10.4079/pp.v18i0.9351
Using Mobile Banking Services to
Improve Financial Access for the Poor:
Lessons from Kenya, the Philippines,
the United States, Haiti, and India
By Kanika Metre
As the number of mobile phone subscrip- advancements in technology, however,
tions has rapidly expanded in develop- are not necessarily linked with economic
ing countries, so too has the use of mobile prosperity. Indeed, a growing percentage
phones to facilitate small-scale financial of the billions of individuals who have ac-
transactions around the world. Micro- cess to mobile phone coverage also live in
finance experts have recognized these poverty. As of 2005, the World Bank cal-
mobile banking services as a means for culated that 2.5 billion people, or about 40
expanding access to financial services percent of the world’s population, lived on
among poor and low-income popula- an income of two dollars per day or less
tions. Innovations over the past few years (Collins et al. 2009).1 While the spread of
have proven that mobile network opera- technology in itself cannot be considered
tors and banks can cooperate to create an indicator for increased distribution of
successful business models for mobile wealth, significant opportunities do exist
banking services. Recognizing this suc- for utilizing technological innovations to
cess, this paper further explores the ways advance international development goals
in which private sector, public sector, and of reducing world poverty. This paper as-
non-profit sector actors can and should sesses the financial needs of the poor, ex-
collaborate to meet the financial service plains how mobile phones can meet these
needs of the poor through innovations in needs, and analyzes how mobile money
mobile banking. Case studies from Kenya, has worked in practice. Ultimately, this
the Philippines, the United States, Haiti, paper provides recommendations on the
and India provide relevant lessons on roles that private sector, public sector, and
how these collaborations have succeeded non-profit sector actors should play in or-
or failed in the past. der to expand access to financial services
to the poor through mobile money.
Introduction When microfinance, the provision
By the end of 2010, Internation- of financial services targeting low-income
al Telecommunication Union estimates clients and those who lack access to for-
placed mobile phone coverage at 90 per- mal banking services, first became popu-
cent of the world population with 5.3 bil- lar in the 1970s, service providers largely
lion people using mobile phones world- focused on a standard location-based
wide (ITU 2010). Now as the market for branch-and-loan-officer model. With
mobile phones usage is becoming satu- the spread of modern communications
rated in developed countries, the most sig- technology, innovations have driven new
nificant levels of growth are being seen in products delivered through the Internet,
developing countries (ITU 2010). Rapid call centers, prepaid cards, ATMs, banking
agents, and mobile phones (Saxena 2009). governments and NGOs should then ac-
In particular, banks and mobile phone ser- tively seek out opportunities to collaborate
vice providers in many developing coun- with the private sector to enact policies
tries have begun collaborating to capitalize and programs that best serve the needs of
on national surges in mobile phone usage. the poor.
This collaboration has made financial ser-
vices accessible through mobile phones, Microfinance and the Need for
which allow financial services to take place Formal Financial Services among
at local retail outlets in areas where bank the Unbanked Poor
branches do not exist. Mobile money ser- Before discussing how different
vice providers are capable of both cutting sectors can collaborate to improve finan-
down transaction costs and extending ac- cial access to the poor, it is critical to have a
cess to formal financial services to individ- basic understanding of the financial needs
uals who would not otherwise have such of the poor. In Portfolios of the Poor, Col-
access. Within the last decade, more than lins et al. (2009) examine how the world’s
100 different mobile money services have poor live on two dollars per day. Low in-
been introduced in 59 countries. Of these, come is only one factor contributing to
more than 60 percent were launched in the struggles the poor face, and thus it is
2009 and 2010 and ten additional mobile crucial to also consider how irregular and
money service providers are scheduled to unpredictable incomes affect those in the
launch in 2011 (GSM Association 2011). In largest and poorest socio-economic group
short, mobile money is taking off fast. at the bottom of the pyramid. Even when
As more banks and mobile phone the poor have secured informal jobs, their
service providers collaborate to produce paychecks are often inconsistent or un-
new mobile banking services, microfi- certain. Since incomes are not earned at a
nance advocates have increasingly con- fixed two dollars per day, the need for ac-
sidered these partnerships as a method of cess to reliable financial services is more
expanding access to financial services to severe (Collins et al. 2009).
the poor. Recently, however, microfinance In their research, Collins et al.
institutions have also come under fire for (2009) identify three key financial needs
being primarily profit driven, and for fail- of the poor: the ability to manage irregu-
ing to make measurable positive effects on lar cash flows, the ability to cope with risk,
health, education, or women’s decision- and the ability to raise lump sums when
making, despite common claims that mi- called for on specific occasions. In addi-
crofinance services provide such benefits tion to identifying these needs, Collins et
(MacFarquhar 2010; Banerjee et al. 2010). al. (2009) provide numerous examples
Other studies have questioned the extent of how the poor already manage their fi-
to which mobile banking services are ac- nances, often using a wide variety of in-
tually used by clients who previously did formal and formal channels, rather than
not have access to regulated bank servic- simply living from hand to mouth as typi-
es, rather than serving as an additional cally understood. In an earlier survey of
means of accessing money for those who the household economies and daily poli-
already have bank accounts (Ivatury and tics of 40 Grameen Bank loan recipients,
Mas 2008). With these concerns in mind, Helen Todd (1996) noted how women of-
both governments and non-governmental ten had found ways to save small amounts
organizations (NGOs) have a responsi- of cash, build assets, and borrow and lend
bility to monitor the extent and manner from other women before they joined the
through which mobile banking services af- Grameen Bank. Others such as Rutherford
fect the low-income and poor populations (2001) and Armendáriz de Aghion and
that they serve. Building on these findings, Morduch (2005) have reported similar
Policy Perspectives •7
8 • Financial Access For The Poor
findings in their studies of how the poor the poor. Additionally, services that per-
manage their money. mit individuals living away from their
When considering the services families to send cash remittances home
needed and used by the poor, it is impor- were created in response to high demand
tant to distinguish between formal and for these services among migrant work-
informal financial services. The critical ers. Around the world, different formal
difference is in regulation and structure. channels facilitate regulated transfers of
Examples of informal financial services both international remittances between
may include a loan from a local non-insti- countries and domestic remittances sent
tutional moneylender, sending remittanc- from urban areas to rural areas within
es home through a truck driver, savings countries. Despite these advancements,
held with a money guard, savings hidden an estimated 4 billion people worldwide in
at home or held for others, and shopkeep- 2008 were unbanked, meaning they were
er credit. In contrast, examples of formal without access to formal financial services
financial services used by low-income (Pickens 2009). Without access to formal
groups may include microfinance savings financial services, the billions of unbanked
accounts, microfinance loan accounts, life are limited to using informal and unregu-
insurance, or any financial service that is lated means of managing their money.
