Welcome to the CGAP Virtual Conference on microfinance and mobile banking!  This conference is taking place right here on the blog, no registration is required. Just post your comments using the “Leave a reply” option at the bottom of each thread.

This discussion is moderated by Sarah Rotman, CGAP co-author of the Focus Note Microfinance and Mobile Banking: The Story So Far.

Mobile banking has become a subject of debate within the microfinance community largely because most MFIs believe that there are certain benefits m-banking can bring to their institutions. But what is the reality on the ground? We asked this question focused on three specific benefits:

1. Can m-banking help MFIs serve existing customers better? The case studies of SMEP in Kenya and XacBank in Mongolia show that m-banking can help existing MFI customers save time and money, experience greater security, and manage their cash flows with more flexibility. For example, at any time during the repayment period when a SMEP customer has the cash flow to make her repayment (or even a portion of the repayment), she can use M-PESA to send the electronic value to the SMEP account directly. Meetings with loan officers now involve a quick verification of the transaction. Obviously, customer willingness to pay a transaction fee depends on the previous cash collection method used. If customers were responsible for transporting cash to make their repayment, they may be willing to pay an M-PESA-like transaction fee. But if MFI loan officers collect cash, customers may want to protect their “free” cash collection rather than pay a fee to make the repayment.

2. Can m-banking help MFIs reach new customer segments? We found little evidence to suggest that m-banking has helped MFIs reach new customer segments largely due to the fact that microcredit methodology relies heavily on human interaction. The case study of Kenya Women’s Finance Trust (KWFT) shows that this particular MFI does not expect M-PESA to help it expand its loan customer base significantly since loan officers still need to have face-to-face interaction with groups. However, KWFT does see M-PESA as a way to mobilize new deposits easily and cheaply.

3. Can m-banking reduce costs for MFIs and for customers? Early evidence suggests that m-banking can reduce operational costs for MFIs and that these costs can be passed on to customers in the form of lower interest rates. The case study of Green Bank in the Philippines shows that once customers began using GCash for loan repayments, there was less need to send collectors to gather repayments directly. As a result, Green Bank agreed to reduce interest rates from a flat monthly rate of 2.5% to 2%, as well as reduce its service charges from 3% to 2.5%.

What do you think?

• Do these benefits outweigh the costs associated with linking into a mobile banking system?

• Do you think that new customer segments will eventually be reached through m-banking or will the group accountability of microfinance prevent this?

• Will both customers and MFIs see significant cost savings thanks to the use of m-banking technology?