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IBO’s Internet Silk Road InitiativeCreating the legal infrastructure for M-banking & M-commerce in Afghanistan
IBO’s Vision
• Funding & harmonization of laws
Int’l Community
• National Regulatory Body for e-commerce
State
• Channel for laws & funding to the community
Local Officials
• Training in m-banking/ m-commerce; trust-building with local government
Civil Society
© 2010 Internet Bar Organization
Why Afghanistan?
World Bank Business Environment Snapshot: Afghanistan <http://rru.worldbank.org/BESnapshots/Afghanistan/default.aspx>
© 2010 Internet Bar Organization
Total population 22.5 million (2001 estimated)
Rural population as a percentage of total population 78% (2001 estimated)
Key economic sectors Agriculture, export of fruits, nuts and carpets
Literacy in the national language(s) 36% (2000)
Computer ownership per 100 inhabitants 0.13
Telephone lines per 100 inhabitants 0.19
Internet cafés/telecentres per 10,000 inhabitants Only 2 Internet cafés in the Country
Internet users per 100 inhabitants 0.05
Cell phone subscribers per 100 inhabitants 0.00002
Number of websites in the national language(s) 10 (estimated)
Number of websites in English and other language(s) 500 (estimated)
Afghan ICT in 2001
Afghanistan and ICT for Development since 2001
From the Government of Afghanistan’s ICT Policy, 2003:
“The importance of infrastructure development to Afghanistan can not be overstated. Recognising the convergence among telephony, data transmission and broadcast technologies and networks, the GoA
while undertaking rehabilitation of existing infrastructure and the building of new infrastructure
will promote systems that accommodate convergence of various technologies and networks and will promote the integration of technologies in
order to maximise the use of infrastructure…”
© 2010 Internet Bar Organization
UNDP Evaluation of Afghan ICT in 2005
© 2010 Internet Bar Organization
Example of ICT4D in Afghanistan in 2009: STAR-TIDES
STAR-TIDES Distributed Essential Services in Afghanistan
Agriculture/Food--Information about market conditions, forecasts and transportation; cool storage and on-site processing; micro-credit, integrated solar/combustion cooking; irrigation.
Clean Water--Purification systems tailored to local conditions. Public Health--Cell phone-based services for pre-natal and
maternal care in remote areas, satellite-based telemedicine services to clinics, expanded internet access to hospitals.
Education--Internet expansion to universities, extension of learning access to remote areas.
Business Development--Sharing info on market opportunities, extension of micro-credit, coordination of buyer/seller relationships, encouragement of entrepreneurs.
Wireless Infrastructure Capacity Building in Afghanistan today
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Overcoming infrastructure barriers with new technologiesUsing solar pads to charge mobile phones – one solution to the electricity shortage problem.
Image courtesy of Jennifer McCarthy, PhD candidate at Department of GeographyKing's College London
© 2010 Internet Bar Organization
Benefits of M-banking research in Afghanistan
The need is high
And the environment is conducive in some ways:
“Afghanistan ranks last for the indicators on Protecting Investors and Closing a Business. However, the country made a huge jump in Getting Credit and a moderate one in Registering Property. Afghanistan enacted a modern secured transactions law which makes it easier for businesses to secure a loan. It continues to be ranked among the top 25 in the Starting a Business indicator.”- World Bank Group Rapid Response Report:
Afghanistan© 2010 Internet Bar Organization
The Afghan Mobile Phone Market todayIn 2007, the number of mobile phone subscribers in Afghanistan was 150,000 (12% of Afghan population) [Associated Press]
By December 2009, the number had shot up to 12 million [Afghan Ministry of Communications]
© 2010 Internet Bar Organization
GSM Subscribers 12,113,571CDMA Subscribers 78,796
Landlines 50,532
Penetration 49%Investments in $ Millions 1,276
Telecom Base Station 3,285
Population Coverage Over 80%
Statistics above from Afghan Ministry of Communication, December 2009; Photo below: A man sells mobile phones in Kabul. Source: Bloomberg News via WSJ