formally regulated (Collins et al. 2009). While demand generally exists
While all communities are capable of uti- among the poor for more reliable and low-
lizing informal means of managing money, er-priced formal financial services, it is of-
the poor are often limited to unregulated ten not met. Regulated private sector insti-
forms of financial services. Since forms of tutions may believe it is not cost-effective
financial services can be valuable to the to provide such services on a “micro” scale,
poor depending on specific circumstances, often in more remote areas with less estab-
being among the unbanked poor indicates lished infrastructure. Increasingly, private
a lack of access to a full range of financial sector actors have sought out cost-effec-
services and the choices that such access tive methods for reaching new markets. As
provides. a result, the poor are increasingly making
When microfinance was estab- use of a wide range of both formal and in-
lished in the 1970s, the focus was on mi- formal services to manage their money.
crocredit programs that offered loans for In order to both meet the needs
investing in small businesses. In subse- of the poor and be cost-effective, financial
quent years, other financial products such service providers targeting the poor must
as microsavings and microinsurance have understand the unique needs of the poor.
developed to meet the financial needs of The wide range of informal and formal
Table 1: Poverty Rates, Mobile Phone Subscriptions, and Internet Usage by Country.
Source: 1World Bank 2011. 2ITU 2011.
mechanisms used by the poor show that ture. These factors need to be assessed
while the poor face a wide range of finan- when designing formal microfinance ser-
cial needs, they have developed responses vices for the poor, and new methods for
to meet those needs. However, major chal- expanding financial inclusion. Not only
lenges remain. Specifically, informal fi- should reliability, convenience, flexibility,
nance services are usually unreliable, lack and structure be characteristics of formal
transparency, and have a number of finan- banking services, but these ideas should
cial and non-financial costs (Collins et al. also be central to mobile money services
2009). that attempt to increase access to a full
Using these findings, Collins et al. range of financial services among the
(2009) conclude that there are four key poor.
principles for policymakers and micro-
financiers to focus on when developing The Growth of Mobile Phone Usage
formal financial services for the poor: reli- and Mobile Money
ability, convenience, flexibility, and struc- Mobile phones provide a particu-
Figure 1: Mobile Phone Subscriptions and Internet Users in High-Income and
Developing Countries.
140
Number of Subscriptions/Per 100 People
114.3 116.3
109.2
112
102
93.4
Mobile Phones
82.3 (High-Income
84
Countries)
71.6 Mobile Phones
66.6 67.6 (Developing
62 Countries)
58.8 57.7 Internet (High-
53.6 Income
56 51
48.2 Countries)
Internet
38.5 (Developing
Countries)
30
28 22.9 21.1
18.5
15.3
12.3
7.8 9.4
0
2005 2006 2007 2008 2009 2010
Year
Source: ITU 2011.
Policy Perspectives •9
10 • Financial Access For The Poor
larly successful means for expanding the make the mobile money enterprise a sus-
communication capacity and access to for- tainable method for providing formal fi-
mal financial services for the poor in many nancial services to the poor.
developing countries. In 2009, estimates The process of banking though
show that there were 1 billion people mobile phones is relatively simple. Mo-
globally who did not have a bank account bile banking allows customers to pay for
but owned a mobile phone (Greenwood financial transactions at local venues,
2009). In developing countries in particu- similar to pay-as-you-go mobile phone
lar, mobile phone usage has increased far plans in which airtime is purchased at lo-
more rapidly in recent years than Internet cal stores. For example, a mobile banking
usage. As seen in Table 1, the disparity customer may go to a corner store and
between mobile phone usage and Inter- deposit money into a mobile banking ac-
net usage is particularly clear in the case count by providing the manager of the
of the Philippines, where there are more store with his or her unique mobile bank-
than 100 mobile phone subscriptions per ing PIN code. The store manager then re-
100 people but only nine Internet users cords the transaction electronically and
per 100 people. In contrast, mobile phone takes the deposit on behalf of the bank.
usage in the United States is actually lower After the transaction, the mobile banking
than in the Philippines, but mobile phone customer receives a text message receipt
usage is not much higher than Internet us- for the transaction.
age in the United States.
Most significantly, as seen in Figure 2: Mobile Money Photo.
