Wednesday, November 11, 2009

Leapfrog Technology: Cellular Phones and Microfinance

Cell phone tower in Pakistan. Image via Telecom PK.

The cell phone is an example of trickle-down leapfrog technology. In the past several years, the development of mobile technology has reached such ubiquity that it's use transcends social, economic, and in many cases, physical stratification. It has done so for two main reasons; innovation and cost. Through the development of traditional communication systems (telegraph, landlines, etc), cellular technology has seen mobile telecommunication devices replace the need for expensive and labor-intensive hardwired infrastructure. As the technology advanced, the cost of production and implementation dropped, and thus, reached a level of economic viability. It is these two factors, innovation and cost, that have allowed mobile phones to take root in developing societies. As
WorldChanging notes:
It's easier and faster to put in cellular towers in rural and remote areas than to put in land lines, and as a result, cellular use is exploding. As we've noted, mobile phone use already exceed land line use in India, and by 2007, 150 million out of the 200 million phone lines there will be cellular.
In this case, cellular phones begin their new life in developing countries as a piece of highly specialized technology that has a history of industry investment and technological refinement. The result of it's advanced stage of development is a technology that trickles down through social and economic systems and allows for it's wide-spread use.
Kiva is an organization that helps find donors for microfinancing projects in the developing world. Image via Kiva.

Microfinance, however, is an example of the potential of trickle-up leapfrog technology. Though newer than cellular technology (and not "technology" per se), Micro-finance is an economic tool that allows for banking and financial transactions to occur at a "local" level, where large capital institutions and systems are not needed. In this case, however, the technology was developed not through industry and capital investment, but through a social and economic response to a need. In places where micro-finance thrives, most of these economies generally don't have the financial backing or institutions necessary to provide large-scale lending. Of course, investment in industry, individuals, and social infrastructure is still needed for economic prosperity and development, so micro-finance responds to this need by allowing small scale loans and investment to local users for local projects and needs. It is being found that micro-finance works well in developing countries because it is a simple solution to a wide-spread problem.

Here is the potential for a leapfrog technolgy through the trickle-up effect. Where cellular phones are an example of a technology that moves from a complex process to fulfull a need in developing societies, micro-finance is a technology that is created from a response or need that has the potential to move to more complex markets and economies.

At a time when the largest and most "established" financial institutions and systems in the world are reeling from debt and irresponsible investment and loan practices, it is ironic to think that the systems in developed countries could be revolutionized through a leapfrog technology currently being sown in countries throughout Africa, India, and South America. In the United States, where such malpractice has caused a constriction of large scale investment and lending (resulting in a global financial downturn), it is being discovered that restricting finance within the system is not a viable solution to the problem and that it is still neccessary, just as in developing societies, to invest in industry, individuals, and infrastructure. It is possible that a system of micro-finance in developed societies might allow for a leapfrog oppurtunity akin to the advantage that cellular phones are bringing to developing countries.

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