When organised financial services reach people who have for generations used informal mechanisms to manage their money, one of the most important features they bring is reliability - ensuring, for example, that loans and savings withdrawals are disbursed in full and on the promised day, or that deposits and repayments are collected and recorded accurately. It matters because informal devices and services, despite their many virtues, are not always reliable. The problem with moneylenders, most poor people will tell you, is not so much that they charge high interest rates as that you can't depend on them to give you a loan in the first place. Savings clubs of one sort or another are a boon when they work well, but they don't always work well. Storing money with a neighbour keeps it out of the greedy hands of your husband, but when you need to get it back in an emergency the neighbour may not have the cash ready at that moment. Unfortunately, this is sometimes the case with MFIs as well. Nothing irritates me more than to hear MFI staff telling their clients, "sorry, can you come back next week?" When that happens, their services are no better than those that poor people can find for themselves in the informal sector.
But it’s an oversimplification to think that organised services are better than informal ones . . . Read More
M-PESA, a successful mobile payments service in Kenya, is already demonstrating how m-payments can successfully expand the range of financial options available to poor households. Earlier this month, the Gates Foundation took several microfinance experts to Kenya, including Bob Cull; FAI’s Dean Karlan and Jonathan Morduch; David Roodman; Stuart Rutherford and Dean Yang, to learn about M-PESA first hand.
And while we were there, M-PESA announced some big news: finally, M-PESA is connecting with banks in Kenya. And with a big bang too, as two big players in the financial inclusion scene in Kenya are joining forces: Safaricom (the mobile operator behind M-PESA) and Equity Bank are launching M-KESHO, a co-branded suite of financial products that will ride on the M-PESA transactional ‘rails.’ Three years ago, there were 2.5 million bank accounts in Kenya, out of a population of 39 million. Today, there are close to 8 million bank accounts (of which 4.5 million are with Equity Bank) plus a further 9.5 million M-PESA accounts. One third of M-PESA accounts are held by people that are otherwise unbanked, and this is the segment that the new product is targeting. Equity’s aggressive objective is to acquire 3 million M-KESHO customers by the end of this year.
In late April, the Central Bank of Kenya issued new agent banking regulations which for the first time allowed banks to engage a wide range of retail outlets for transaction handling (cash in & out) and product promotion (receiving account applications, though applications must be approved by a bank staff). This paved the way for banks to begin utilizing the M-PESA platform and associated network of M-PESA outlets as a channel. Read More
The Bill & Melinda Gates Foundation certainly thinks so. I’m going to be seeing for myself this week, when I join a foundation-sponsored visit to M-PESA, a rapidly-growing mobile payments service in Kenya. As Ignacio Mas and Daniel Radcliffe wrote as guest bloggers for us last week, at Gates they believe that M-PESA “is already demonstrating how m-payments can successfully expand the range of financial options available to poor households.” By all accounts, M-PESA has become a remarkably effective way to transfer money, but can it really deliver as a platform for full-service banking?
The potential for mobile phones to solve the problem of infrastructure for expanding financial access in poor and remote areas is tremendous. As Ignacio and Dan point out, mobile phone penetration in Africa, which was a mere 3 percent in 2002, is expected to reach 72 percent by 2014 – this on a continent where roughly 20 percent of the population has a bank account (see our recent global count). That part’s clear – and exciting . . . Read More
At the Bill & Melinda Gates Foundation, we have long been believers in the power of mobile financial services to piggyback off of the telecommunication networks that are rapidly being built in developing countries. Mobile penetration in Africa has increased from 3 percent in 2002 to 48 percent today, and is expected to reach 72 percent by 2014. That is a powerful wave we must ride.
In recent years, banks, payment system providers, and mobile operators have begun experimenting with “branchless banking” models which reduce costs by taking small-value transactions out of banking halls and into local retail shops, where “agents,” such as airtime vendors, gas stations, and shopkeepers, register new accounts, accept client deposits, process transfers, and issue withdrawals. One form of branchless banking, called “mobile banking,” uses a client’s mobile phone to communicate transaction information back to the telecommunication provider or bank. This enables clients to send and receive electronic money wherever they have cell coverage. They need to visit a retail agent only for transactions that involve depositing or withdrawing cash.
M-PESA, a successful mobile payments service in Kenya, is already demonstrating how m-payments can successfully expand the range of financial options available to poor households. Read More