Reaching the ‘unbanked’ by mobile phone

Lionel Wijesiri

Access to banking services are still not equally distributed in our country, says a leading banker, Chandula Abeywickrema. According to him, 70 percent of the country’s population still lives without any direct access to formal financial system.

The most serious revelation is that out of the 1,100 bank branches run by the six leading banks, 50 percent are located in the Western Province where a branch is available for every 10,000 people.

In other areas, the figure can go up to 25,000 people per branch. In short, Sri Lanka’s poor, many of who work as agricultural and unskilled or semi-skilled wage earners or micro-entrepreneurs, are excluded from the formal financial system.

Banking services

To counter this issue of unfair accessibility, modern analysts agree that the mobile handset is paving the way to becoming the primary channel for distributing banking services to the unbanked.

A smart mobile banking model radically alters the economics of serving this emerging rural segment. For example, with the new technology, a grandmother in rural area can receive money from her son, working hundreds of miles away, with the beep of her cell phone. A housewife can buy groceries with a few punches of keys. Not a coin need change hands.

Experiences

This high-tech solution designed to help poor people who never have had access to banks, cash machines, or credit cards, are now implemented successfully in a host of developing countries. It is another example of using digital technology to fast forward development in remote areas.

One classic example of success of cell phone banking is South Africa. The system uses a patented security mechanism and requires only a mobile phone and a government-issued identity number to subscribe. There are no monthly charges, only fees for each transaction. Each account is linked to a nationwide ATM card that can be used to deposit and withdraw money.

The Indian experience is also noteworthy. I have seen how mobile banking system operates in India. I remember speaking to Ram Joth Kumar, a fruit vendor at Purvanchal region of Uttar Pradesh.

He does not go to the bank, 20 km away, when he wants to transact business with it. Instead, it comes to him, in the form of Ashmit Saha, a young man equipped with the tools of mobile banking. Saha even speaks Bhojpuri, the one language with which Ram is comfortable.

Across India, banks are using ‘correspondents,’ or people who effectively serve as extensions of branches, in an effort to reach out to clients who do not have access to banks and banking services. One bank is using dabbawallas, the men who ferry hot lunches to office-goers across the city, as its correspondents.

Benefits

Apart from increasing reach, the correspondent model reduces a bank’s transaction costs. Banks pay correspondents a nominal salary and a commission on top of this; the magnitude of the commission is a function of the number of transactions conducted, customers acquired, or deposits mobilized by the correspondent.

Mobile banking could be another area in which the developing world can leapfrog the developed world. It is far easier to bolster rural cell coverage than it is to build countless bank branches to serve millions of people tucked away in remote areas.

Mobile carriers

Yet, hurdles remain for wider use of mobile banking. Mobile carriers must have broad enough coverage to connect urban and rural users, as many remittances come from urban migrants sending money back to their family villages.

It can also be hard to convince villagers, many of whom are new to the concept of banking, that a virtual bank is a safe place to stash their hard-earned cash. However, once their initial fears are dispelled, easier access to banking will encourage rural people to save more, and to put their saving to better use.

In Sri Lanka, nearly 9 million now have cell phones; that is, technically half of our population uses mobile phones. Surveys reveal that the phones are well distributed among the rural sector and growing each year. This means that the technology is already in place for the introduction of mobile phone banking and what remains is action to serve this deserving and growing market.