Figure 1, mobile phone usage has been
increasing at a higher rate in develop-
ing countries than either mobile phone
usage or Internet usage among high-in-
come countries. Between 2005 and 2010,
the average number of mobile phone
subscriptions in developing countries
tripled from about 23 subscriptions per
100 people to nearly 68 subscriptions
per 100 people (2010 data are based on
estimates). Internet use has also grown
in developing countries, but it is still low
relative to the number of mobile phone Source: Jeremy Gordon 2010.
subscriptions. In 2010 the average num-
ber of Internet users in developing coun- As mobile phone use has expand-
tries was estimated to be only 21 percent ed in developing countries, banking agents
of the total population. now play an important role in facilitating
The Consultative Group to Assist mobile banking. Banking agents are third
the Poor has estimated that by 2012, as party retail outlets that process finan-
many as 364 million low-income and oth- cial transactions on behalf of banks and
erwise unbanked individuals will likely other licensed-deposit taking institutions
utilize mobile money services. Additional- (Mas and Siedek 2008). Depending on
ly, since mobile banking cuts transaction the country, banking agents may include
costs, the mobile money industry may post offices, lottery dispensaries, phar-
generate up to $7.8 billion in revenues macies, fast food chains, supermarkets,
(Pickens 2009). If these predictions are and department stores. Utilizing banking
correct, the demand for services and the agents in poorer areas where transactions
ability of providers to make profits could are generally of lower value allows banks
to provide small-scale financial services the challenges that other mobile banking
while avoiding the high costs of operating initiatives still need to overcome, and the
bank branches. Records provided through roles played by the non-profit and public
text message receipts and authorizations sectors in each country. The case stud-
produced using PIN codes can both be ies include Kenya, the Philippines, the
generated by local bank agents using mo- United States, Haiti, and India. In Ke-
bile phones. As a result the clients retain nya and the Philippines, it is important
quick and easy access to their bank ac- to note the roles that public sector and
counts. non-profit sector institutions have had in
Mobile phones and third party the success of mobile banking. In other
retail outlets have been coupled success- countries, such as India, the potential for
fully to create channels for sending and the public sector to negatively affect mo-
receiving remittances. These regulated bile banking is clear. With countries that
mobile services for transferring remit- lack stable government structures, such
tances are generally cheaper and more as Haiti, we see how the non-profit sector
reliable for the clients, addressing a key can provide support for mobile banking
need outlined earlier (Saxena 2009; Mas when the public sector is incapable of do-
and Morawczynski 2009). In many de- ing so.
veloping countries where these services
exist, remittances are often an important Case Studies: Mobile Banking
source of financial support for families Opportunities and Challenges
while also making up a significant pro-
portion of national wealth. For example, Kenya
the Philippines received $215 per person Arguably, the most successful
in remittances in 2009, and remittances example of how technology has helped
made up 12 percent of the Philippines’ expand financial access for the poor can
GDP in 2007 (United Nations Develop- be found in Kenya’s M-PESA service.
ment Programme 2009). M-PESA allows Kenyans to make cash
While the high demand for formal withdrawals, deposits, and transfers all
remittance sending services has formed through their mobile phone. The concept
the starting point for many mobile bank- behind M-PESA originally began in 2003
ing services, mobile phones are also now as a pilot project funded by Vodafone and
used to extend a wider variety of financial the United Kingdom’s Department for In-
services to the poor. In two countries, Ke- ternational Development to test a mobile
nya and the Philippines, mobile phone op- phone-based solution for making financial
erators and banks have been particularly transactions in remote parts of Kenya and
successful in creating a variety of sustain- Tanzania (DFID 2008). After the success
able and often profitable mobile banking of the pilot project, in March 2007 Safa-
services. Moreover, as mobile banking has ricom (Vodafone’s mobile phone operator
become increasingly popular in develop- in Kenya) and Equity Bank partnered to
ing countries, US-based global money launch M-PESA. By May 2010, 9.5 million
transfer service companies have also be- customers had registered for M-PESA,
gun to incorporate the mobile banking representing over 45 percent of Kenya’s
model. These trends show that the con- adult population and twice the number
cept of mobile money appears to be grow- of Kenyans with bank accounts (Microfi-
ing in popularity among a wide range of nance Focus 2010). The service could be
private sector actors. accessed through over 16,000 retail out-
Case studies of five countries can lets in rural and urban areas nationwide
help illustrate the extent to which mobile (McKay and Pickens 2010; Jack and Suri
banking initiatives have met with success, 2010a). These retail outlets include air-
Policy Perspectives • 11
12 • Financial Access For The Poor
time resellers, bank branches, and some ed to customers, services are tracked on
larger supermarket chains (Mas and agent logs, and retail pricing is simple and
Morawczynski 2009). Though the service transparent. Additionally, services pro-
grew largely out of a significant gap in the vided meet customer needs including free
domestic remittance market, expansion deposits, no minimum balance, the abil-
into other services has taken place. ity to send money to non-customers, and
In March 2010, Safaricom part- one-time authorization codes that enable
nered with the Syngenta Foundation for ATM withdrawals in place of bankcards
Sustainable Agriculture and UAP Insur- (Mas and Morawczynski 2009). In short,
ance to provide a crop insurance product, the services are transparent, affordable,
Kilimo Salama, for Kenyan farmers to reliable, and easily accessible, meeting
insure their crops against weather risks. the criteria set out in this paper for mobile
Through a combination of the M-PESA money services that meet the needs of the
mobile money service, 30 automated so- poor.
lar-powered weather stations that detect While the services provided
weather conditions, and camera phones through M-PESA appear to provide op-
that scan bar codes for each bag of seed, portunities for those without formal bank
fertilizer, and herbicide bought, farmers accounts to access financial services, not
can register and pay for crop insurance at all M-PESA users are unbanked. In fact,
their nearest weather station (The Econo- a September 2008 survey estimated that
mist 2010a). only 25 percent of M-PESA users were ac-
M-PESA was originally market- tually unbanked (Jack and Suri 2010a).