Afghanistan’s Unbanked
Over 97% of the population does not have access to a traditional bank account or financial services
Afghanistan’s conventional banking industry is virtually non-existent and highly fragmented: a total of 17 banks share
among them approximately 300 branches around the country (most of which are in major cities)
and there are only 38 ATMs for the entire population
© 2010 Internet Bar Organization
Three generations at a family owned village store in Kabul. Afghanistan. Photo: © Michael Foley / World Bank
Internet Silk Road Research Agenda
© 2010 Internet Bar Organization
Mobile Telephony
Legal Empower
ment
Mobile Commerce
Mobile Banking
Micro-finance
Use 0f technology and development of Rules of Law to build financial and marketplace infrastructures
Benefits of Mobile Banking and Commerce for Micro-finance Efforts
© 2010 Internet Bar Organization
Mobile Banking
•Mobile phones operate as virtual bank cards, point-of-sale (POS) terminals, automated teller machines (ATM) and as laptops for Internet banking.•Cell phone banking allows the bank to send out personalized messages to market products or communicate account information•The two-way communication eases the account management process•Security is enhanced through the use of SIM cards and location awareness
Mobile Commerce
•Creates networks to access raw materials and relevant information for enterprises receiving micro-finance loans. •Opens new markets to sell goods.
Mobile micro-credit•Improves penetration of micro-credit programs to the rural poor by cutting out travel time to loan officers•With built-in identity verification and security mechanisms, transparency in loan mechanism is increased
Overview: Kinds of Mobile Banking Business Models
1: Mobile Vendor-based
Offered by established
mobile company
attempting to expand their
range of services to,
e.g. bill payment;
credit transfer; receiving salaries
2: Third Party Agent- based
Non-telecom and non-bank
company provides full range of
banking services via mobile phone
Foreign-owned; seen as draining capital from local banks
3: Banking Agent-based
Banks offer banking services
to customers through mobile
telephony agents.
Agents subject to all the
regulations of traditional banking
4: Mobile Wallet-based
Western Model – targets the
already banked, not
the unbanked.
Customer interacts with bank directly
through technology as
pipeline
© 2010 Internet Bar Organization
Overview: Mobile Banking Technologies• SMS interface – prevalent amongst low-income users
in most countries.• Limited functionality because of security issues (GPRS
encryption unavailable)SMS
• Pre-paid cards facilitating payment• No special encryption needed because no bank access
taking placeCash cards• Cell phone manufacturers instead of telecom
companies are offering the banking services• Software is offered on the SIM card (e.g. Nokia SIM
cards) and is designed to work on all phonesSIM Cards
• Traditional banking hardware – the debit card with magnetic strip
• Branchless banking can take place with hand-held point of sale (POS) hardware
Magnetic Strip Debit Cards
• Stores 1000 times more information than a magnetic strip, but is 5 times more expensive to produce
• RFID cards can be enabled to contain photo and other biometric identification
• RFID cards can contain entire credit histories, payment histories and loan terms
RFID Chips• Messages are GPRS encrypted, services are real-time,
authenticable and cover a wide array• But smartphones are expensive, involve constant
recharging, top-ups and internet data usage fees – rendering them unsuitable for the rural, poor, unbanked
Smartphone technologies
© 2010 Internet Bar Organization
Interaction of Technology Interface and M-banking Structure
Which handsets (smartphones or sms-based) are best equipped to use the service?
What will the customer’s experience be?
Will information encryption meet banking regulation standards?
How reliable is the service in this particular developing world context? E.g. Does the particular country have a reliable national ID system or will RFID
chips be the sole method of verifying identity? What is the mobile phone penetration in the targeted community? What is the breakdown in mobile phone usage by income; gender and
geography [urban v. rural]?
What partnerships will be required to provide the service?
