by Fehmeen, Microfinance Hub –

Microfinance-based mobile banking, is a high-penetration service, with plenty of growth potential in various economies, such as Kenya, Philippines, Uganda, Ghana, and now Pakistan. Success in this field is not so much the result of luck, as it is a result of environmental factors and well-thought out strategies and tactics that can be considered best practices in this new market. CGAP and GSMA documented these practices and trends over time and the author of this post has divided them into four broad categories, each one of which is an individual post in a series of four:

External factors (including economic and legal conditions) favourable for mobile banking (this post)
– Marketing best practices in mobile banking,
– Supply chain best practices in mobile banking, and
– Addressing risks in mobile banking.
The second, third and fourth articles will be posted over the next couple of weeks, so remember to subscribe if you want a notification of the posts.

4 Economic Conditions Important for the Success of Mobile Banking
It’s all about the masses (tapping into the volume of potential subscribers).

1. Economic Condition 1: A High Poverty Rate
All of the countries mentioned above have over 10 million people living below the poverty line (CIA World Factbook) and this creates a vast market for microfinance, and hence, mobile banking.

2. High Economic Growth
Each one of these countries is a high-growth emerging economy, with a high degree of urbanization, which means there is a plethora of migrant workers in cities who may send money home (remittances) to their families in far off villages, through mobile banking money transfers.

3. A Dense Population
Penetration of mobile banking services is easier in highly dense regions. Population density increases as a result of high urbanization levels, caused by workers who migrate from rural areas to large towns or cities to seek economic opportunities. As mentioned earlier, this improves the flow of money between rural and urban centres through remittances.

4. Access to financial service
A majority of workforce in these countries have access to some form of financial services (formal, semi-formal and informal) which they used to take on loans, save funds, or transfer money to their families in rual areas. This trend bespoke an opportunity for mobile banking to succeed by substituting other financial services (i.e. loan sharks, illegal money lenders, banks, etc.)

Regulatory Framework That Impacts Supply Chain of Mobile Banking
Non-Bank Models
Progressive regulations by the central banks in Kenya and Philippines permit telecom operators to handle mobile banking transactions purely on their own, which lowers barriers to entry in this market. The scope of banks, if any, in non-bank models is limited to the safe-keeping of surplus funds.

Purely bank-led models
Prudential regulations in Pakistan, Tanzania, and China only allow bank-led models to offer mobile banking because it lowers to risk of handling the public’s money. Telecom operators may purchase stakes, or partner with commercial or microfinance banks. Stringent regulations hinder competition; yet, they allow the safe distribution of a broader range of mobile banking services, such as micro-savings, micro-insurance, and microloan payments.

This concludes the first post in a series of four. You may wish to read other articles about mobile banking, or other areas in microfinance.