ed solely as a remittance service because In other words, an estimated 75 percent
banking regulations prohibited non-bank of M-PESA users also held bank accounts
institutions from accepting savings. In outside of their mobile banking services.
spite of this, 21 percent of M-PESA us- While the estimated percentage of un-
ers in 2008 still listed the service as their banked M-PESA clients rapidly increased
main way to save (Pickens 2010). After from 25 percent to 50 percent in late
these statistics were made public in 2009, 2009, there still appear to be significant
new agent banking regulations established opportunities for expanding the reach of
by the Central Bank of Kenya in May 2010 M-PESA services to those who would oth-
led to the formation of M-KESHO, a prod- erwise rely solely on informal money man-
uct that allows interest-collecting savings agement methods (Jack and Suri 2010a).
accounts to be set up with Equity Bank Just as government agencies such
through Safaricom’s mobile network. as the Department for International De-
These accounts do not have account open- velopment and the Central Bank of Kenya
ing fees, minimum balance requirements, have been instrumental to the continued
or monthly charges. success of M-PESA, the non-profit sector
The success of M-PESA and sub- has also been involved in building on and
sequent development of new and innova- evaluating M-PESA’s success. In addition
tive services by Safaricom and its part- to the Syngenta Foundation’s role in devel-
ners has been attributed to a number of oping crop insurance, the country’s largest
factors. M-PESA’s rapid rate of expan- microfinance institution, Jamii Bora, has
sion has largely been attributed to the also signaled interest in capitalizing on the
well-established client base and network expansion in mobile phone usage to reach
of sale points established by Safaricom clients living in remote areas. Already,
and Equity Bank. Other factors leading to Jamii Bora has begun utilizing an on-
M-PESA’s success are that standardized line financial transaction system through
customer registration forms are easy to which clients can make loan repayments,
fill out, text-message receipts are provid- receive disbursements, and access other
financial services through a hand held mo- percent of Filipinos without formal bank
bile point-of-sale device (Christensen and accounts receive their income in cash, it is
Thomas 2010). not surprising that mobile money services
Economists from Georgetown are used to receive salary and payments.
University and MIT have begun to iden- Mobile money is also an alternative to in-
tify the socio-economic characteristics of formal savings instruments, in response to
M-PESA users over time and in compari- the fact that 52 percent of surveyed clients
son to non-M-PESA users. This is another in 2009 relied in part on hiding cash at
example of how the non-profit sector can home (Pickens 2009).
contribute to understanding how mobile Despite the widespread use of mo-
banking services can most effectively in- bile money services as informal savings
crease access to financial services among instruments, SMART Money and GCASH
the poor. The data collected includes the still do not provide formal savings instru-
number of M-PESA clients that were pre- ments. However, both SMART Money
viously unbanked, as well as the number and GCASH now facilitate merchant pay-
of clients from rural areas. Other charac- ments and loan disbursements, in addi-
teristics measured include saving behav- tion to both domestic and international
iors, wealth, education levels, and literacy remittance transfer services. Additionally,
of clients and of the heads of households SMART Money provides bill payment and
in which M-PESA is used. The gender and loan disbursement services, while GCASH
age of individual M-PESA clients were also provides salary disbursement services and
recorded (Jack and Suri 2010a; Jack and enables deposits and withdrawals autho-
Suri 2010b). Though understanding all of rized by text (GSM Association 2010).
these characteristics may not be a priority Like M-PESA, not all SMART
within the private sector, this information Money and GCASH clients are unbanked.
allows all interested groups to learn which In fact, both Smart and Globe have devel-
socio-economic groups are utilizing mo- oped services specifically for clients who
bile banking, and which groups still have already have established bank accounts,
limited access to financial services. which allow such clients to transfer money
between their mobile money accounts and
The Philippines their bank accounts. Though this service
Though M-PESA may be the may appear to target banked customers,
most publicized success story in mobile allowing banked customers to easily trans-
money thus far, Kenya is not the first fer money from bank accounts to mobile
country where mobile phones have made money accounts in turn encourages fi-
financial services more available to poor nancial transactions between banked and
people. In the Philippines, where 75 per- unbanked customers. As such, making
cent of the country was without access mobile money services more appealing
to formal financial services in 2009, two to banked customers should also lead to
mobile money services produced by com- greater access to financial transactions for
munications companies predate M-PESA. unbanked customers (Leishman 2009).
Smart Communications’ SMART Money SMART has partnered with pri-
and Globe Telecom’s GCASH Mobile were vate bank Banco de Oro to facilitate finan-
launched in 2001 and 2004, respectively cial transactions for its mobile accounts,
(Pickens 2009). As with M-PESA, these similar to Safaricom’s partnership with
mobile money services began largely with Equity Bank in Kenya. In contrast, Globe
remittances. However, one-third of Fili- has secured approval from the Central
pino mobile money clients in 2009 did not Bank of the Philippines to perform the
use these services to transmit or receive bank-like functions necessary to imple-
remittances at all. Considering that 98 ment GCASH without a banking license or
Policy Perspectives • 13
14 • Financial Access For The Poor
direct partnership with a bank. This has poverty alleviation plan (Globe 2011).
been made possible in part by The Gen- Within the non-profit sector, uni-
eral Banking Law of 2000, which requires versities and humanitarian organizations
the Filipino government to promote and have also partnered with Globe to imple-
support a stable and efficient financial ment the GCASH payment system (Rhyne
system that includes microfinance as a 2009). Most recently, the United Nations
legitimate banking activity. The General World Food Programme has collaborated
Banking Law of 2000 has also led to the with Globe in using GCASH to implement
formation of a special unit within the cen- a cash-for-work program that assists Fili-
tral bank to oversee the use and develop- pino families that have been displaced by
ment of mobile commerce. In the case of typhoons, rising sea levels, and conflicts
Globe, the Central Bank of the Philippines (CNN 2011). Through partnerships with
has required that Globe submit regular re- national and multilateral agencies, for-
ports that show that each peso of GCASH profit mobile banking service providers in
is backed up in a bank account (Rhyne the Philippines have made a positive so-
2009). The General Banking Law of 2000 cial impact among Filipino communities
also specifically references regulation pro- in need of both formal financial services
cedures for the microfinance sector: and more direct means of poverty relief.
