The following post was written by Rajiv Shah and appeared in the USAID Impact Blog.

In 2002, fewer than 200,000 people in Afghanistan had access to telephones.  Today, some 15 million Afghans use mobile phones and a full 85% of the population lives within the combined network coverage of the four major telcos.  This technological leap connects Afghans to each other and to the economy in ways that were unimaginable just a few years ago.  And the mobile phone now opens up a world of possibilities for finding solutions to some of the challenges that Afghans face every day.  One important use that is quickly becoming a reality in Afghanistan is the creation of a nationwide mobile financial services sector – using mobile phones to transfer money safely and instantly, reducing the need for cash and giving millions of Afghans who may never see the inside of a bank the ability to use their handsets to conduct basic financial transactions.  The possible applications for mobile money in Afghanistan are limited only by our imaginations.

Today I had the honor of announcing three USAID innovation grants, totaling just over $2M, to develop applications in this field and begin to create a mobile banking system that could include all Afghans.

At the grant kick-off event, the Afghan Education Minister highlighted the urgent need for mobile payments in Afghanistan by telling us about his staff member who was killed just three weeks ago while transporting cash in a remote province in northern Afghanistan in order to pay a teacher.  He expressed his frustration that thousands of his teachers, who are so critical to Afghanistan’s future, often wait months to get their salaries due to the difficulties of transporting cash in the country.  I am delighted that USAID is able to help seed a partnership between the Afghan Education Ministry and the mobile operator MTN to begin paying teachers in ten provinces over the mobile platform, thus ensuring they get paid in time and in time, and more importantly, that no Ministry employee loses his life for a duffle bag of cash.  And if successful, we expect much of the Afghan civil service to eventually benefit from a mobile payments system that will help the government develop its own capacity as our troops transition home.

The second grant links up telco Etisalat with the new Afghan electricity utility.  To my mind, this partnership to design mobile phone-based billing and payment systems for electricity service represents the true art of development by using creative, commercially viable systems to help the Afghan utility collect real revenue. At the end of the day, delivering electricity to all Afghans will require a revenue model that will sustain operations, motivate more public and private investment, and expand Afghanistan’s energy grid so that fewer communities live in the dark.  This novel concept applies to any kind of service.  In Kenya, some rural communities are sustaining water systems thanks to a mobile phone-based payment system.  The concept is simple: consumers use a phone-based app to pay for the water they need, enabling the maintenance required to actually keep the system up and running.  Although mobile payments are a simple concept, the possibilities they offer are revolutionary for truly under-served communities.

The third grant funds a partnership between Afghanistan’s mobile money trailblazer, Roshan, and a micro finance consortium whose clients are predominantly women.  The concept is to further extend the reach of credit into areas otherwise inaccessible or simply too costly to reach.  Running loan extensions and repayments over mobile phones significantly reduces the need for loan officers and clients to travel.  This cost savings can be passed on to the customers, making credit more affordable.  In culturally conservative Afghanistan, our hope is that this innovation will better serve women who might otherwise not be able to participate in loan programs.

Finally, today we kicked off a contest USAID is co-sponsoring with the Afghan Mobile Money Operators Association to tap the minds of creative young Afghans.  University students are being asked to submit ideas for mobile money applications they believe will make a difference in the life of Afghans.  Designers of the eight most interesting proposals will receive cash awards and, more importantly, the mobile operators will implement and market the winning apps.  We hope this contest will not only drive uptake among a key early adopter demographic, but will also unleash the creativity of young Afghans who have so readily adopted cell phone technology.

With 3G looming just over the horizon (the Afghan Government issued the first tender earlier this month), it is clear that Afghans will increasingly use mobile phones and other modern technologies to build a healthier, better educated and more prosperous society.  The days of land-lines or coal-fired development are rapidly being replaced with these new innovations, and I am proud that USAID is able to help unleash Afghan innovation to lead the way.

PS – Check out this video on Afghanistan’s emerging mobile money sector.