CGAP has undertaken a major expansion of its commitment to learn how technologies such as mobile phones and card-based networks could enable many more people, especially  the poor people who live in isolated rural locations, to be reached by financial services. The $26 million technology program is co-funded by a four-year, $24 million grant from the Bill and Melinda Gates Foundation.

Most of this funding will support demonstration projects to expand access to financial services with technology solutions. Project planning is underway in Colombia, Kenya, Maldives, Pakistan, the Philippines, and South Africa.
 “Traditional banks have historically had a hard time reaching poor people in rural areas,” says CGAP Technology Program Manager Gautam Ivatury. “For example, only one in four adults in the Philippines has a bank account, and most live in urban and suburban areas. Getting financial services to the poorest, most rural people in the Philippines has remained more of a dream than a reality.”

CGAP plans to partner with G-Cash, a service of Globe Telecom. to see how remote areas could be better served by mobile phone banking.

Apart from remittances, G-Cash has also been used by microfinance customers of rural banks in the Philippines to repay their loans. A pilot found that customers could make their monthly loan payments remotely without traveling the distance to the nearest rural bank branch by simply sending a text message with their available G-cash. The bank in turn saw savings from collections that they could translate into lower interest rates.

“They may not have an ID card, or they may not have certain basic things that banks require people to have to open an account. In many cases, people are not employed on an annual basis. They don't have regular sources of income. And then that puts them outside the banking system,” says Kabir Kumar, a microfinance analyst at CGAP who works on mobile phone banking. “In some cases people are eligible and they might be able to access a bank account, but they don’t live near a bank branch and have to travel long distances to even do basic banking services.”

CGAP Projects

•Credibanco Visa (Colombia) - Visa's acquiring network in Colombia will work with banks to acquire customers and establish an agent network to offer banking transactions over POS system.

•Equity Bank (Kenya) - This fast-growing mid-sized bank will develop a rural agent network with mobile phones and POS.

•FSD Trust Social Protection Payments Challenge Fund (Kenya) - This effort will support technology solutions to deliver financial services and distribute social protection payments to vulnerable populations.

•GXI, Inc. (Philippines) - GXI, part of Globe Telecom, the country's second-largest mobile telephone provider, will offer "mobile wallets" and cash transfers at airtime dealers in remote rural areas.

•Maldives Monetary Authority (Maldives) -This project, in cooperation with the Maldives government, aims to achieve universal access to banking and reduce cash usage through an interoperable m-banking system and a nationwide agent network. This project is being joined by the World Bank.

•Tameer Bank (Pakistan) - This microfinance bank will use POS-equipped banking agents and mobile phone banking to extend financial access to previously excluded populations in urban, rural and peri-urban locations.

•WIZZIT Bank (South Africa) - WIZZIT will extend transaction banking to unbanked farm laborers, rural households and inhabitants of smaller towns via mobile banking and a Maestro debit card.

•XacBank (Mongolia) - This microfinance bank will test mobile banking and an agent channel to reduce cost of service in remote areas.

Savings Passed to Clients

While the promise of mobile phone banking is huge – there are now three billion mobile phone connections globally, bank card solutions also are of great importance. With either platform, a “banking agent” – such as a retail shop or post office – is often needed to bridge the last kilometer (or even meter) between a customer and a banking service.

Banking agents offer the potential to deliver financial services in rural and remote locations in a viable way. Agents enable a bank or microfinance institution to increase point-of-sale coverage without incurring the high cost of building a bank branch.  Because a bank’s agent network has low set-up and operational costs, these savings can be passed on to clients, allowing poor people access to quality, low-cost banking services.

“What’s innovative about this is that you piggy-back off existing infrastructure – the local pharmacy, supermarket, or post office. That means you can reduce set-up and operating costs, reaching further into remote areas where typically transaction volumes are too low for a traditional bank branch to pay for its operation,” says Hannah Siedek, a microfinance analyst. “The tricky part is that banks have to understand how to set this up internally and recruit and manage banking agents. Adapting products for these rural customers and financial education is crucial, as well.”

Banking agents have another advantage over bank branches. Poorer customers, especially those with limited reading and math skills, are often more comfortable at a local retail store rather than an intimidating bank branch. Customers may know the merchant, and so are less hesitant to ask for help with a transaction.  

Today, Brazil is one of the most developed markets in terms of using banking agents to increase the financial system’s reach.  The impact on access to finance is obvious: Seventy-four institutions are currently managing around 90,000 points of sale. Within only five years, these institutions opened 12.4 million new bank accounts across the banking agent network. The network today comprises 56% of all points of sale in the Brazilian financial system.

Despite these early gains, the agent business model continues to evolve. Providers in different countries continue to experiment with different operational approaches to reach profitability. CGAP's work with Credibanco Visa in Colombia provides one example.

This store in Philippines acts as a banking agent, taking and receiving cash on behalf of the G-Cash service.
Photo by Kabir Kumar

Just over one in three adults in Colombia has access to basic financial services. Among those most affected are low-income people who may not be formally employed, may live far from a bank, or do not have a safe place to store their money. Often they are unable to borrow money without paying exorbitant rates to local moneylenders.
Working with CGAP, Credibanco, the Visa card acquiring network in Colombia, seeks to extend and adapt its technology and service infrastructure to help the country’s banks reach low-income customers by establishing a banking agent network.  

Accounts to Be Opened on the Spot

Mobile vans provided by Credibanco will connect to the information systems of partner banks using satellite technology. This will allow them to open accounts on the spot and process debit/credit card transactions in remote and underserved communities. In parallel, Credibanco will help the banks contract and train a local banking agent that can immediately accept customer deposits, disburse new loans, and conduct bill payment. These services will be available immediately after sign-up is completed.

In mid-2007, Credibanco began to roll out this service with a partner bank, Banagrario, in a small town called El Pozon, near Cartagena in the north of Colombia. To market the banking agent service, Banagrario staged a music concert, food fair, and gave away promotional materials. The sign-up vans immediately drew a crowd. Potential customers went through a 25 minute orientation, part of an effort to ensure that they understood account terms and prices. Moving around on foot through El Pozon, credit officers allocated around 30 small loans. In its first week, Banagrario already had opened 80 new bank accounts.

"Mobile phone banking and other emerging applications will revolutionize financial markets in rich and poor countries alike,” says Elizabeth Littlefield, CGAP’s Chief Executive Officer.  "At long last, the cost reductions and increased reach made possible by such technologies should enable us to serve remote areas and poor people viably, offering services we never dreamt possible a decade ago. However, while customer acceptance is driving spectacular growth in applications like G-Cash in the Philippines, we still have a long way to go in adapting regulations, understanding customer needs, and designing customer-friendly products.”