Give A Village A Phone...How Mobility Is Revolutionizing Microfinance
By Steve Barth
The main road heading north from Nairobi, Highway A104, climbs steadily along a stunning escarpment overlooking the Great Rift Valley. On the way, the road passes through slum areas on the outskirts of the Kenyan capital, new suburban housing developments, and ultimately agricultural land and green open country.
Equity Bank's mobile branch is backed into its parking space of red volcanic dirt in the village of Njabini-a crossroads town serving the surrounding farms in the shadow of the Aberdare Range. Customers are already queued up for services at a teller window cut into the rear of the vehicle.
This mobile unit makes three stops per day on a scheduled two-week circuit of towns like this. The specially outfitted Toyota Land Cruiser is semi-armored and powered by a large solar panel on the roof, since villages like Njabini have no electricity. On the other hand, the entire country is well served by a cellular voice and data network. After attaching to a tall antenna on the roof of the building where the bank rents its parking space, this mobile branch-one of 44-is completely connected via GPRS to Equity Bank's core banking information system. Inside the vehicle, a single bank employee services customers with a fully equipped station including computer, printer and cashbox.
Of almost 36 million Kenyans, 46 percent lives below the poverty line and only an estimated 2 million households have bank accounts. During a 10- year recession, many domestic banks failed and the rest shuttered their rural branches (even though 85 percent of the population works in agriculture).
Equity Bank emerged from insolvency to reinvent itself as a microfinance institution that has steadily worked its way upmarket to capture 40 percent of all bank accounts in Kenya and to be rated as the nation's best retail bank. In addition, Equity was named the third best microfinance bank in the world by business research group Micro Capital (September 2007). The bank accomplished this by observing global best practices and local cultural traditions, making the most of mobility solutions in the process.
Indeed, mobile devices are facilitating microfinance programs around the world, often times replacing personal computers. While the solutions spotlighted here are revolutionizing finance in developing countries, they also represent innovation that can help any corporation looking to serve customers in hard-to-reach locations.
In many microfinance programs, such as village-level self-help groups, customers are responsible for much of the accounting and paperwork themselves. In other programs, lending officers and other microfinance institution staff come from the same poor communities as their customers.
In India's southern Madurai region, women in microfinance cooperatives are working with a system called CAM that uses Nokia 6600 mobile phones to record daily transactions made on small loans to buy livestock for farms or to open tiny retail businesses. The phone's camera is used to take a picture of a bookkeeping form and identify the document. Then the phone prompts the user (in Tamil) to input numbers associated with the data fields. When the last key is pressed, the information is automatically sent via text message to a central server.
Many villages lack the electricity or clean, dry environment required for personal computers. Villagers can't afford to buy PCs and lack the operating skills to use them. Mobile phones, on the other hand, provide adequate processing power while remaining familiar, affordable, portable, durable and battery powered. Its reliance on mobile phone cameras is what gives CAM its name. The system uses the mobile phones as a combined communications- computing-camera platform. CAM was developed by Tapan Parikh while he was a PhD candidate at the University of Washington, with backing from Microsoft, Ricoh and Intel.
The Nokia 6600 handset uses software based on the open-source visual codes toolkit developed by Michael Rohs to recognize bar codes. Parikh cofounded a company in India, ekgaon, to test the concept. Under a contract with CARE India, ekgaon is supplying the phones and software to more than 700 microfinance cooperatives.
CAM supports distributed collection and dissemination of data by assigned agents of the microfinance cooperatives. The system retains the familiarity of paper forms and account books enhanced with barcodes. The multimedia interface keeps the process accessible to rural users without exceeding the capabilities of mobile devices.
For the supporting organizations, the system is easy to localize, program and use, even if a phone doesn't support local languages, such as Tamil. Multimedia involving bitmapped images of textual prompts and audio recordings of responses helps get around this. Because network coverage and bandwidth may not be reliable in rural areas, data transmission is based on asynchronous networking using SMS and other SMTP-based protocols.
For Parikh, the acceptance and success of any system depends on engaging local stakeholders, both as part of the design process and as owners of the resulting solution. CAM incorporates input from customers, MFI agents, village leaders, NGOs and self-help groups. "This is the only way to ensure longterm sustainability and benefit," he says.
Parikh advises the same approach whenever big business deploys a mobile infrastructure. "Incremental deployments, where local entrepreneurs can play a role in financing, deploying and maintaining infrastructure in exchange for some revenue stream, are a great approach, for many of the same reasons," he says.
Now an assistant professor at the University of California Berkeley School of Information, Parikh was named 2007 Humanitarian of the Year by Technology Review magazine.