What are the front-end and back-end costs of providing the service To the provider? To the consumer? © 2010 Internet Bar Organization
Afghanistan’s M-banking today
Afghanistan’s central bank (Da Afghanistan Bank) published an m-banking regulation in 2009
Currently m-banking in Afghanistan is telco-centric, or telecom-based. Is there room or need for a banking-agent model?
What level of encryption is needed for m-banking? What level is being provided currently?
Does the regulation include language on Bank-Agent disputes? Agent-End User disputes? Bank-End User disputes?
If not, then what are the advantages of building in an ODR mechanism into terms of service? What are the disadvantages? How are these overcome?
© 2010 Internet Bar Organization
Afghanistan’s M-banking today, cont’d
The leading GSM Telecom Operator in Afghanistan with 3.5 million customers in 230 major cities
Roshan is 51 percent owned by the Aga Khan Development Network (AKDN); 36.75 percent held by Monaco Telecom and 12.25 percent by Afghan-US group MCT
The largest taxpayer in Afghanistan Provides customers with m-paisa option for money transfer; salary payment;
other banking Uses same platform as Safaricom’s m-pesa in Kenya [i.e. mobile vendor-based]
How does Roshan’s model address: Secure identity Link to micro-credit and micro-commerce ODR mechanism for Telecom-Consumer; Consumer-Consumer disputes
© 2010 Internet Bar Organization
Balance of possibilities & Limitations
Potential/Growth Possibilities:- Afghan mobile penetration is increasing
exponentially- Roshan’s success with M-paisa is a
reflection of the room for expansion of mobile-based banking, micro-commerce
and justice systems- BRAC Afghanistan’s huge borrower base (150,000 borrowers) is a very strong place
to start implementing m-microcredit- M-banking; m-commerce; m-jirga – USSD and SMS phones have enough functionality
to run these programs
Limitations:Illiteracy
Current Low-tech mobile phone use
© 2010 Internet Bar Organization
Legal Infrastructure Necessary for M-banking and M-commerce
M-Banking/M-Commerce
Legal Infrastructure:
Secure Identity
Data Protectio
n
Intellectual
Property
Terms of Service
Online-DisputeResoluti
on
© 2010 Internet Bar Organization
M-banking legal issues:
Secure Identity, Network security, capacity and control
Customer Privacy and Informed Consent
Liability
Fraud Prevention/Authentication
Data Access and Use
Banking Regulation (in particular money laundering and anti-financing of terrorism rules)
Financial Risks/Rewards
© 2010 Internet Bar Organization
M-commerce legal issues
Secure Identity, Network security, capacity and control
Customer Privacy and Informed Consent
Sales Law Regulation and law applicable to the transaction
Liability
Fraud Prevention/Authentication
Data Access and Use
ODR © 2010 Internet Bar Organization
Structural Problems with Courtroom Justice & ODR in Afghanistan
Lack of internet connectivity/infrastructure
Socio-economically and culturally inappropriate & inadequate interface
Lack of human resources (mediators)
Pervasive culture of mistrust and breaking of promises/agreements
Ethno-political conflict and national security issues interfering with commerce
© 2010 Internet Bar Organization
Mobile ODR – overcoming some of the challenges of conventional courts and
ODR
Mobile phone penetration is far higher than internet access
Low-cost access to dispute resolution in comparison to brick-and-mortar courts and computer-based ODR
Neutral space of interaction where ethnicity, religion, tribal affiliations are invisible
Voice-enabled mediation to tackle illiteracy challenge
© 2010 Internet Bar Organization
Case Study: Paypal’s Online Dispute Resolution Model - M-jirgas
© 2010 Internet Bar Organization
Thank You
Contact: Jeffrey Aresty, President, Internet Bar Organization
ISR website: www.internetsilkroad.org
IBO website: www.internetbar.org
Presentation Acknowledgements: Ruha Devanesan – research & compilation of
presentation Roberto Pirozzi & Vikki Rogers – m-banking regulation
research for Afghanistan Michelle Mount – m-banking research
© 2010 Internet Bar Organization