Innovative credit

MOBILE BANKING

The biggest challenge facing Nepal today is high levels of poverty. Nepal’s Human Development Index (a composite index measuring average achievement in three basic dimensions of human development—a long and healthy life, knowledge, and a decent standard of living) now stands at 0.458, which is below the regional average of 0.54. Nepal also ranks in the Low Human Development group. Though Nepal has improved its ranking in HDI standing to 157, with the lowest ranking being 187, poverty has been persistent despite government efforts to combat it through national development programs. Poverty is perceived as inadequacy of incomes and deprivation of basic needs and rights, and lack of access to productive assets, as well as social infrastructure and markets.

Poverty is largely a rural phenomenon, and prevalence of absolute poverty in rural Nepal is high. The proportion of poor people has declined substantially in recent years. The percentage of people living below the international poverty line (people earning less than US$1.25 per day) has halved in only seven years. At this measure of poverty the percentage of poor people declined from 53.1 percent in 2003/2004 to 24.8 percent in 2010/2011. However, income distribution remains grossly uneven.The gap between the rich and the poor is very high, and is increasing at an alarming rate. This is reflected in the rising number of people without access to food, and with inadequate access to other necessities. The focus of micro credit on “poor” clients is almost universal, with varying definitions of the word “poor”.

PHOTO: STARVEABANKER.COM

However, innovative market-oriented products that combine flexible features with mobile banking may help farmers gain a more consistent income flow and improve their living standards.

Branchless banking through mobile phones (mobile banking) is probably the most promising innovation in rural finance in the last few years. Using a network of retail agents and the existing mobile phone infrastructure, potentially even distant and sparsely populated areas can be reached with reliable banking services. The first wave of branchless banking efforts focus on providing payment and money-transfer services. The next challenge is to link mobile money with a full range of banking services.

There are, however, significant examples of innovative mobile transaction schemes that hint at a radical transformation of the financial market landscape in that the business model addresses those without existing bank accounts. For example, mobile payment portals can now gain momentum as the central bank has officially recognised it as part of the branchless banking model. Nepal Rastra Bank (NRB) issued circular allowing branchless banking agents of banks to make payments through mobile phone technology. Earlier, the central bank had only authorised banks to consider Point-of-Sale (PoS) machine transactions under the branchless banking system.

Nimbus Holdings and Finaccess entered into an agreement to enable various businesses of Nimbus with a ubiquitous distribution network throughout the country—specifically in the rural parts and comprising over 500 dealers and sub dealers—to offer mobile financial service provided through the Hello Paisa Network. Mega Bank has recently announced a new scheme for its customers that will include a hi-tech and user-friendly banking service through mobile phones. Others which are often cited include Wizzit in South Africa, Globe in the Philippines, and M-PESA in Kenya.

In addition, there are mobile financial transaction models which make innovative use of existing widely-diffused financial service platforms, such as Visa, in order to deliver transaction services to under-served market segments. Interestingly, the most innovative of these mobile banking models, and those with the greatest potential of bringing significant benefits to consumers, are those addressing the needs of developing markets, which hitherto have been presenting difficulty in increasing the access to finance. Experience from Kenya shows that a wide spectrum of Mobile/branchless banking models is evolving.

The first wave of branchless banking efforts focus on providing payment and money-transfer services.

However, no matter which model is used, if it focuses on attracting low-income populations in often rural locations, banking agents—such as retail or postal outlets that process financial transactions on behalf of telecoms or banks—will be used. The agents are an important part of the mobile banking business model since customer care, service quality, and cash management will depend on them. Many telecoms will work through their local airtime resellers. These models differ primarily on the question of who will establish the relationship (account opening, deposit taking, lending etc.) to the end customer, the Bank or the Non-Bank/Telecommunication Company.

Mobile money has the potential to become a powerful tool for poverty alleviation. In developing countries, where financial services are scarce, mobile money provides an inexpensive and secure way to transfer funds. It also offers improved access to savings accounts, insurance, marketing and microcredit. Mobile banking can enable the farmers to save time wasted in visiting banks, thus letting them concentrate on farming and improving production.

The author is a VSO Livelihoods Volunteer

oliverbaraza2005@gmail.com