Mobile money: paths to prosperity

David Nicholson
David Nicholson
Our hyper-connected, hi-tech economies allow for unprecedented flows of investment and capital to all corners of the globe. Vision explores how improved regulation and new technologies are empowering citizens, unlocking creative potential and creating new financial hubs

Nature abhors a vacuum, as the saying goes, and so does money. As soon as an investment opportunity arises somewhere in the world, there is most often an investor willing to jump in and fill it. In 2012, there will have been around US$1.6tn worth of investments criss-crossing the globe, according to the United Nations Conference on Trade and Development. In its latest report, the organisation – whose motto is ‘Prosperity for All’ – revealed that foreign direct investment around the world had returned to its pre-crisis average level in 2011 (US$1.5tn), but was still down on the historic high of US$1.9tn registered in 2007.

It’s easy to see why. Banks scaled back their lending sharply after the 2008 credit crisis and some are only just starting to lend again. Many businesses became insolvent and even some large banks disappeared. Even so, the worst effects of the crisis were felt in the developed economies of Western Europe and the United States. Elsewhere, investors were far less affected and continued to inject huge sums into China, Latin America and other developing countries. Like nature pouring into a vacuum, money flowed into the rising economies of Asia and elsewhere, confident that the financial prospects were better here than in the old-world economies.

Advanced technology

There are a host of reasons for this shift in global financial patterns. New technology has meant there is infinitely more transparency and accountability in international investment today, compared with previous generations. Communications, media and online tracking services have created an environment where an investment anywhere in the world can be analysed, monitored, increased or cashed out in seconds. Compare that situation with just a century ago, where an investor would send off a ship, then wait months to see whether it had returned safely, with its cargo intact.

New technology not only increases transparency and accountability, it enables money itself to flow in seconds from one part of the world to another. The barriers to entry that once prevented poor countries from accessing investment – a lack of telecommunications infrastructure and internationally agreed banking regulations and protocols – have been swept away by the new spirit of collaboration between governments, corporations and traders.

The downside, as we discovered in 2008, was that unfettered (or much less fettered) movement of capital had been accompanied by an exponential growth of financial instruments so complex and obscure, involving risks that an alarmingly small number of people understood, that investors were staking large amounts of money on risks such as the ability of unemployed American homeowners to repay loans they could not afford in the first place. A giant, worldwide pyramid scheme emerged, which fell apart in 2008 with disastrous results.

Since then there have been a number of measures put in place to prevent another such crisis. The earliest new regulation was the European MiFiD – the Market in Financial Instruments Directive – which aimed to protect investors. This has since been updated, to take into account developments in both finance and technology, along with a second set of guidelines, the Markets in Financial Instruments Regulation, both of them aiming to establish a safer, sounder, more transparent and more responsible financial system. MiFiD II should be implemented in Europe by 2015.

Tighter regulation

In the US, similar efforts have been ongoing: the Dodd-Frank financial overhaul law, passed in the summer of 2010, aimed to reduce the threat of the ‘too-big-to-fail’ bank or corporation, which would have to be bailed out by government if it ran into trouble. This is achieved by insisting that companies have greater reserves of capital to draw upon in times of trouble, and for banks, by separating the dual functions of retail banking (mainly lending money to customers) and investment banking, where there is greater risk involved.

At the same time, the relative inactivity from the world’s banks has opened up massive opportunities for other financial groups, large and small, in both Western and emerging economies. The ‘shadow’ banking sector, whose members include insurance companies, hedge funds, money market funds and pension funds, has grown from an estimated US$27tn in 2002 to more than US$60tn today.

What ‘shadow’ banking represents is how increasingly diverse international financial systems are becoming. In many countries, sovereign wealth funds and private equity houses now have access to far greater capital assets than in the past. In the UAE, for example, the Sovereign Wealth Fund of Abu Dhabi, Mubadala, has assets of almost US$50bn, investing in everything from aerospace to healthcare.


Such groups have grown up in the UAE and elsewhere partly to diversify their region’s investment portfolio, in order to spread risk and to maximise revenue. They are also gaining in profile because they have been able to invest where banks fear to tread and because a country such as the UAE, with its large and growing financial hub in Dubai, attracts global investment attention, whether in real estate, transport infrastructure (such as the massive GCC railway development), in energy or in financial services themselves. A whole new generation of UAE citizens is demanding access to financial services, something that was far less available to their parents.

Access to the fruits of one’s labour, to the opportunities of commerce, to be able to travel freely, to access healthcare and education – these are all aspects of 21st-century life that many people take for granted, but they owe to the increases in living standards brought about by greater commercial activity, productivity and financial mobility. Money reaching new places has contributed hugely to this progress, facilitating more access to goods and services for millions of people, enriching lives and transforming nations.