Financial Literacy

Much has been written about how innovations go from being extraordinary and untested to becoming commonplace (Everett Rogers, Diffusion of Innovations, 2003). How can we apply the thinking that “innovation diffusion” research has come up with to mobile banking?

First, let’s identify what the innovations are in mobile banking. For someone who has a mobile phone, but doesn’t have any bank account, I would see three:

• a new concept of value – electronic, not cash or in kind
• a new financial provider – not manual exchange or through hawala or through bus driver or friends/family, but unknown / untrusted organization or some bank
• a new use of device – use existing device for new purpose (idea that phone can be used for finance is a new idea)

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Operators, banks should cooperate on mobile payments

GrameenPhone Plans For Money Transfer Business In Bangladesh

Will mobile phones extend banking to all four corners of the world?

Regulating Transformational Branchless Banking

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It is nothing new that access to credit to small businesses and low-income individuals is limited in many developing countries. One of the many reasons, besides lack of collateral, informal economic activity, and physical distance to credit providers, is the lack of a formal credit history in a local credit bureau.

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FMO’s UPsides magazine this month has a whole set of stories that look at how branchless banking (such as mobile banking) and remittances can help fight poverty. Two CGAP partners, G-Xchange Inc. (Philippines) and XacBank (Mongolia) are featured in this issue:

We are dead set on proving a hypothesis: good return to our shareholders can go together with reaching the poor.
-Riza Maniego-Eala, President of G-Xchange, Inc.

Our market research shows that 50% are keen to have mobile banking services made available through local grocery stores, post offices and gas stations. But getting the service out is proving to be a challenge.
-Ganhuyag Chuluun Hutagt, CEO, XacBank

Download the pdf here.

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Financial literacy - the level of understanding that customers have when it comes to services - is significant. Danielle Hopkins is with Microfinance Opportunities, a Washington-based group that focuses on financial literacy and other issues facing microfinance. Here are her thoughts.
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The Hindu has a great interview with NCR’s P. P. Manjunath Rao, who leads that company’s sales efforts for India. Recently the Indian subsidiary of NCR tripled its production of ATMs to nearly 900 units a day - and with just 28 ATMs per million people (compared to 200 ATMs per million in Mexico, for example) it would seem that there’s room to run for ATM providers. Rao tells the Hindu:

Using thumbprint and voice guidance in ATMs reduces literacy requirements to a considerable extent. Thus, establishing the identity of a rural depositor through biometrics makes it possible for illiterate or barely literate people to become part of the banking user community.

A simplified menu on ATMs coupled with possible audio guidance in local language enables easy use for rural masses. So far, bank ATMs are dependent on PIN (personal identification number) verification. The fingerprint authentication method is non-PIN based, and this requires enhancements to the standard switch environment. Though identification can be via face, voice, retina or iris, fingerprinting has the advantage of being a familiar concept worldwide.

Though exciting, widespread deployment will be a challenge. How to handle cash - what about banking agents? What is required for customer adoption? With lower levels of functional literacy, what about financial literacy? These are questions we at CGAP are working on with our research collaboration with Microsoft Research India, as well as our project partners.

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CGAP and Microsoft Research India (MSRI) are collaborating on joint research to better understand the needs of people who have low levels of literacy when it comes to technology. In plain English, this means we all want to know how to design something that would be of use to an illiterate person.

In addition to the focal research on User Interface design, the MSRI-CGAP collaboration will also involve joint explorations in understanding the social and economic context and impact of mobile-banking on poor households.

What we learn will be shared with everyone. Aishwarya Ratan is with MSRI and joined us in Washington at our conference this week to talk about the work envisioned and some of the things MSR has already learned in India. Here are her thoughts.

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That was fun. What did we learn? 

We reaffirmed that small, including micro, enterprises have proven themselves to be reliable and sustainable ways to help people out of poverty and that, in that context, we have abundant proof that microfinance is a workable idea.

MFIs, although having reached increasingly impressive numbers of people, must nonetheless recognize that more than two-thirds of the inhabitants of developing countries remain to be touched by the MFI mission of bringing the advantages of banking to the unbanked and under-banked.

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In her opening remarks, Elizabeth Littlefield used the example of Brazil to illustrate two points. Since the government began allowing use of banking agents to deliver financial services several years ago, 98% of the municipalities now have easy access to financial services. That number is enviable by all standards. At the same time, one network manager experienced an 85% turnover in agents during the first few years.

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Stefan Staschen works with CGAP’s technology and policy teams. He presented on CGAP’s behalf at the Third African Microfinance Conference in Kampala late in August, and shared with us his impressions of the conference.

Not one or two or three, but four presentations at the AMC in Kampala, Uganda, dealt with the use of technology for increasing access to financial services. Richard Ketley from Genesis Analytics talked about Alternative Service Delivery Mechanisms and the card and phone revolution in Africa. His main conclusion was that African microfinance institutions (MFIs) can leverage existing technology such as mobile phones, ATMs and the internet to counter the negative impact of operating in a high cost environment and more often than not using inefficient business models.

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