The Monetary Board shall regulate
the interest imposed on microfi- The United States
nance borrowers by lending inves- Developing countries such as
tors and similar lenders, such as, Kenya and the Philippines are not the
but not limited to, the unconscio- only places where significant portions
nable rates of interest collected on of the population remain unbanked. In
salary loans and similar credit ac- fact, nearly 30 million households in the
commodations (Republic Act No. United States do not have a bank account
8791, 2000). or rarely use a bank account (Mui 2011).
Through the formation of The This number represents about a quarter
General Banking Law of 2000, the Cen- of all American households (US Census
tral Bank of the Philippines provides an Bureau 2010). This trend correlates with
example of how a government agency can income as approximately 70 percent of
significantly contribute to both the devel- these unbanked households earn less than
opment and regulation of mobile banking $30,000 per year (Mui 2011). Retailers in
services that further support client protec- the United States such as Kmart, Best Buy,
tion in microfinance. and Wal-mart have begun filling this gap
The Central Bank is not the only by providing in-store transactions such as
government agency to work with Globe, check cashing, money transfers, and bill
however. The Department of Social Wel- pay services (Mui 2011).
fare and Development, in partnership While providing the unbanked
with the Land Bank of the Philippines, is with financial services through retailers
currently working with Globe to imple- is a relatively new phenomenon in the
ment the government’s pilot Conditional United States, transferring remittances
Cash Transfer Program. In this program, a across the world using US-based global
Globe product called GCASH REMIT will money transfer companies such as West-
be used to distribute cash grants to poor ern Union and MoneyGram is a well-es-
families living in remote areas. The Con- tablished practice. Not surprisingly, these
ditional Cash Transfer Program is struc- companies have also taken notice of the
tured to provide access to health services, rapid speed with which mobile phone us-
nutrition, and education to poor families age has recently been increasing in the de-
and is central to the Filipino government’s veloping world. In 2008, Western Union
worked with Smart Communications and The state of Illinois later amended its laws
Globe Telecom to allow Western Union such that welfare recipients could borrow
clients in Hawaii, the United Arab Emir- money (Yunus 1999). Yunus’s problem-
ates, Hong Kong, and Singapore to trans- atic experience with welfare laws in the
fer money directly to SMART Money and United States provides a clear example
GCASH accounts. With 445,000 Western of how government policies can signifi-
Union agents currently operating in over cantly affect microfinance programs. In
200 countries, Western Union aims to ex- order for mobile banking to be successful
pand its Mobile Money Transfer services in the United States, supportive govern-
by partnering with mobile money service ment policies should be formulated and
providers around the world (Western implemented to truly help the poorest of
Union 2010). MoneyGram has also begun the poor. Just as the Central Bank of the
using mobile phones to deliver remittance Philippines has provided support for mo-
services. A partnership formed with Af- bile commerce and microfinance through
finity Global Services in 2009 will allow recent legislation, the United States may
MoneyGram to provide cash transfer ser- be able to encourage and regulate mobile
vices to mobile devices from an already- banking services through federal agencies
established network of over 180,000 agent such as the newly created Consumer Fi-
locations worldwide (Crook 2009). nancial Protection Bureau.
Global money transfer companies
are not the only businesses in the United Haiti
States to make use of mobile money ser- In July 2009, the US Agency for
vices. Two companies specializing in mo- International Development (USAID), in
bile payment systems, Obopay and Moni- partnership with non-profit organizations
tise Americas, were formed in the United AED, World Council of Credit Unions,
States in 2005 and 2007, respectively. Both and Technoserve, established the Haiti
Obopay and Monitise Americas, however, Integrated Finance for Value Chains and
appear to target banked clients with ser- Enterprises (HIFIVE). Prior to the Haiti
vices that facilitate bank account manage- earthquake of 2010, HIFIVE had already
ment, domestic money transfers, and bill instituted a Microfinance Sector Informa-
payments (GSM Association 2011). Still, tion and Communications Technology so-
the formation of these companies reveals lutions working group to increase financial
that potential may exist outside of devel- inclusion in Haiti (Bold 2011; microLINKS
oping countries for using mobile phones to 2009). After the earthquake, with two-
expand access to formal financial services. thirds of Haiti’s banks destroyed, utilizing
As with Kenya and the Philip- mobile financial services became an even
pines, the US federal government plays an bigger focus of HIFIVE. As the United Na-
important role in both encouraging and tions World Food Programme is now do-
regulating mobile banking as a means for ing in the Philippines, HIFIVE also used
expanding access to a full range of finan- mobile network operators to facilitate
cial services. When Muhammad Yunus, transfers of funds for cash-for-work pro-
founder of Grameen Bank, began adapting grams.
