Banking Off The Third World
In many third world countries, where bank branches are few and far between, the development that finally may make financial services practical for the rural poor fits in the palm of a hand. Mobile devices like cellphones have the potential to effectively bring financial markets to the countryside, allowing banks and other lenders in urban areas to provide services like loans and savings accounts to a new population, according to a report by Vodafone and Nokia published last week.When Vodafone began a pilot microfinance project in Kenya in 2003 using mobile phones, said Nick Hughes, head of international payment services for Vodafone, “the idea was to reduce the cost of loan disbursal and recovery. But what we found was that customers were using it for person-to-person transfers” to make loan payments. As a result, three months ago, the company introduced a commercial program in Kenya to make payments possible by cellphone. Customer use has grown. One reason Vodafone has seen rapid growth in Kenya is that the formal banking sector reaches just 19% of its 36 million people. Jamii Bora, the largest microfinance institution in Kenya, has more than 150,000 borrowers.
Jamii Bora allows Kenyan clients in remote areas to make loan repayments, receive disbursements and conduct other transactions electronically. Once a client has logged in with a fingerprint, authenticating their identity on the point-of-sale device, they are connected to the central database in Nairobi. Geraldine O’Keeffe, director of implementation and support at Craft Silicon, the company that adapted point-of-sale devices for Jamii Bora, said she had seen other attempts to upgrade microfinance technology fail because of the cost of communications. The technology has allowed Jamii Bora to centralize operations and introduce a transparent accounting system to administer the loans and other services it provides, like health insurance. In doing so, the company said, it has increased efficiency and reduced the risk of fraud. If that reduces its operating costs, making the organization’s business more sustainable, Jamii Bora said, it could lower the size of its average loan from $95 and still break even.