The Consultative Group to Assist the Poor (CGAP) is testing a wide range of branchless banking technologies. Housed at the World Bank in Washington, D.C., CGAP is a consortium of development agencies working to expand access to financial services for the poor in developing countries. The group acts as a resource center for the global microfinance industry, supporting and studying innovations in business models, technology systems and regulatory regimes.
Backed by a $24 million grant from the Bill & Melinda Gates Foundation, CGAP began supporting its first technology pilot projects in Colombia, Kenya, Mexico, Mongolia, Pakistan, Philippines, South Africa and the Maldives in early 2007. The branchless banking technologies under development in these studies range from mobile payments, deposits, transfers and credits; to point-of-sale agent services at retail outlets; to back-end integration; to credit and debit cards; to biometric and other security measures; to "mobile wallets".
Such new business models will rely on innovative partnerships between private industry, grassroots groups, local businesses, global NGOs, governments and, increasingly, telecoms.
Two fundamental realities shape the CGAP initiative. First, mobile phones are the first communications technology in history to be more popular in developing countries than in developed nations. Second, reducing the costs of transactions and reaching rural customers are the keys to providing inclusive financial services to poor communities.
CGAP technology analyst Kabir Kumar describes the experience of one of the CGAP teams in Mongolia. The example proves how mobile banking and mobile telephony are mutually supportive, even when a community has no previous experience with mobile phones. The team arrived in a remote village only three or four days after the first phones had arrived and wireless service was initiated. The Mongolians were already asking, "What else can I do with this device besides voice?"
"Cost, trust and training are among the challenges to adoption, implementation and maintenance, especially in remote areas," Kumar says. "Those challenges are being met by a range of actors, from handset manufacturers to operators to telephone equipment manufacturers. [They] are all seeing opportunities in grassroots markets and are coming up with solutions that are cost effective," he explains. In every scenario, there is always a compelling value proposition for the customer, for the partners providing the services and for the third-party retailers who are increasingly part of the business model.
Kumar points out that the lessons of mobility for microfinance institutions are not that different from those for large enterprises. "Solutions don't have to be feature-rich to be effective."
MOBILITY = PRODUCTIVITY
Unlike Americans, who migrated to wireless networks after more than a century of ubiquitous landline service, many poor nations were never able to establish a landline infrastructure. Today's mobile phone user in the Third World has often leap frogged to mobile calling directly from having to walk to town in order to have a conversation.
The very specific link between mobile communications and economic development in poor countries is well demonstrated. For example, when fishermen can call ahead to decide where to sell their catch, they get better prices and so do the end customers. Meanwhile, CAM-based systems are being tested by Guatemalan coffee growers who must document their farming practices to get the best prices for their crops under fairtrade and organic produce programs.
Equity Bank's mobile banking vehicles represent only one of its experiments in Kenya. The country has 10 million mobile phones in use only five years after the first wireless networks were introduced. In 2006, Equity launched an SMS-based phone banking service to use phones for a variety of payments, transfers and notifications. Within 10 months, 60,000 customers had processed 500,000 transactions. In September 2007, the bank began piloting a second service that facilitates transactions via a USSD (unstructured supplementary service data) menu-driven mobile phone interface and a voice-activated (IVR) phone menu service on a VISAand Mastercard-certified platform.
The London Business School estimates that every 10 percent increase in mobile phone ownership in a developing country is worth an extra 0.6 percent of economic growth. In fact, Grameen Phone founder Iqbal Quadir claimed to the Economist magazine that the 10 million phones they have sold in Bangladesh have connected 100 million people and increased the country's GDP much more than all of the foreign aid to the country.
This is one reason why mobile networks have taken off in Latin America, Asia and especially Africa. In Nigeria for example, 30 years of telecoms monopoly resulted in only 450,000 landlines. Since GSM networks were introduced in 2001, however, more than 32 million mobile numbers have been signed up, according to industry reports.
What University of Michigan business professor CK Prahalad calls "the bottom of the pyramid" are the 4 billion people around the world who subsist on less than $2 per day. A report released last March by International Finance Corporation and World Resources Institute estimates that even in poverty, those 4 billion people amount to a $5 trillion market for appropriate goods and services.
Many global enterprises (including the world's financial giants) are getting involved in grassroots development efforts such as microfinance. In the process, some companies are also discovering that these efforts are a rich source of inspiration, innovation and even profit for their mainstream business lines. In other cases aggressive, for-profit startups are partnering with big companies to develop products and services for the booming microfinance industry.
Longtime journalist Steve Barth, a founding editor of Knowledge Management magazine, now serves as advisor to an Asian government bank with more than 77,000 village microfinance groups.