the village banking model he used in Ban- Though HIFIVE and M-PESA
gladesh to meet the needs of poor commu- both began with support from donor coun-
nities in the United States, he found that try aid agencies, non-profit organizations
his greatest obstacle was American welfare and specifically foundations have also been
law. While many of the poor he spoke with instrumental in funding mobile money
in Illinois had entrepreneurial ideas for initiatives. For example, five months after
using the loans he offered, welfare recipi- the 2010 earthquake the Bill and Melinda
ents were not allowed to take out loans. Gates Foundation and USAID created a
Policy Perspectives • 15
16 • Financial Access For The Poor
$10 million fund for mobile banking ser- resources might provide relief assistance
vices in the country (BBC News 2010). in both developing and high-income coun-
On January 10, 2011, the newly founded tries. For example, since US businesses
Haiti Mobile Money Initiative made its have already begun to use mobile money
first award of $2.5 million (Bold 2011). service models, it seems feasible that mod-
Digicel’s Tcho Tcho Mobile received the els such as those implemented through
award as a result of being the first Haitian Voíla, Unibank, and Mercy Corps could also
mobile banking service to meet HIFIVE’s help address the effects of natural disasters
requirements of having operations in 100 such as Hurricane Katrina in New Orleans.
locations with 100 agents each conducting In order to assess the potential opportunity
100 cash-in/cash-out transactions for a for collaboration across countries, more
total of 10,000 transactions (Taylor 2011). research is required on how mobile money
While the actual implementa- service successes can be expanded to sup-
tion of mobile banking services has been port public and non-profit sector agents
dominated by the private sector, NGOs working towards economic and social de-
are slowly beginning to employ these ser- velopment services around the world.
vices to execute relief and development
programs. In September 2010, Mercy India
Corps teamed up with a Haitian wireless With a population of over 1 billion
operator, Voíla, and Haiti’s largest bank, people, 75 percent of whom live on less
Unibank, to create mobile money services than two dollars per day (see Figure 1), it
that specifically support Mercy Corps pro- is not surprising that microfinance found
grams. This partnership resulted in recipi- a large market in India. In fact, by 2010,
ents of Mercy Corps’ cash-for-work pay- the country had become home to nearly 27
ments, grants, and food vouchers being million microfinance clients, almost three
able to receive these funds through their times the number of people living in Haiti
Voíla mobile phones (Trilogy Interna- (The Economist 2010b). As private banks
tional Partners 2010). Mercy Corps and T- entered the microfinance market and cli-
Cash, Voíla’s mobile banking service that ents increasingly took out loans from mul-
was launched in December, also provide tiple banks at a time, over-indebtedness
similar withdrawal and transfer services became a larger problem. In October
to Digicel. 2010, turmoil broke out in the southern
The potential for mobile money Indian state of Andhra Pradesh as local
services in Haiti has received particular government officials and politicians be-
attention because of the country’s mas- gan encouraging thousands of borrowers
sive need for immediate assistance, but to default on their loans. In the month of
the partnership between NGOs and pri- October alone, collection rates in Andhra
vate sector mobile phone service and bank Pradesh fell from 98 percent to less than
service providers can be applied in other 20 percent, rapidly bringing the microfi-
countries as well, as can be seen by the nance industry to a halt (Kazmin 2011). As
cash-for-work programs that have recently a result, the biggest microfinance banks
begun in the Philippines. Though further did begin capping their interest rates
analysis on the impact of these programs around 24 percent partially in response to
is needed, similar partnerships could be local government officials’ allegations that
effective in other developing countries and such banks were encouraging over-indebt-
with other international relief and devel- edness (Bellman and Chang 2010).
opment NGOs and intergovernmental or- In addition to the saturation of
ganizations. the microfinance market and the high in-
Additionally, using technology terest rates being charged, one of the main
providers and banks to distribute financial problems leading to the crisis was the lack
of productive collaboration between pri- ing becomes more popular in India. In
vate microfinance banks and local pub- January 2011, India’s largest public sector
lic sector officials. Part of this may have bank and its largest private sector bank
been because the success of microfinance both announced partnerships with mo-
banks had reduced local politicians’ abil- bile phone operators to begin providing
ity to reward individuals for their electoral mobile banking services (Rotman 2011).
support using rural credit (The Economist Vikram Akula (2009), founder of SKS Mi-
2010b). However, Elisabeth Rhyne (2010) crofinance, India’s fastest growing micro-
allocates much of the blame to the pub- finance institution and one of the banks
lic policy environment in India, starting affected by the crisis in Andra Pradesh,
with the socialist reforms of the 1990s, has often argued that while mobile bank-
which led to a national focus on public ing is crucial for increasing security and
sector banks at the expense of private sec- cutting costs in microfinance, government
tor banks and microfinance. Specifically, policies have prohibited mobile banking
Rhyne notes that microfinance institu- in microfinance from becoming a reality.
tions could not legally receive licenses to In particular, Akula has highlighted the
take deposits, in part because of the com- Reserve Bank of India regulations that bar
petition they could create for public sec- non-bank institutions from handling bank
tor banks. Without these licenses, micro- transactions on behalf of clients or accept-
finance institutions had no incentive to ing deposits. Akula also points out govern-
provide savings services and thus were left ment initiatives to expand financial in-
with unbalanced portfolios (Rhyne 2010). clusion for which government-published
The focus in the aftermath of the results make the initiative appear signifi-
crisis has largely been on restraining un- cantly more successful than results for the
sustainable rapid growth of microfinance same initiative published by independent
banks, building better client protection surveyors. In short, the government needs
practices, and forming credit bureaus to include the private sector in its efforts to
(Rhyne 2010). In response to the crisis, expand financial inclusion (Akula 2009).
