Making Microfinance Mobile

CGAP - Mobile banking services are beginning to revolutionize the way people in developing countries manage their money, creating opportunities for microfinance institutions to substantially improve their services. Although widespread m-banking services are currently only present in a few countries, a new CGAP Focus Note, Microfinance and Mobile Banking: The Story So Far shows how microfinance institutions (MFIs) can link into existing m-banking services to make it more convenient and cost-effective for customers to borrow and repay loans. Still, for those MFIs located in countries without an existing m-banking service, most will find it too expensive, time-consuming, and complex to develop a service on their own.

The study, which examines the intersection of mobile banking and microfinance in countries both with and without existing m-banking services (Bolivia, Cambodia, Kenya, Malawi, Mongolia, Pakistan, Tanzania, and the Philippines), found that giving customers the flexibility to make loan payments and deposits using their mobile phones typically shortens group meetings and decreases cases of theft and fraud.
“Using mobile phones to automate payments can offer significant operational cost savings for an MFI if there is a large gap between technology costs and labor costs in their market, enabling them to lower interest rates for their customers,” says Kabir Kumar, co-author of the study.
Working as an agent in an m-banking system can also enable an MFI to learn more about how m-banking works without high investment costs, while helping them differentiate themselves from others in the market, and bringing greater liquidity to their branch locations.
Kenya offers some of the best examples of how MFIs are building on an existing m-banking service. In December 2009, MFI Faulu Kenya launched a service to link Safaricom’s successful M-PESA mobile money transfer service with Faulu savings accounts. Four months after the launch, about $60,000 was transferred between the two institutions each week and 30,000 customers were using the service.
Smaller MFIs can also work together to leverage an m-banking service. One such program is the Rural Bankers Association of the Philippines–Microenterprise Access to Banking Services (MABS) program. This USAID-assisted program organized a group of 60 rural banks, using their ties with more than a thousand small business customers to serve as resellers for GCash, a mobile payments solution developed by GXI, a subsidiary of Globe Telecom.

The study, which examines the intersection of mobile banking and microfinance in countries both with and without existing m-banking services (Bolivia, Cambodia, Kenya, Malawi, Mongolia, Pakistan, Tanzania, and the Philippines), found that giving customers the flexibility to make loan payments and deposits using their mobile phones typically shortens group meetings and decreases cases of theft and fraud.

“Using mobile phones to automate payments can offer significant operational cost savings for an MFI if there is a large gap between technology costs and labor costs in their market, enabling them to lower interest rates for their customers,” says Kabir Kumar, co-author of the study.

Working as an agent in an m-banking system can also enable an MFI to learn more about how m-banking works without high investment costs, while helping them differentiate themselves from others in the market, and bringing greater liquidity to their branch locations.

Kenya offers some of the best examples of how MFIs are building on an existing m-banking service. In December 2009, MFI Faulu Kenya launched a service to link Safaricom’s successful M-PESA mobile money transfer service with Faulu savings accounts. Four months after the launch, about $60,000 was transferred between the two institutions each week and 30,000 customers were using the service.

Smaller MFIs can also work together to leverage an m-banking service. One such program is the Rural Bankers Association of the Philippines–Microenterprise Access to Banking Services (MABS) program. This USAID-assisted program organized a group of 60 rural banks, using their ties with more than a thousand small business customers to serve as resellers for GCash, a mobile payments solution developed by GXI, a subsidiary of Globe Telecom.

Read the complete article from the CGAP website.