Image Credit: Scott Beyer

The Dilemma of Third World Banking

Government banking monopolies have led to an oppressive status quo of inflation, high fees and surveillance of funds. Can the private sector disrupt this?

Accessing money—one of life’s essentials—can be tough in the Third World. Since starting my trip through Africa, as part of a 1.5-year trip through the Global South, I’ve faced near-constant frustrations. ATMs charge high fees, don’t work, run out of money, or have small daily cash dispensing limits. Payment apps don’t work, especially for international transfers. Western Union wires can’t be released because they get flagged in these countries. It’s even harder for natives who have limited technology access. It’s the result of governments controlling money and banking—with the rules and regulations that predictably follow—and begs the question of whether private sector cryptocurrency will ever become a viable replacement. 

The good news is that digital transactions are an ever-increasing component of banking worldwide. According to Grand View Research, the sector was worth over $20 billion in 2021, and projected to grow 20.5% from 2022 to 2030. But consumers in the Third World haven’t been able to leverage these benefits as much, due to some mix of limited mobile tech, lack of bank accounts, and government control of the money supply. The 2010s saw an expansion of alternative currencies facilitated by digital marketplaces, and a similar expansion seems ripe for the Third World.

Most Third World governments control money supply, but they also sometimes run banks directly. In India, the banking industry has been government-owned in some capacity since its first prime minister nationalized banks in the 1950s. The result, writes Sanjeev Sabhlok with The Times of India, has been a corrupt financial sector which lends primarily to political allies and conducts risky financial maneuvers that cause inflation. Three of these banks collapsed in recent years. Similarly, Nepal’s banking market is largely controlled by three government owned institutions, and regulated by a central bank. 

Scott Beyer's route from India to Nepal.

It’s a system that enriches political insiders while riddling everyday residents who rely on remittances with high transfer fees. “The cost of sending $200 across international borders to least developed countries like Nepal remains high at 6 percent on average in the second quarter of 2022,” according to The Kathmandu Post.

Inflation has long plagued African nations—for example the hyperinflation of Zimbabwe. A number of African nations also retain capital controls, restricting foreign investment, even though that is precisely what would bring a greater quantity and variety of currencies into these economies.

Some attempts to modernize the money supply in the Third World have proven disastrous. Nigeria is right there at the top, as I observed firsthand in May. The government attempted to update currency and encourage as much cashless activity as possible, to prevent bribery pre-election. But it did so without ensuring that enough valid notes were in circulation, and with an inefficient banking system in place. The result was a liquidity crisis amongst the country’s citizens.  

“People starved to death due to this policy,” said one teller, after explaining to me why the bank’s ATMs would only spit out the equivalent of $16 in naira at a time. 

Other features of Nigerian banking included long bank wait lines; black market currency dealings; and credit card transactions that seldom cleared, presumably due to threats of fraud within the system, which is pervasive

Technological advances could start to improve Third World banking. The proliferation of e-wallets, platforms that allow users to store money online, makes money more mobile, with fewer fees. In the U.S. we have PayPal, Venmo and more. The Third World has their own, with Airtel being a common one, along with PayTM (India), M-Pesa (East Africa), and countless more. The mobile payment platform Xendit became popular in the Philippines due to online shopping increases during the Covid crisis—in mid-2022, e-wallets were used in 40% of all online purchases there. 

But users must have a bank account in the first place. Global South countries dominate the rankings of highest “unbanked” populations, with over half the population in nations like Morocco, the Philippines, and Mexico lacking an account.  And the apps can still be buggy; for example, I’ve been unable to use even one with my U.S. phone number, while locals in turn cannot send me money through U.S. e-wallets. 

Some Third World countries have embraced digital currencies, for example by minting their own money.  But these have the same problems as government-controlled paper money: vulnerability to mismanagement and corruption. There’s also the need to legalize international transactions.

Cryptocurrencies like Bitcoin, in theory, could solve these problems. While apps that utilize government currency are hard to find in the Third World, crypto allows for transactions across borders, since only a digital address is needed. Moreover, autonomous platforms aren’t  governed by the surveillance of unstable, authoritarian governments. 

They can also reduce transaction costs and risks around remittances. Today, immigrants sending money to family in their home country go through a convoluted, antiquated wiring process. Jaime Garcia, a Salvadoran immigrant to Canada, described the process to CNBC: “I had to go to a physical Western Union office, give them actual cash, and then hand them another $25 on top of that, before they would send my money over. And then, of course, it takes three days for it to actually arrive in El Salvador.’” Further, thieves often congregate outside wiring offices, and rob recipients. 

For this reason, El Salvador established its own e-wallet and legalized Bitcoin. Adoption’s been limited; just over 1% of remittances to El Salvador utilized crypto via e-wallet, compared to 4% to Mexico. The Central African Republic also reversed its Bitcoin legalization in 2022, while others never allowed it to begin with. According to the IMF, the majority of African governments “have implemented some restrictions and six countries—Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania, and the Republic of Congo—have banned crypto.” 

As with e-wallets, fees are a problem too. But high fees are attributable to crypto’s relative immaturity, and due likely even more to the costs absorbed from government regulations and crackdowns on the budding industry. There is indeed an irony to these crackdowns, done under the premise of preventing crime transactions, when governments banking systems themselves often behave like criminal enterprises. There’s a real need for private sector disruption in the banking industry, and nowhere more than in the Third World.

Scott Beyer is a Catalyst Columnist Fellow on a 1.5-year research project through the Global South for Catalyst’s Market Urbanism Around the World series. He is the owner of Market Urbanism Report, a media company that advances free-market city policy. He is also an urban affairs journalist who writes regular columns for Forbes, Governing Magazine,, and Catalyst. Follow him on Twitter: @marketurbanist.
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