the Reserve Bank of India set up a spe-
cial committee to study the microfinance Analysis and Implications:
industry’s practices and provide rec- Designing Social Development-
ommendations for productive changes. Oriented Banking Services
The committee has since recommended
that microloans to the poor be capped at Potential for Mobile Banking to Meet the
25,000 rupees ($500) per borrower, em- Financial Needs of the Poor
ploy flexible repayment schedules, and As the above case studies show,
have interest rates capped at 10 or 12 per- mobile banking has rapidly expanded not
cent depending on the size of the micro- only in countries where the total number
finance institution (Kazmin 2011). In this of phone subscriptions is slightly greater
manner, the Indian government encour- than the national population (the Philip-
ages the development of microfinance ser- pines), but also in countries with a little
vices in line with flexibility and structure, under one cell phone subscription for
two previously outlined needs of the poor, every two people (Kenya). Though mo-
and particularly a structure that supports bile phone subscriptions are slightly less
client protection from over-indebtedness. common in Haiti and India than in Ke-
While this crisis was not directly nya, potential exists in these countries to
linked to mobile banking services, the cri- successfully incorporate mobile banking
sis offers lessons about the importance of into the range of formal financial services
productive collaboration between public currently offered. Still, Kenya, Haiti, and
and private sector actors as mobile bank- India each have fewer mobile subscrip-
Policy Perspectives • 17
18 • Financial Access For The Poor
tions per 100 people than the average The first factor is whether mobile bank-
rate among developing countries, which ing services can generate enough profit
was 57 subscriptions per 100 people as of to be sustainable given country-specific
2009 (ITU 2011). Though the proliferation contexts. In Kenya and the Philippines,
of mobile phone usage is not the only fac- mobile banking services implemented by
tor needed for mobile banking to be suc- the private sector have grown rapidly with
cessful, the rapid growth in mobile phone support from the public and non-profit
subscriptions among developing countries sectors. However, the sustainability of
suggests that mobile banking can become these mobile banking models does not in-
a tool for reaching remote populations in dicate that the financial needs of the poor
developing countries around the world. are fully being met. The second factor is
At the same time, cases such as the Unit- to consider the three key financial needs
ed States show that mobile banking may of the poor outlined earlier: the ability to
help expand access to financial services manage irregular cash-flows, the ability to
among the poor of high-income countries cope with risk, and the ability to raise lump
! as well. sums when called for on specific occa-
Still, two major country-by-coun- sions. The extent to which these three key
try factors must be considered when de- financial needs are met by mobile banking
termining whether mobile banking can services will depend largely on the range of
successfully increase access to formal fi- financial services made available through
nancial services for the unbanked poor. mobile banking. Successful models should
Figure 3: Mobile Banking Cross-Sector Collaboration.
Private Sector
- Microfinance Banks
- Other Commercial Banks
- Mobile Network Operators
- Technology - Bank regulations
sharing - Client protection
- M&E* of standards
mobile Meet - Pro-mobile
banking financial banking
service needs policies
!
Non-Profit of the unbanked! Public
Sector poor Sector
! - Central Banks
- Non-Profit MFIs
- International NGOs - Funding mobile - Local Governments
- Foundations banking pilot - Donor Country
- Universities programs & Aid Agencies
research
- Think Tanks
-CBOs**
Intergovernmental Organizations
*Monitoring and Evaluation **Community Based Organizations
Source: Author’s analysis.
include services that facilitate savings, in- access to formal financial services.
surance, and loans on scales and at inter-
est levels that are accessible to poor and Meeting the Financial Needs of the Poor
low-income clients. through Cross-Sector Collaboration
The four key principles that Col- As the cases described in Kenya,
lins et al. (2009) have established for de- the Philippines, the United States, Haiti,
veloping formal financial services for the and India have shown, the public sector is
poor—reliability, convenience, flexibility, capable of either playing an instrumental
and structure — can be more easily and role in supporting mobile banking initia-
directly linked to mobile banking services. tives or creating significant obstacles to
Assuming that clients have access to mo- the success of mobile banking. The actual
bile phones and bank agents, financial role of the public sector depends on rel-
transactions performed through mobile evant policies, regulations, and the actions
banking are by their very nature likely to of political leaders. Increasingly, the non-
be more reliable and structured than many profit sector has shown a considerable
informal financial services. The automated capacity for supporting, evaluating, and
receipts produced by mobile phones make building on mobile banking initiatives cur-
financial transactions more reliable, while rently run by the private sector. By identi-
the regulation of the businesses and orga- fying and building on the unique strengths
nizations that implement the services pro- of each sector and encouraging sectors to
vides structure. At the same time, these work in partnership, mobile banking in-
mobile banking services are likely to be novations and developments are more
more convenient and flexible than other likely to meet the financial needs of the
formal bank services conducted by tradi- unbanked poor. Figure 3 illustrates how
tional banks. collaboration is most likely to be effective
The private sector can provide a among the three sectors.
greater percentage of the unbanked with Within the private sector, cooper-
a wider scope of services than non-profit ation between banks and mobile network
microfinance institutions, but non-profit operators to create innovative and efficient
organizations and governments also play mobile banking services demonstrates
key roles in allowing mobile money ser- how collaboration has led to wider access
vices to meet the needs of the poor for re- to financial services. In order for these
liable, convenient, flexible, and structured services to be implemented, however, mo-
financial services. Though collaboration bile banking service providers require a
between sectors can expand the reach of supportive regulatory environment in the
mobile money, precautions must be tak- public sector. Central banks must consider
en to ensure that partnerships are built how current bank regulations may affect
in productive ways. There are two ways the viability of mobile banking services.
