Mobile banking: what’s the price?

This past week I heard from a friend in the US who got the new iPhone. It looks pretty cool – smaller, faster, and even has the long-awaited cut/copy/paste feature. All for just USD $199…

But what if you used your phone to make a living? What if it had nothing to do with apps, downloading music or texting your friends?

Last week I interviewed groups that were getting loan disbursements and also followed up with existing Kiva borrowers. While the majority of clients were planning buy more merchandise for their general stores or small businesses, two women stuck out in particular: Rosa and Grimanesa. Rosa and Grimanesa invested in their cell phone businesses. As part-time jobs, they stand on busy street corners and charge people to use their cell phones to make local and long distance calls. Why would somebody pay to use their phones? It costs more to call a cell phone from a public pay phone, and you don’t get change back for coins that are deposited. In Peru a basic cell phone costs around $30 USD, and current rates are about 15 cents a minute to call other cell phones and and 10 cents per text msg. This is still too expensive for a majority to have mobile access, especially small business owners that are receving microloans.

These women’s businesses caught my attention because they were using a mobile phone as a means to make income – exactly the opposite of how frequently I find myself spending money on unnecessary apps and songs. And it also made think about mobile banking in microfinance. If these women are making a living with the cell phones, couldn’t mobile services also be a way to provide better financial services to them? After all, I followed up with Grimanesa via a cell phone call to discuss her Kiva loan.

There is so much potential for m-banking, especially to help lower administrative costs to borrowers in rural areas. What if Rosa and Grimanesa could make their loan payments on their phones, or charge others a nominal fee to do so? What if they could text updates to their loan officers? What if they were rural farmers and could get access to weather forecasts to determine when to plant crops or coordinate delivery times to markets?

My first reaction is to say that this makes perfect sense. It seems like an ideal way to incorporate technology into microfinance. However, there are cons that I didn’t see until spending time out in the field.

Monthly group repayment meetings are an important part of lending: they promote a sense of community, strengthen accountability, and also provide an ongoing forum for financial education. For example, last week I accompanied a loan officer who taught her group about the dangers of taking out loans to pay off other loans and then did a case study to demonstrate long-term growth strategies. Group members shared their stories and observations about local markets conditions, and also collectively decided how to help members who were struggling to make a profit. How much is this worth, especially to those who had to give up a few hours of work to come to a repayment meeting?

It seems contradictory: a cell phone has the capacity to keep us connected 24/7 and help us to make more informed decisions, but it can also isolate us. For many people, ordering take out or paying a credit card bill can be done on a mobile phone without any interaction. But we lose the intrinsic value of personal connections, and in microfinance, face-to-face time with other entrepreneurs and financial educators is invaluable. There are emotions that emoticons can’t capture – like an entrepreneur who just made her first profit – and 160 characters couldn’t cut it to describe the impact that it’s having on her family.

Does it make sense for MFIs to start transitioning to m-banking as cell phone service becomes more accessible? From what I’ve seen in the field, I believe so, but it will have to be done very carefully as to not undermine the strong sense of community that group loans promote. I’m sure that there are already some pilot programs underway that are facing these challenges, and I’ll be interested to hear follow-ups about m-banking with Kiva Field Partners such as K-MET in Kenya. CGAP’s technology blog has also had some interesting articles concerning m-banking.

And in the meantime, I just keep asking myself: what could Rosa and Grimanesa do with an iPhone?

Lee Bruner is a member of KF8 currently based in Cusco, Perú with Asociación Arariwa. He’s looking forward to hearing any ideas, comments or updates about mobile banking being used in the field!

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