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| The power of mobile – transforming banking |
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| “Cost saving is one of the big promises of M-Finance. Developing workable business models have been challenging for micro banks and the future of M-Finance will rise or fall with its cost implications.” |
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| Jonathan Morduch, Professor of Public Policy and Economics, Robert F Wagner Graduate School of Public Service, New York University |
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play important roles in poverty reduction.
The Coalition for the Urban Poor (CUP) in Bangladesh, for example, estimates that migrant workers in Dhaka send approximately 60 percent of their income to relatives. M-Finance can fill the gap by providing cost-effective, secure and fast remittance services, as a matter of course.
Group Learning Vs Individual Operation
Opening these boxes will be easier by shifting away from the practice of ‘group lending’ in microfinance. The shift away from groups stems from the stresses attached to group guarantees, coupled with the fact that group meetings consume time. In regions with low population density, groups may also be costly to attend. A microfinance initiative in China eventually closed as customers dropped out due to the high costs of group meetings. Grameen Bank has sworn off the idea of holding customers liable for the troubles of fellow group members. So has ASA, a large competitor in Bangladesh.
BancoSol now has almost no loans under group guarantees. CARD in the Philippines is now experimenting with dropping group guarantees. The trend is toward individual loans with individual responsibility for repayment, and this opens possibilities for M-Finance, given its personalised, individualised mode.
Group meetings, of course, have advantages. The meetings can be social occasions, and the groups can offer economic, emotional, and strategic support to customers. The meetings may also be venues for training and for marketing new products. The public aspect of loan repayments may also help ensure timely repayments. The local elements
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and the use of groups also allow loan officers to efficiently acquire ‘soft information’ on customers: Who is energetic? Who is sensitive to peer pressure? Who has the entrepreneurial edge, etc.
The shift to M-Finance facilitates easy access to “hard information” – especially on the history and timing of credit and saving transactions – but at the expense of these kinds of soft information. A hard information, once fed into credit-scoring models and the like, can adequately substitute for the soft information. One asks: is it possible to create structures in which M-Finance is integrated with traditional modes of micro banking, so that important aspects of ‘touch’ and soft information are retained?
The regular repayment schedules favoured by most micro banks have advantages, but they add to costs. Most micro banks insist on frequent meetings in order to closely monitor clients, provide necessary training and to pick up ‘early warning signs’ of trouble. But, to the extent it is needed, the monitoring is most helpful in the early phases of relationships. One possibility is to phase in M-Finance gradually, such that successful clients ‘graduate’ to individualised mobile phone-based operations.
An additional prospect for M-Finance is that the telephone can be used to remind customers of upcoming deadlines — an application that does not rely on the other parts of the banking infrastructure. Customers can be aided in saving through friendly reminders, for example. Or they can be advised of upcoming dates for loan repayments, payment of insurance premiums, utility bills, etc. In a pilot study in the Philippines, a simple reminder to save is making a positive impact on accumulated |
