers may find themselves having to add the language of txtspeak to their roster of local dialects.

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