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When police officers in Afghanistan’s mountainous Wardak province began receiving their $200-per-month salaries via their mobile phones in 2009, many wondered why they had gotten a raise. They hadn’t. It turns out their superiors had been skimming from their salaries, which were previously paid in cash.

That anecdote appears in State Department cables describing M-Paisa, a mobile-phone payment system run by Afghanistan’s largest telecom operator, Roshan, that now reaches 1.2 million Afghans and is described by U.S. officials as a potential “breakthrough technology” for the country.

Whether it’s a few dollars under the table or thousands stuffed in a briefcase, cash is linked to corruption at all levels in Afghanistan. According to the United Nations, government corruption is the biggest day-to-day concern of Afghans, looming larger than even poverty or violence. The U.N. estimated that between 2008 and 2009, half of all Afghans paid at least one bribe to an official; the average amount was $160.

The idea now taking hold in Afghanistan is to avoid graft by paying people electronically, using the country’s network of 15 million mobile phones. “Anywhere you have a middleman touching cash, you increase the opportunity for skimming,” says Zahir Khoja, executive director for mobile money at Roshan, which is partly owned by the Aga Khan Fund for Economic Development.

As cell-phone use skyrockets in even the poorest countries, mobile money is seen as a way to extend banking services more broadly. The people with by far the most to gain are the impoverished 2.5 billion who don’t have access to a bank account and can’t reliably receive, send, save, or borrow money.

According to Afghanistan’s banking authority, the country has only about 300 branches and a few dozen ATMs for 34 million people. Less than 5 percent of Afghans have bank accounts. The banks aren’t trusted, either. The largest, Kabul Bank, is embroiled in perhaps the nation’s worst public corruption scandal, which caused a run on deposits in 2010 after $900 million went missing.

“The mobile network is one of the only networks that knit the country back together,” says Kathleen McGowan, senior policy analyst for in Afghanistan for the United States Agency for International Development. The mobile-phone companies, which got going only in the last decade, also constitute Afghanistan’s largest industry and its biggest taxpayers.

M-Paisa (“paisa” means money in the Dari language) allows anyone with a cell phone to receive a payment by phone with just a text message or, because most Afghans are illiterate, a call to a voice-activated menu. The recipient can then obtain cash at an M-Paisa agent. There’s no bank involved; under a special license issued last year to Roshan, subscribers’ funds are kept in escrow-like accounts.

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Credits: Jan Chipchase, USAID

Tagged: Business, Business Impact, business

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