Karuna Krishnaswamy works with the CGAP Technology Program.

One day each way – costing nearly US$10 total is what some Maldivians who have a bank account have to pay in order to exchange cash.   The archipelago of the Maldives is about 1,600 kilometers to the south of Mumbai. I was there recently – not for a vacation but to begin work on a nationally-representative survey of the 300,000 people who live there. Working with our partners, we want to know how people use banking services: What are the usage patterns, transaction costs, levels of mobile network penetration?

The survey is part of the Maldives Mobile Phone Banking Project to develop a national interoperable mobile banking and payment system, connected to the existing banks and a network of agents. In plainspoken terms, this means setting up a way to connect mobile handsets to bank accounts. Transactions can be done over the air or with an in-person agent.
A bit more about the Maldives:

• The country is 99.5 percent water.
• People live on 198 scattered islands in 26 atolls, and 60 percent of the inhabited islands have fewer than 1,000 residents.
• Nearly 45,000 people (15%) earn less than $2.60 per day.
• The population is highly literate.
• Mobile phone network coverage is approaching 100 percent.

In the 2006 Investment Climate Assessment (ICA) of the Maldives, the single largest impediment to private sector development identified was access to finance (66 percent). The isolating geography of the Maldives makes for a  great opportunity to use technology to overcome the challenges of distance, low population density and relatively few people in order to deliver financial services at low cost, at national scale.

In the course of working on the survey, an interview with the Village Chief in the island of Guraidhoo, an island of about 2000 residents (a quarter of whom were not born there) revealed several interesting facts:

• There is reliable internet and power  (diesel generators) infrastructure.
• There are no banking facilities on the island.
• There are 6 islands within 5 minutes boat ride but the nearest bank is in the capital of Male.
• Seven in ten residents have a bank account, with multiple accounts for the parents and children.
• To use those accounts, it takes about 1.5 hours one way by ferry boat which operates twice a day and costs  US$3.5 each trip to get there, not to mention accommodation in Male and the opportunity cost of spending all that time to do a simple banking transaction.

Sometimes account holders send friends or family to do the transaction on their behalf. The residents hence do not have a convenient way to save or withdraw. This makes for a particularly difficult proposition for souvenir shop owners (75% of the island earns a living this way) who have to handle net cash of over USD$1,000 every few days. The 300 or so government employees all get salaries debited into their account directly and go once a month to Male to cash out. They store more in cash at home than they would if they have easier access to the bank.

All the transactions in the island are by cash.  There was strong demand for banking and remittance services, along with need for easier access to larger loans. Indeed the Guraidhoo chief was bullish that people would take to mobile banking.

The high literacy rates, phone and banking penetration levels, high transaction costs and unique geography,  affords an opportunity to get a magnified view of the impact and issues of mobile and agent banking on the economy. Due to higher living standards, security and good infrastructure, take up is likely to be higher compared to developing countries.

That’s what we know so far. Some other questions to tease the brain:

• What is the impact on the macroeconomy and money circulation on moving to a less cash dependent economy?
• While mobile banking has been successfully used by individual customers elsewhere, how will it be used for business payments?
• Will people spend more money – consume more – if it’s easier for them to get access to their funds?

The chief did not have answers to these questions. Hopefully the survey will. Watch this space.