managing risk.pdf

Managing Risk and Creating Value with Microfinance105Mobile banking still faces important challenges—from the perspective of technology development to operatorskills and client perceptions. Practical issues with mobile phones include small screens, tiny keyboards, limitedconnectivity, and unreliable connections in remote areas. Operators control the security of the system and mustcope with unreliable wireless connections from remote areas. Their interaction with wary clients can be thedifference between rejection and technology adoption on a large scale. Clients are typically resistant to newtechnologies and may be especially reluctant to trust their funds to a wireless system. However, client educationefforts can help to overcome such concerns. Those operational problems do not limit the potential for a broadmicrofinance revolution (covering loans, savings, payments, and remittances) through mobile phones.The Philippines’ financial sector, for example, has been a leader in leveraging mobile phones and networksto deliver cost-effective, high-volume, low-value transfer capabilities. Two of the country’s mobile networkoperators offer the functional equivalent of small-scale transaction banking to an estimated 5.5 millioncustomers (Lyman, Pickens, and Porteous 2008). One service provider, Globe Telecom, has partnered with theRural Bankers Association of the Philippines to offer its “GCash” service, which enables customers to use textmessaging to repay loans and to make deposits, withdrawals, or transfers from their savings account, therebyusing the network of GCash agents to deposit or withdraw cash.The Wizzit Bank in South Africa is another promising example of the use of mobile phones to transfer value toand from a financial intermediary. In 2002, Wizzit was conceived as a virtual commercial bank relying heavilyon mobile phones—there are no buildings or branch offices (Ivatury and Pickens 2006a). Wizzit allied itself tothe South African Bank of Athens to secure a banking license, and it began operations in 2005. Customers canuse their mobile phones, automated teller machines (ATM), POS terminals, and offices in the South AfricanBank of Athens to make deposits, withdrawals, loan payments, transfers between accounts, and internationaland domestic remittances and to effect payments for goods and services. As of January 2009, Wizzit had250,000 customers who are able to deposit and withdraw cash through their mobile phones (Lapper 2009).Through an alliance with Beehive, a rural MFI, Wizzit is also expanding to provide services to clients in moreremote rural areas.Network SystemsPOS terminals are often part of a network that is shared by financial intermediaries; clients from a number ofinstitutions can use the same terminals and agents to make payments. Sharing network infrastructure enablesfinancial institutions to achieve collectively the volume of transactions needed to cover the costs of the software,hardware, and the connectivity required to provide distributed payments services. Some MFIs, particularly inthe cooperatives sector, are working together to create economies of scale that enable them to reduce costs andto expand services by investing in new payment technologies.The Red Transaccional Cooperativa (also known as Red Coonecta), is a credit cooperative network formedin 2006 in Ecuador with help from the World Council of Credit Unions (Saavedra 2007). The high cost ofsetting up an office had limited the expansion of cooperatives. In addition, strong competition from commercialbanks limited the ability of the small MFIs to expand their portfolios. In response, the cooperatives decided toestablish a network to facilitate members’ nationwide access to services. The goal of the council’s support wasto use technology to integrate as many cooperatives as possible and to provide access to new service deliverytechnologies.The growth of the network has been impressive. During the first 16 months (through August 2007), the networkincorporated one agency per week and developed a network of 153 offices and 15 financial cooperatives (about