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Shamika Ravi, Assistant Professor of Economics and
Public Policy, ISB |
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| “M-Finance has the potential to take microfinance beyond the bounds of villages and neighbourhoods and create banking services that move with customers.” |
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| Mudit Kapoor, Assistant Professor of Economics and Public Policy, ISB |
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| “The shift to M-Finance facilitates easy access to ‘hard information’ – especially on the history and timing of credit and saving transactions.” |
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new wave of devices to bank low-income households. The M-Finance appeal rests on two possibilities. First, it allows banks to do their existing business more cost-effectively. The second, and more interesting possibility, is that mobile phones and related technologies alter the nature of banking relationships themselves.
The Human Touch
Robert Annibale, Head of Citigroup’s Microfi nance Group, notes that there are two populations in the world who routinely meet with their bankers – the very rich and the very poor. The very rich are served by private bankers and the very poor have microfi nance. The typical mode of microfi nance has been highly hands-on and sustains on a high level of ‘touch.’ Interactions are face-to-face, and customers who come up short on their required payments must be dealt with directly and immediately. Loan offi cers spend time hearing out problem cases and resolving disputes. In reality, the loan offi cer also plays the roles of social worker, book-keeper, mediator, detective, and coach.
On the other hand, banking by mobile telephone, or leaning heavily on related technologies like ATMs and internet kiosks, is ‘low-touch.’ A big question for technology enthusiasts is to gauge how much is lost in translation, though it is proven that gains in service quality due to the technology outweigh losses. Or, there may be hybrids in which traditional banking models are combined with M-Finance. |
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Re-imagining Microfi nance
Re-
imagining microfi nance means to draw from the narrative of “micro-credit for micro enterprise,” as proposed by Yunus. It basically implies – small loans to support small businesses of poor entrepreneurs. The fi rst step in assessing possibilities for M-Finance is to open that box. Evidence shows that microfi nance customers use loans to meet widely-ranging needs. The list includes paying for health emergencies, school fees, and putting food on the table. M-Finance holds the potential to create fi nancial products that better fi t with these needs, as well as to create more fl exible products to fi nance small businesses.
With M-Finance, for example, it would become easier for the micro bank to extend emergency loans to its clients. The leading microfi nance models have been highly atomised: dominated at fi rst by non-governmental organisations, which seeded village-based or neighbourhood based organisations. Even as for-profi t organisations have edged in, the community focus remains. If a villager wants a loan, most often they must get it from their village organisation. If they want to save, they must also do it locally. Loan offi cers come to the villages at set times and carry out transactions locally. M-Finance can increase the reach of micro banks. While international remittances get increasing attention, within-country remittances also |
