IBO’s Internet Silk Road Initiative Creating the legal infrastructure for M-banking & M- commerce...

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>


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…”


UNDP Evaluation of Afghan ICT in 2005


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


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]


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


Three generations at a family owned village store in Kabul. Afghanistan. Photo: © Michael Foley / World Bank

Internet Silk Road Research Agenda


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


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


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


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?


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


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


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


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


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


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


Case Study: Paypal’s Online Dispute Resolution Model - M-jirgas


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


http://www.internetsilkroad.org/

IBO’s Internet Silk Road Initiative Creating the legal infrastructure for M-banking & M- commerce...

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