Cellphones may take banking to the rural poor in the third world

July 9, 2007 | By | Reply More

Mobile devices like cellphones have the potential to effectively bring financial markets to the countryside, allowing banks and other lenders in urban areas to provide services like loans and savings accounts to a new population, according to a report by Vodafone and Nokia published last week.In many third world countries, where bank branches are few and far between, the development that finally may make financial services practical for the rural poor fits in the palm of a hand.

Mobile devices like cellphones have the potential to effectively bring financial markets to the countryside, allowing banks and other lenders in urban areas to provide services like loans and savings accounts to a new population, according to a report by Vodafone and Nokia published last week.

Microfinance institutions provide small loans and other services to the poor. Until recently, many in the microfinance industry have operated with outdated technology like paper ledgers, complicating efforts to press into less-developed areas where roads are poor and communication is expensive and unreliable. With mobile phone networks spreading fast in developing countries, Nokia and Vodafone concluded, bank-like services can be technologically up to date and widely available.

When Vodafone began a pilot microfinance project in Kenya in 2003 using mobile phones, said Nick Hughes, head of international payment services for Vodafone, “the idea was to reduce the cost of loan disbursal and recovery.”

“But what we found was that customers were using it for person-to-person transfers” of money in addition to making loan payments.

As a result, three months ago, the company introduced a commercial program in Kenya to make payments possible by cellphone. Customer use has grown. “We’ve passed the 175,000 mark,” Hughes said, “and they’re signing up at about 2,500 a day.”

Hughes said that Vodafone planned to create partnerships with traditional microfinance institutions, adding that it was testing a program in Afghanistan. “But the big one for Vodafone,” he said, “is India,” where the company recently bought the carrier Hutchison Essar.

One reason Vodafone has seen rapid growth in Kenya is that the formal banking sector reaches just 19 percent of its 36 million people, the report said. An additional 8 percent of Kenyans have access to financial services only through savings cooperatives and microfinance institutions.

The value of mobile technologies has not been lost on traditional local microlenders. Jamii Bora, the largest microfinance institution in Kenya, has more than 150,000 borrowers. The organization, whose name means “good families” in Swahili, began to experiment last year with mobile point-of-sale devices, magnetic stripe cards and fingerprint authentification to bring its outlying branches online.

“This year we rolled it out over the whole country,” said Ingrid Munro, the founder and manager of Jamii Bora. “We have about 200 point-of-sale machines now, and we expect to expand.”

The system Jamii Bora uses allows clients in remote areas to make loan repayments, receive disbursements and conduct other transactions electronically. Once a client has logged in with a fingerprint, authenticating their identity on the point-of-sale device, they are connected to the central database in Nairobi.

In a system similar to the one Vodafone has set up, cash is paid and received through loan officers or direct sales agents in places like gas stations or small shops, which then settle their accounts with Jamii Bora.

“This is the most inexpensive way of being linked,” Munro said. “Every loan officer and man on a bicycle is online with our central server in Nairobi. And at the end of each day, we know the cash position of each branch.”

Geraldine O’Keeffe, director of implementation and support at Craft Silicon, the company that adapted point-of-sale devices for Jamii Bora, said she had seen other attempts to upgrade microfinance technology fail because of the cost of communications.

But with the advent in Kenya of networks using GPRS, or general packet radio service, a faster data-transfer technology for mobile phones, going online has become “infinitely cheaper,” she said.

“To computerize rural branches,” O’Keeffe said, “is a massive project and a huge cost. So what Jamii Bora did instead was put the point-of-sale in the branches, and leapfrogged the need to computerize.” Craft Silicon, which also has microfinance clients in Rwanda and Ghana, expects to help Jamii Bora deploy 700 more terminals in the next two months.

The technology has allowed Jamii Bora to centralize operations and introduce a transparent accounting system to administer the loans and other services it provides, like health insurance. In doing so, the company said, it has increased efficiency and reduced the risk of fraud. If that reduces its operating costs, making the organization’s business more sustainable, Jamii Bora said, it could lower the size of its average loan from $95 and still break even.

“This technology has created so much excitement,” Munro said. “It has opened up a whole field of possibilities. By being on the cutting edge of technology, we have the capacity of reaching the poor and remaining financially viable. What many organizations do is raise the interest rate. We refuse to abandon the poor.”

Actually, she said, “we are the poor: all our staff are recruited from our members.” As a result of its point-of-sale technology, she said, “good members can become agents.”

Author: Chris Nicholson, International Herald Tribune
Published: July 8, 2007
Source: http://www.iht.com/articles/2007/07/08/business/micro09.php
Photography: Md. Arafatul Islam

Category: ICT for Development, Knowledge for Development

Leave a Reply

You must be logged in to post a comment.