COMMUNITY-MANAGED LOAN FUNDS

[seminar class]

Mobile phones can be used for financial services
in three different ways: for micropayments
(m-commerce), as electronic money (e-money),
and as a banking channel.
M-commerce. In Japan and the Nordic countries,
mobile phones are linked to credit cards or bank
accounts and can be used to make small payments,
usually for transportation and vending machines.
(The phones replace a debit or credit card that the
customer must already have.)
E-money. In the Philippines, Globe Telecom lets
customers load cash (or G-Cash) onto their mobile
phones at partner merchants or Globe outlets. For
one million customers, G-cash is real value that can
be stored and withdrawn as hard cash, transferred
to a friend across town or across the world, or used
to pay for products at restaurants and stores. In
addition, customers of Globe, and of Safaricom in
Kenya (which has a similar product called
M-Pesa), can use their virtual money to repay loans
to, or make deposits in, microfinance institutions.
Banking channel. Customers of WIZZIT or
MTN Banking in South Africa use their phone
as the primary way of accessing their bank
account. MTN, a mobile network operator, is
partnered with Standard Bank, and WIZZIT is
partnered with the South African Bank of
Athens. Customers load cash into their bank
accounts at branches or automatic teller
machines (ATMs), or through a direct deposit of
salary, and can use their mobile phone to purchase
airtime and make payments, transfers, and
balance inquiries.
Who offers mobile phone banking services to poor customers?
Both banks and network operators, such as MTN,
are pursuing this business. Some banks interested
in reaching unbanked customers believe that a
mobile phone banking channel will be less costly
than bank branches and that many poor people
would be more comfortable using mobile phones
to do their banking. Network operators see mobile
commerce and payments applications (such as
e-money) as a service that can generate more
revenue on an existing network infrastructure
and that can reduce customer turnover.
Why is there so much excitement about
banking the poor with mobile phones?
Many merchants and poor people have mobile
phones, and the number is growing fast. African
mobile phone subscribers grew from 7.5 million
to 76.8 million from 1999 to 2004 (International
Telecommunications Union 2005), and this will
further increase to 250 million in the next four
years, according to the Progressive Policy
Institute.
Poor customers are already familiar with mobile
phones. Many poor people already use mobile
phones for voice calls and text messages, thus
increasing the likelihood that they will need only
a limited amount of training to be able use it for
banking.
Mobile phones are “always” on. Because mobile
phones generally are always connected to the
network, banks can receive transaction details as
soon as the transaction takes place, reducing its
uncertainty. Clients can use their own phone,
anytime, to find out their account balance.
Mobile phone operators already know how to
handle cash transactions for customers (airtime).
Operators already have a network of retail outlets
with which they do business, albeit indirectly
because they sell only wholesale airtime. Also,
prepaid mobile phone subscribers (many of whom
May 200
SUPPORTING COMMUNITY-MANAGED LOAN FUNDS
CGAP
are poor) are accustomed to handing cash to these
dealers in exchange for value in their airtime
account.
What are some reasons to be cautious?
Mobile banking applications are not yet interoperable.
In most countries, it is not yet possible
to send money between any two mobile phones
easily and at low cost. Until these restrictions are
overcome, mobile phone banking may not achieve
the “network effect” that has caused mobile
phones to spread as quickly as they have.
Mobile phone payments may not conform to
international security standards. Because mobile
banking is in its early stages, most banks and
mobile phone operators have not agreed to a
single standard for securely sharing customer
account information and verifying customer
identity.
For banks, a “mobile phone only” channel has
not yet proved profitable. So far, most mobile
banking services offer only a limited range of
products. Until customers pay for a range of
financial services through their phone, the channel
is unlikely to make money.
Mobile phone banking may not be able to reach
the most remote and poor areas. So far, most selfemployed
or informally employed poor people
have not used mobile phone banking because
providers don’t have large networks where they
can deposit and withdraw cash easily.
Mobile phone banking may not be easy to use for
illiterate and older users. Most mobile banking
interfaces and processes require literacy. Further
adaptation and training will be required for all
customers, particularly illiterate and older
customers, to adopt this system.
Regulation surrounding mobile phone banking is
not yet clear. Key issues include how to protect
customers who deposit cash at retail outlets; how
to regulate providers that are outside the banking
domain, such as mobile operators that issue
e-money; and how to apply stringent “know your
customer” requirements to providers opening
accounts for poor people.
Conclusions
CGAP, in partnership with the Vodafone Group
Foundation and the UN Foundation, is now
doing research in the Philippines and South
Africa to find out what makes poor people use or
reject these services and how remote mobile
phone banking can go. This research can help
banks, microfinance institutions, mobile phone
companies, regulators and donors steer mobile
banking toward reaching large numbers of the
poor.

Download full report
http://cgapgm/document-1.9.2736/BR_Supporting_Community_Managed_Loan_Funds.pdf