IBO’s Internet Silk Road
Initiative
Creating the legal infrastructure for M-banking & Mcommerce in Afghanistan
IBO’s Vision
Int’l
Community
• Funding & harmonization of laws
State
Local Officials
Civil Society
• National Regulatory Body for e-commerce
• Channel for laws & funding to the
community
• Training in m-banking/ mcommerce; trust-building
with local government
© 2010 Internet Bar Organization
Why Afghanistan?
World Bank Business Environment Snapshot: Afghanistan
<http://rru.worldbank.org/BESnapshots/Afghanistan/default.aspx>
Afghan ICT in 2001
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)
© 2010 Internet Bar Organization
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.
© 2010 Internet Bar Organization
Wireless Infrastructure Capacity Building
in Afghanistan today
Overcoming
infrastructure barriers
with new technologies
Using solar pads to charge mobile
phones – one solution to the
electricity shortage problem.
Image courtesy of Jennifer McCarthy, PhD
candidate at Department of Geography
King'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 today
In 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
12,113,571
CDMA Subscribers
78,796
Landlines
50,532
Penetration
49%
Investments in $
1,276
Millions
Telecom Base
3,285
Station
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
© 2010 Internet Bar Organization
Internet Silk Road Research Agenda
Legal
Empowe
rment
Use 0f technology and
development of Rules of Law to
build financial and marketplace
infrastructures
Mobile
Telephony
Microfinance
Mobile
Commerce
Mobile
Banking
© 2010 Internet Bar Organization
Benefits of Mobile Banking and Commerce for
Micro-finance Efforts
Mobile Banking
• Mobile phones operate as
virtual bank cards, point-ofsale (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
© 2010 Internet Bar Organization
© 2010 Internet Bar Organization
Overview: Kinds of Mobile Banking
Business Models
1: Mobile
Vendorbased
Offered by
established
mobile company
attempting to
expand their
range of services
to, e.g. bill
payment; credit
transfer; receiving
salaries
2: Third
Party Agentbased
3: Banking
Agentbased
4: Mobile
Walletbased
Non-telecom and
non-bank
company provides
full range of
banking services
via mobile phone
Banks offer
banking services
to customers
through mobile
telephony agents.
Western Model –
targets the
already banked,
not the unbanked.
Agents subject to
all the regulations
of traditional
banking
Customer
interacts with
bank directly
through
technology as
pipeline
Foreign-owned;
seen as draining
capital from local
banks
© 2010 Internet Bar Organization
Overview: Mobile Banking Technologies
SMS
• SMS interface – prevalent amongst low-income users in most countries.
• Limited functionality because of security issues (GPRS encryption unavailable)
Cash cards
• Pre-paid cards facilitating payment
• No special encryption needed because no bank access taking place
SIM 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 phones
Magnetic Strip
Debit Cards
• Traditional banking hardware – the debit card with magnetic strip
• Branchless banking can take place with hand-held point of sale (POS) hardware
RFID Chips
• 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
Smartphone
technologies
• 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
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, microcommerce and justice systems
- BRAC Afghanistan’s huge borrower
base (150,000 borrowers) is a very
strong place to start implementing mmicrocredit
Limitations:
Illiteracy
Current Low-tech mobile
phone use
- M-banking; m-commerce; m-jirga –
USSD and SMS phones have enough
functionality to run these programs
© 2010 Internet Bar Organization
Legal Infrastructure Necessary for Mbanking and M-commerce
M-Banking/
M-Commerce
Legal Infrastructure:
Secure
Identity
Data
Protection
Intellectual
Property
Terms of
Service
OnlineDispute
Resolution
© 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