in which the public sector and non-profit This is particularly important in the case of
sector must collaborate with mobile bank- savings, as mobile network operators and/
ing service providers to ensure that mobile or bank agents must legally be able to col-
banking meets the financial needs of the lect deposits for mobile microsavings to be
unbanked poor. First, mobile banking ser- feasible. Moreover, both national and local
vice providers must be supported by agen- government agencies can support mobile
cies and organizations within the public banking by creating policies that support
and non-profit sectors to promote opera- microfinance and encourage technological
tional sustainability. Second, public and innovation as a means for reaching more
non-profit agents should act as watchdogs unbanked clients. Lastly, the public sec-
to measure the actual impact that such tor must emphasize client protection and
services have on individuals without prior mobile banking services that improve the
Policy Perspectives • 19
20 • Financial Access For The Poor
security of financial transactions, while think tanks, and other research institutions
ensuring that clients are not overburdened are best equipped to assess the implications
by the terms of the services. While govern- of mobile money for international develop-
ment actors should encourage responsible ment. The public sector and IGOs can also
practices among microfinance institutions become involved in monitoring and evaluat-
and mobile banking service providers, the ing mobile banking initiatives by providing
public sector should not create unneces- funding for such research.
sary bureaucratic oversights. Specifically, While foundations can fund mobile
the concept of client protection must not banking initiatives and research institutions
be used merely for political gain and thor- can monitor and evaluate the effectiveness
ough research should assess how to best of mobile banking services, private sector
ensure client protection. mobile banking service providers can also
One core competency for non- advance the goals of the non-profit sector.
profit organizations, governments, and in- The private sector can increase the likeli-
tergovernmental organizations (IGOs) is hood of mobile banking reaching the poor-
to identify and fund mobile banking initia- est of the poor by sharing best practices and
tives that specifically target the unbanked. providing non-profits with access to new
Foundations and bilateral aid agencies technology. Non-profit organizations should
such as the Bill & Melinda Gates Foun- seek out strategies for mobile banking to
dation and the Department for Interna- reach the unbanked poor who are not served
tional Development illustrate this concept by the private sector, rather than attempting
at work through funding pilot programs to compete with private sector mobile bank-
and encouraging mobile banking through ing service providers.
competitive grants. While financial support The United Nations World Food
for new mobile money services is extremely Programme has shown that by collaborat-
important, foundations and donor country ing with the private sector, IGOs can utilize
agencies must first research which mo- mobile banking to provide relief to victims
bile money practices have most effectively of natural disasters and political conflicts.
reached the unbanked and the specific con- IGOs can also improve the regulatory envi-
texts behind each success. ronment for mobile banking by recognizing
In order to conduct such research the value of mobile banking on a global scale
effectively, mobile money services must be and encouraging dialogue between member
monitored and evaluated in terms of the states about productive policies that allow
economic and social impact. While the work mobile banking to serve unbanked popula-
of the Georgetown and MIT economists tions.
provides good examples of the social and
economic trends associated with the usage Conclusion
of M-PESA services, more research is need- It would be astute for private sec-
ed on the actual impact of mobile banking tor, public sector, or non-profit sector actors
services on the lives of clients, including as- to consider the possibilities that innovative
sessments of the strengths and weaknesses communication and transaction channels
of mobile money service models in differ- offer for microfinance, given the rate of tech-
ent countries. Financial institutions are ca- nology advancement in both developed and
pable of conducting the necessary market developing countries. Since so many inno-
research, including appropriate market- vations such as M-PESA are relatively new,
ing and the need for addressing financial more research is needed on the long-term
literacy barriers, and mobile service op- implications of such services for both pro-
erators can contribute access to recent in- viders and clients, and whether successful
novative technology (Saxena 2009). Non- services in one country can be adapted to
profit organizations such as universities, others. Ultimately, what remains most imp-
portant is that the sectors involved in mo- sector can provide independent monitor-
bile banking service development join ing and evaluation of the economic and
forces to ensure that the reach of microfi- social impacts of mobile banking services.
nance expands in a sustained manner that To the extent that such services provide
remains in line with the needs of the un- important and useful services for empow-
banked poor. ering the poor, governments and NGOs
Financial institutions, technology should tailor funding priorities and bank-
providers, government agencies, NGOs, ing regulations to support the expansion
and IGOs all play a role in developing the of such services. Building off of the rapid
institutional capacity for microfinance. growth of mobile banking services, pri-
The public sector in particular must be vate, public, and non-profit sectors can
responsible for forming policies and bank and should collaborate within countries
regulations that encourage mobile bank- towards expanding the reach of financial
ing and client protection. The non-profit inclusion to meet the needs of the poor.
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Notes
1. The measurement of “two dollars per day” used here refers to $2 (US) per day cal-
culated in 2005 Purchasing Power Parity (PPP) terms. In other words, instead of
referring to the market value of two dollars (US) in 2005, this “two dollar (US) 2005
PPP” measurement refers to the equivalent, in any other country, of the amount of
basic goods and services that could be bought in the US for two dollars in 2005. All
references made in this paper to living on an income of less than two dollars per day
are based on 2005 Purchasing Power Parity terms regardless of the year and popula-
tion in question.
Kanika Metre is a second year Master of Public Administration student at The George
Washington University, concentrating in international development management. She
earned a BA in 2009 from The George Washington University in international affairs
and women’s studies. She currently works as a graduate teaching assistant for the Eliza-
beth J. Somers Women’s Leadership Program in international arts and culture. While
a student at The George Washington University, she has also held internships with the
Overseas Private Investment Corporation, ACCION International, International Relief
& Development, and the United Nations Development Programme. Following her grad-
uation in May, she will begin a year-long internship in Indonesia as a 2011-2012 Luce
Scholar.
The author would like to thank editors Meghan Wills, Joshua D. Nadas, Kaitlin Wel-
born, and Andrea Leung for their generosity with their time, constant encouragement,
and constructive feedback. The author would also like to thank Professor Joan Dudik-
Gayoso for recommending the paper for publication and Professor Marvin Phaup for his
additional insight during the editing process. Lastly, the author would like to thank her
fellow ACCIONistas at ACCION International for piquing her interest in microfinance
and mobile money.
