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| Even as its most ardent advocates assure, Microfinance is really no panacea. Moving ahead, with easy access to a more reliable, flexible and cost-effective mobile technology, M-Finance shows possibilities to alter the nature of banking relationships. It has the promise to take microfinance beyond the bounds of villages and neighbourhoods, and create banking services that move with customers. The potential for these applications is ample, as is the demand, say Shamika Ravi and Mudit Kapoor, Assistant Professors of Economics and Public Policy at the ISB, and Jonathan Morduch, Professor of Public Policy and Economics at the Robert F. Wagner Graduate School of Public Service at New York University. |
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Catch Word – Mobile Banking
It took years to get a new telephone line installed, until recently. In 1990, for every 1000 people, there were just 10 telephone lines in the Philippines, 7 in Kenya, and 6 in India compared with 441 in the UK or 545 in the US. For decades, public sector telephone companies in developing economies seldom had incentives or budgets to expand land line networks, and the private sector has had even less motivation to serve the costly-to-reach.
The advent of mobile telephones changed the equation. Mobile technologies allowed countries to leapfrog over existing technologies. In January, this year alone, Indian companies added 7 million new subscribers.
The spread of mobile technology involves, in part, an expansion of human interaction, changing the nature of interaction as well as its level. The “mobile” element has undoubtedly made communication more flexible, reliable, and cheap.
Logically, thoughts turned to whether mobile telephones could have explicit economic applications. Muhammad Yunus pitched his plan to sell mobile telephones to ‘telephone-ladies’ in rural Bangladesh as a way to multiply the reach of a single phone. Today, nearly half of Bangladesh’s villages have mobile access via a ‘telephone-lady’ and over a quarter million phones have been sold under the programme.
In this vision, access to phone improved price information, competitive position and earning capacity of
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the villagers, which in turn, has made access to loans more powerful. A Vodafone study, similarly noted that 62 percent of small businesses in South Africa and 59 percent in Egypt, increased their profits as a result of mobile phones, in spite of increased call costs.
Other players have moved further in coupling telephones and banking. Mobile telephones have been imagined as devices to complete banking transactions directly. M-Pesa in Kenya, G-Cash and SMART Money in the Philippines and Suvidha/BEAM in India are some examples of banking innovation. It is easy to see the appeal as many of the unbanked are poor, and mobile technology offers the possibility of both filling financial gaps and improving the economic lives of the customers.
The core of businesses like M-Pesa rests with facilitating financial transactions via mobile telephones. In the most common application, microfinance customers can pay loan installments via telephone by entering a code that transfers funds from a personal account to the bank’s account. Transactions can also flow between customers directly, as long as the two parties are in the M-Pesa network. These transactions are facilitated by mobile phone agents in commercial areas.
Banking via mobile phone thus offers features of automated teller machines (ATMs), internet kiosks and point-of-service devices like debit cards — technologies that collectively represent a
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