Microfinance and Mobile Banking: The Story So Far

July, 2010     Kabir Kumar, Claudia McKay, and Sarah Rotman

In the past decade or so, many microfinance institutions (MFIs) have experimented with alternative delivery channels to reduce costs, facilitate greater outreach to hard-to-reach areas, and increase customer convenience. In theory, mobile phones could be used to reach many more customers at a lower cost than any existing delivery channel. Yet despite this potential, in the vast majority of countries there is not yet an existing m-banking service that MFIs can leverage. M-banking to date has largely been driven by MNOs and, to a lesser extent, by some large banks. MFIs have by and large not played a significant role in the implementation of m-banking services.

There are fundamental reasons why MFIs are generally not positioned to get into m-banking early on. Most m-banking deployments provide transfers, a service that very few MFIs provide. Indeed, MFIs and successful m-banking businesses occupy different worlds today. The MFI world is focused on credit and maybe some savings, while the m-banking world is focused on transfers and payments. The MFI world largely uses unsophisticated backend systems while the m-banking world uses some of the most sophisticated backend systems we know today (even better than some banks). The MFI world focuses on creating low-cost, human-driven infrastructure, while the m-banking world is tied into and uses payment systems infrastructure. It is not surprising then that these two worlds have not yet aligned.

This Focus Note aims to do two things: (i) explore the various roles that MFIs can play in m-banking and (ii) explore the potential benefits MFIs and their customers expect to gain from pursuing m-banking.