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Filling the Gap: Mobile Banking in the Developing World

Jan 8, 2013

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Karen J. Bannan is a freelance editor and writer from New York. Follow her at @KarenBannan

In many parts of India and the Philippines, women hide the little money they save under mattresses or in various places throughout the house. That means it’s difficult if not impossible for them to say no when a relative or friend comes looking to “borrow” money. (Plus, the money is not secure or accruing interest). Because banks are often scarce and difficult to access for many people in Asia, a savings account isn’t an option for most, says Julie Peachey, program manager of the microsavings initiative at Grameen Foundation, a nonprofit based in Washington, D.C. and a partner of Qualcomm’s Wireless Reach initiative. 

These women are a third of the world’s population, or 2.5 billion people, who do not have access to financial services such as banks or credit cards. With no savings, most of them have little or no hope of climbing out of poverty. However, as mobile technology gains a strong foothold in developing countries, it is being used as a way to save money—and even earn some. 

Texting in Savings

In Indonesia, about 15,000 women use their mobile phones to sell payment and banking services to people in areas where such services are hard to come by. They are called RUMA (Rekan Usaha Mikro Anda) agents, which translates to “Your Microbusiness Partner.” 

Each agent purchases a base-model cell phone for $30 (or a smartphone for $100), and then pays about $7 per month for airtime. They can make approximately $1.10 per day acting as agents for utility companies, telecom operators and local banks, accepting payments, deposits and providing withdrawals. For the payment and banking transactions, they use only the cellular network; no Wi-Fi is needed. 

Considering that most of these agents were only earning about $2 per day when they began as RUMA agents —mostly by running food stalls or similar kiosks—this can lift them over the $2.50 per day income level that is considered the poverty line by the World Bank. 

RUMA agents give local families a safe, convenient place to transact, says Sean DeWitt, director at Grameen Foundation. “RUMA agents also [help] people with goal-setting and making progress,” DeWitt says. “The key is to define the micro steps that will lead to the achievement of macro goals.” And the agents not only act as conduits for financial transactions and savings for members of their community, they also use the system to save money themselves. DeWitt says that as their income increases so does the retention rate of the program. 

In the Philippines where Grameen Foundation operates one of its microsavings initiative, agents provide similar services to microfinance customers, who are encouraged and sometimes required to make small savings deposits on a weekly basis when they make their loan repayments. As the security of the transactions is extremely important, the customer can opt to have a PIN-, biometric-, smart card- or chip based client authentication mechanism, with the financial institution acting as the custodian of the money and daily transactions. In some cases, limits are put on the size of the transactions that can be done through agents. Transactions like enrollment, deposit, withdrawal, and balance inquiry are done via the customer’s SMS service. 

A Workable Business

There are a number of reasons the “banking by phone” model works in developing nations. First, there’s inherent trust and a solid reach of mobile phones in these countries. An estimated 1.7 billion unbanked customers worldwide have access to mobile phones, according to the Consultative Group to Assist the Poor, a nonprofit based in Washington, D.C. 

In countries with high poverty rates, there is about a 50% penetration for mobile phones, says McKinsey & Company, compared with 37% penetration for formal banking. In Nigeria alone, for instance, there are 100 million mobile phone lines. “For every 10,000 people, these countries have one bank branch and one ATM—but 5,100 mobile phones,” says McKinsey’s Christopher P. Beshouri and Jon Gravråk. 

This system benefits banks, too, since “mobile devices reduce the cost to serve customers by 50% to 70%, making it possible to offer financial services to a vast population once considered unprofitable,” according to a February 2012 McKinsey report. 

Trend on the Uptick

DeWitt says that this system is seeing a healthy increase in adoption. When RUMA launched in 2009, Grameen Foundation owned and operated the project.

“Fast forward to today,” DeWitt says, “We are now minority investors and no longer have staff built into the management. RUMA is a growing and expanding Indonesian initiative run locally.” 

And Peachey says that this kind of “catalytic work” gives people control of their fate. “There is a real sense of empowerment knowing one has a safe, confidential place to store hard-earned money and access it easily when needed,” she says.


This article is commissioned by Qualcomm Incorporated. The views expressed are the author’s own.

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Karen Bannan