Today we welcome Chris Bold as a new blogger for CGAP. Recently, Chris joined CGAP’s Technology Team on leave from the UK Department for International Development where he worked in their Financial Sector Team and, for the last year and a half, was based in Kabul managing DFID’s private sector development programs in Afghanistan. Chris will be providing additional support to CGAP’s portfolio of projects and exploring how large flows of money such as government payments and remittances can be harnessed to bring financial services to the unbanked.

It’s hard to think of a tougher environment in which to test the potential of mobile banking than Afghanistan. With a population of 30 million people, 36% of whom live below the government defined poverty line and 74% of whom are illiterate; Afghanistan is the poorest country in the world outside Africa. But bringing banking services to Afghanistan is exactly the challenge that Roshan, an MNO majority owned by the Aga Khan Fund for Economic Development, is taking on. We met with Zahir Khoja, Roshan’s Executive Director for M-Paisa, on a recent visit to Afghanistan to discuss the roll-out.

Roshan is using the same platform on which Safaricom built its now famous M-PESA service in Kenya. The product is branded M-Paisa in Afghanistan and was initially piloted to provide microloan disbursement and repayments for MFIs as well as a person-to-person money transfers. Today, the service has expanded to include salary disbursement, airtime purchase and bill payment.

After a difficult soft-launch in February 2008, which faced a number of challenges with the agent network and in creating awareness among potential customers, the service is now available in major towns and cities across Afghanistan. Interactive voice recognition services are being developed in three languages: Dari, Pashto and English to ensure that illiteracy is not a barrier to its use.

Over the last six months Roshan has experimented with using the service to pay the salaries of its own staff as well as a trial with around 50 members of the Afghan National Police in Wardak province. Zahir explained how the system works: “The officers in Wardak now visit an authorized M-Paisa agent to withdraw their salary or can immediately send it to their families using their mobile phone.”

The trial was a success, despite having to overcome some initial challenges such as a police commander who wanted the service shut down as he was no longer receiving his usual cut of the salaries. The police officers were initially surprised at how large the payments were when they received their full salary, which was a third higher than what they were used to receiving.

The trial in Afghanistan is on too small a scale to draw conclusions about whether salary payment over mobile is a viable strategy for building a branchless banking business, but it is an attractive business model and it will be interesting to see if it takes off. Roshan plans to continue to scale up salary disbursements to the Afghan National Police and offer the same service to the Afghan National Army in the coming year.

In a country like Afghanistan there may be good reasons to follow this strategy: commissions can be earned off a regular flow of payments that are guaranteed by the government rather than relying on irregular person-to-person transfers and given the government’s involvement in the program it may be less likely to run into the regulatory quagmire that has confounded operators in so many other markets. The idea of using Government to person (G2P) payments as a platform for expanding access to financial services is further explored in CGAP’s latest Focus Note: Banking the Poor via G2P Payments.

-Chris Bold