News
8 May 2007
Mobile phone banking (m-banking)
Many poor people remain unbanked:
Improving access to financial services, such as savings, deposits, insurance
and remittances, is vital to reducing poverty. Savings can help poor people to
invest in productive assets like livestock, a loan may help to expand business
activities, and insurance can provide income for a family if a breadwinner
becomes sick.
In many developing countries, however, 9 out of 10 people do not have a bank
account or access to basic financial services. Poor people are often not
considered viable customers by the formal financial sector as their transaction
sizes are small, and many live in remote areas beyond the reach of banks branch
networks. Informal banking services such as microfinance and village savings and
loan associations remain limited in their reach.
In order for banks to view the poor as viable customers, new ways of serving
them profitably need to be explored. Extending branch networks is often too
expensive, but the development of appropriate technologies can provide one
answer to this problem.
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M-banking as a solution:
Offering banking products through mobile phones is one option that offers
great potential for reaching poor people:
- Many poor people already have access to mobile phones;
- Mobile networks can reach remote areas at low cost;
- A mobile handset can easily be adapted to
handle banking transactions; and
- The poor often have greater familiarity and
trust with mobile phone companies than formal banking institutions.
In the last five years mobile phone communication has grown faster in
Sub-Saharan Africa than in most other parts of the world. African mobile phone
subscribers grew from 8 million to nearly 80 million from 1999 to 2004 (source
International Telecommunications Union) and is
expected to increase to 250 million in the next four years (source Progressive
Policy Institute) .
Although m-banking is currently at an early stage of development, things are
moving fast. In the Philippines the two largest mobile phone operators, SMART
Communications and Globe Telecoms, have launched mobile banking solutions aimed
at the poor. In March 2006, Globe Telecoms had approximately 1.3 million
registered users for its G-Cash payments system, which allows customers to use
their mobile phones to make financial transactions, including repaying loans,
transferring money to friends and relatives across the world, and paying for
goods and services. G-Cash now handles about US$100 million of transactions per
day. SMART Money offers many of the same features as G-Cash, but the most
popular feature, SMART Padala (“send”), enables over 1 million Filipino overseas
workers to transfer almost US$50 million per month to their relatives in the
Philippines (Infodev).
Innovation is generating new products and services which are being
launched in Africa and other developing regions.
The degree to which m-banking will make new services to poor people is
dependent on several factors including: the availability of information on the
poor as potential consumers; the extent to which the poor have access to mobile
phones and are financially literate; the level of competition in the market and
the extent to which regulatory barriers which impact the development of mobile
banking can be reduced.
DFID will continue to work with its partners to create an environment in
which m-banking can develop in a way that includes and benefits the poor.
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