1.6.4 Micro-finance and e-banking

This section looks at micro-finance, a leading application of ICTs, which can be provided through e-banking or m-banking.

Multi-stakeholder partnerships, including the public sector, the private sector and often non-governmental organizations (NGOs), are important for most development applications that exploit communications networks. However, the balance of public and private sector participation in the application programmes varies. Education and health applications are usually government-led, with strong NGO participation and some private sector partners. Other applications may be led by the private sector, with government and NGOs in support. Micro-finance is a good example of this type of application.

There is a widespread perception that appropriate financial services, including credit, savings, cash transfer and insurance, can help people work their way out of poverty. This is reflected in the “Nextbillion” initiative, which focuses on “development through enterprise” and provides a large database of activities that combine both business and development benefits [1]. The benefits often result from selling to poor people or production by poor people. Of the 16 Nextbillion activity classifications, six relate to financial services (and a further three to ICTs). The 2006 Nobel Peace Prize, awarded to Mohammad Yunus and Grameen Bank for pioneering achievements with micro-finance (and specifically with micro-credit for supporting small businesses), has raised the profile of this aspect of development.

The Grameen Village Phone programme was an early application of the Grameen Bank micro-credit services in Bangladesh. Suitably qualified women received loans to buy Grameen Phones so they could sell phone calls to their fellow villagers and generate income from which they paid back the loans. Similar village phone schemes have followed in many other countries. It is a tribute to the extensive growth of the mobile market and the village phone programme itself that in Bangladesh the village phone programme may no longer be very profitable in areas where the market has matured and shared as well as individual access is now widespread [2].

Of course, financial services designed for poor people pre-date telecommunications access in rural areas. However, these projects can grow significantly along with wider telecommunications access. The synergies of telecommunications networks and financial services can be regarded as a form of convergence.

New ICTs make it possible to provide financial services in new, cheaper ways, and to more people. Several projects in developing countries are exploring how e-banking using ICTs can spread access to financial services. The Practice Note Examples of financial services using mobile phones explains some of the main models for m-banking and describes several specific examples in different countries.

The intensive development work on e-banking holds great promise for the future [3], however, financial services often inspire mistrust, sometimes with good reason (e.g., excessive interest rates on loans). E-banking raises challenges for regulation separate from those of telecommunications services. For instance, funds must be supervised to provide prudent protection from loss, but regulation must not be so great a burden on service providers that transaction prices would rise out of reach of the target customers. A similar situation has been resolved in some countries of the EU where mobile phone operators are not regulated as banks if only small funds are generated by prepaid cards and needed for customer transactions [4].

Ways in which telecommunications policymakers and regulators could integrate universal access and service (UAS) and micro-finance initiatives are as follows:

Stay informed about rural financial service expansion;
Keep abreast of emerging value-added services with a financial component offered by telecommunications operators or over telecommunications networks;
Ensure that the responsibilities for regulating value-added services with a financial component are laid down clearly and understood widely. Financial regulators, not telecommunications regulators, might have the main responsibilities, but users will not be interested in the demarcation: they will expect to be protected adequately and are likely to see problems as defects in telecommunications services;
Take part in any national working groups on expanding financial services or e-commerce for poor people. Cyber-security, and user identity management, are prerequisites for the development of e-commerce; and
When formulating UAS programmes, aim where possible to support target areas and activities for financial services expansion.

End notes

See Development through Enterprise (WRI). This provides research reports, many case studies, and activity descriptions on micro-finance and several other topics.
See Unplanned Obsolescence (Richard Shaffer, Fast Company, September 2007), with the accompanying comments by others.
For two other sources of information and tools, see:

Consultative Group to Assist the Poor (CGAP). This is dedicated to “building financial systems for the poor”; it aims to support ideas about products, technologies, mechanisms for delivering financial services, and challenges of expanding micro-finance; it provides Microfinance Gateway for this purpose.
Sending Money Home. This is a tool to help people in several countries to find the best way to send money to other countries; it also provides to the Migrant Remittances newsletter.