Mobile Money for the Poor (MM4P)

Traditional banks are unable to provide low-cost financial services to low-income clients in rural areas. Over half of the 2 billion unbanked have access to mobile phones, but due to lower incomes and economic activity, and poorer infrastructure and regulatory environments, banks and Mobile Network Operators (MNOs) have not invested in these services in LDCs. The challenges include a lack of (or outdated) regulations that discourage moving unbanked populations into the formal financial sector, and a lack of understanding of the potential for digital financial services (DFS) and the DFS ecosystem.

The business case for branchless banking for low-income clients is not clear in countries with low-density population, a small market size and regulatory barriers. At the industry level the issue is that operations, technologies and products are introduced with little market testing or research. Providers are often driven by short term interests. Partnerships between MNOs, FSPs, value-chain actors and other stakeholders that are key to providing cost-effective financial services are not there. Many approaches are linked to banks due the need for liquidity at agent service points. Providers and their distributors need assistance in developing new models that take advantage of community organizations and other local infrastructure.

Urban males are the primary users of branchless banking and that use is limited to transfers. Expanding the range of users to include rural women is a key challenge. Growth in branchless banking is impressive, but anecdotes of fraud, system down- time, lack of agent liquidity, etc. impact clients’ trust in the system. As noted by CGAP22, if customers don’t trust the service and/or they don’t understand how to use it, then the target of full financial inclusion will be unrealized. Customers’ ability to use DFS is limited due to low education levels, lack of understanding of financial services, and experiences that did not meet expectations. Through several programmes UNCDF has been working with banks, mobile network operators, MFIs, regulators and consumers in challenging markets to reach the unbanked. There is need to harmonize these efforts to build a greater digital financial services portfolio.

June 2016
Financial Inclusion
Mobile Banking
Digital Finance