Mobile technology revolutionises microfinance operation

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Md. Shohel Rana Few people would today refute the fact that mobile technology is one of the innovations of the 20th century that has had the most impact on our lives. Coupled with the advent of 3G technology, broadband Internet connections and fibre optic cables, mobile devices have revolutionised the way by which we communicate, conduct business and share knowledge. While mobile phones might not be as ubiquitous in developing countries, more and more households - and in some cases entire villages - own a phone or have access to a shared phone. In its report titled "Measuring Financial Access Around the World," CGAP (Certified Government Auditing Professional) estimated that in 2010 2.7 billion (72 per cent) of adults living in developing countries were unbanked, and that by 2013, 2.0 billion of these people will have a mobile phone. Besides, the development of mobile and branchless banking has been steadily gaining momentum over the last 10 years. Microfinance is now widely accepted as a poverty reduction tool in our country. Nonetheless, modern microfinance is not without criticism. It has been observed that high interest rates are charged and costs, associated with providing financial access to a segment of the population that is deemed too risky by most formal financial institutions, are also high. High operational costs relating to the high touch, labour-intensive nature of the business model and the need to build brick and mortar branches in remote areas are reflected in the high interest rates. It is therefore a primary objective for the microfinance community to examine ways in which operational and infrastructure costs can be reduced. As a result, many donors, experts and MFIs became convinced that using mobile financial services (MFS) is more convenient and efficient, and less costly, than the traditional high touch model for delivering microfinance services, especially when targeting the unbanked poor living in remote areas. In mobile financial services ecosystem, the account provider will manage the clients' accounts and the MFS provider will host the mobile money platform over which transactions will be recorded which can be a financial institution (Brac Bank, Grameen Bank etc.). Mobile financial services cannot, of course, be delivered without the existence of a mobile telephone network that makes it possible to carry the data from one mobile device to another. Here the account provider can deal with the mobile network operators (MNOs) to operate like Brac Bank's bKASH. The agent will operate the cash service point where the customer does cash in and cash out transactions. The agent will also register new customers and convert their virtual money to physical cash. The system will use pre-determined transaction codes to allow the mobile platform to communicate with the core banking system and help determine the type of transaction such as LR for Loan Repayment, C BAL for Balance Enquiry etc. All transactions that are carried out "virtually" via mobile money have to be mirrored by the physical movement of cash within the financial system. The accounts of the users and the bank accounts in which the funds are pooled, either in real time or at least several times a day, have to be re-conciliated between the cash in/cash out points (agents). In reality, ensuring that MFIs successfully implement MFS requires a carefully thought-out change in leadership strategy, starting with the compelling business or social mission case for adopting MFS. By serving a greater number of unbanked poor, MFS can be a powerful means of achieving greater financial inclusion in the country. The writer is an MBA student, Department of Finance, University of Dhaka. [email protected]