How Can Microfinance Take Advantage of Mobile Banking?

Regular readers of this blog are familiar with mobile banking and its potential to bring vast numbers of the unbanked into a more formal financial system and revolutionize the way they manage their money. Yet although microfinance institutions (MFIs) have spent decades serving this clientele with loans and increasingly savings and other financial products, they have not featured prominently in this space. The mobile banking charge has been led by mobile network operators and, to a lesser extent, large banks. Although MFIs understand the potential of mobile banking, they have struggled to see how they can take advantage of it. The core competencies of most MFIs lie in their understanding of low-income customers’ needs and close relationships with these customers, not in complex technology projects or managing large-scale distribution networks. So how can MFIs take advantage of mobile banking?

To answer this question, Kabir Kumar, Sarah Rotman and I studied 15 leading microfinance organizations (NGOs and commercial banks) to understand their perspective and plans for m-banking. What we found surprised us. There is much more diversity amongst this group than we had expected, both in the ways they planned to use m-banking and in the benefits they hope to receive. Several MFIs (such as Faulu and KWFT in Kenya) are using m-banking services in the expected way – to allow clients to make loan repayments and deposits. Beyond this, some MFIs are acting as agents for m-banking services (such as Vision Fund for WING in Cambodia), others are entering into close partnerships with MNOs to develop new services together (such as easypaisa and M-Kesho) and others are trying to build an m-banking system from scratch (such as Opportunity Bank in Malawi). It is still too early to know the results of all these initiatives but the diversity and creativity is encouraging.

A wide gulf separates those institutions that are in countries with existing m-banking services and those that are not. Those fortunate MFIs in countries like Kenya and the Philippines have several different ways they can take advantage of the m-banking services at their doorstep. Unfortunately, the vast majority of MFIs are in countries without m-banking services. Although some are trying to create a service themselves, most will find it too expensive, time-consuming, and complex.

In September, CGAP will host a virtual conference where participants will be able to interact directly with the leaders of these microfinance institutions and exchange ideas about how MFIs can take advantage of mobile banking. In the meantime, check out our new Focus Note: Microfinance and Mobile Banking: The Story So Far.

-Claudia McKay