Branchless banking through mobile phone
Interest in micro savings—beyond just micro credit—has grown just as Microfinance practitioners have come to understand that small loans are not always appropriate for poor people. After all, a loan becomes debt, and the poor are exposed to crisis if an expected source of funds for repayment evaporates.
Thus, borrowing is often riskier than saving. For example, a woman could save or borrow to buy a sewing machine. If a child falls ill, savings could be tapped to pay for medicine; debt repayment might preclude medical treatment. Furthermore, although not all people are creditworthy or want debt, all people are depositworthy and want assets. Of course, saving requires current sacrifice, and with saving—unlike borrowing—the sacrifice precedes the reward. On the other hand, saving offers flexibility, and while borrowers pay interest, savers earn interest. Also, the choice to save is voluntary; once indebted, repayment is mandatory. Both savings and loans have a place, but saving is often a better choice for poor people, said Thilaksha Kodithuwakka, brand manager at a private bank.
Not all poor people are "budding entrepreneurs. . . . for people living in poverty, perhaps it is access to a savings account . . . that needs to be the core service on offer."
The poor use financial services to turn small, frequent cash inflows (such as from daily milk sales) into usefully large sums (perhaps to buy a cow or land). They may also use financial services to turn large inflows (such as monthly salaries or proceeds from the sale of a cow) into small, frequent outflows (such as daily food purchases).
Accumulated savings can also buffer expected or unexpected spikes in household expenses due to childbirth, school fees, home repairs, life-cycle celebrations, or widowhood (by death, divorce, or abandonment). Savings may also cushion familial risks due to illness, theft, or job loss or structural risks due to war natural disasters such as floods, Landslip or fire.
Finally, savings allow people to take advantage of unexpected investment opportunities. As stored resources, savings are useful for a wide range of purposes.
Culture of Savings of Poor
Generally Poor people use informal savings to smooth consumption, to prepare for emergencies, and to fund large purchases. The existence of these mechanisms shows that poor people want to save and work very hard to do so.
What do poor people value in a savings product? Research on informal savings mechanisms ( Rotating Savings (Seettu) and Credit Associations,(NayaDena samithi , Village savings ), and in-kind storage) suggests that people want low transaction costs and assistance with deposit discipline.
Transaction costs are the non-price costs to use of financial services. An example is the opportunity cost of time to make a deposit or withdrawal. Transaction costs also include indirect cash expenses for transport, food, or copies needed to open an account. For the poor, transaction costs can swamp all other factors in the choice of savings mechanism. Suppose, for example, that a woman has Rs100/- that she might save, If she must find someone to watch her children, ride a bus (fare 15/-) for an hour (one-way) if service is available otherwise ride a taxi, and stand in line for 20 minutes at the bank branch, then she may choose not to bother.
Basically this occurs in rural side of the country due to the unavailability of bank branches close by and lack of proper transportation. Therefore as mentioned above they tend to save money using informal mechanisms without approaching formal mechanisms (Bank accounts), which negatively impacts the country’s economy since these transactions are not routed through the formal banking system of the country."
Weaknesses of informal savings mechanisms
Informal savings mechanisms are useful, but they do not remove the need for formal services.
What does the formal offer than the informal does not? Formal savings services offer greater safety, higher rates of return and quicker access to funds.
People who have already received a Seettu pool may default on their debt by stopping contributions. In Annual Savings Clubs, savings are not immediately redistributed (as in Seettu) but rather accumulate, and the large sums may tempt treasurers to embezzle. In-kind storage is notoriously unsafe; cattle die, chickens disappear, male relatives drink bottles of alcoholic beverages, and insects or inflation eat cached cash. To deter the theft of the highest-value in-kind storage assets—jewelry—people attach it to their bodies. (In many areas, the home can never be left vacant, and it is usually women who must stay home.) Therefore formal savings services are usually safer than informal ones.
"Seettu" do not pay interest to savers. Annual Savings Clubs do typically pay interest on savings because they lend some accumulated balances out. Most types of in-kind storage depreciate and so have negative returns. In contrast, formal deposit accounts always offer positive interest rates. After inflation and fees are counted, the effective rate may be negative, but the typical total return still exceeds that of most informal mechanisms.
Access to funds
Financial emergencies are a fact of life for poor people, so they want quick access to their savings. Informal savings, however, either do not allow quick access or do so only through deposit-guaranteed loans. A Seettu member who unexpectedly needs funds can move to the head of the line in the next meeting (as long as she has not yet received the pool), but she cannot simply withdraw her accumulated savings. Members of Annual Savings Club can also get emergency loans but cannot withdraw their own savings. Finally, in-kind storage items can be liquidated, but distress sales fetch low prices and have high transaction costs. In contrast, withdrawals from bank accounts in banks are possible any working day.
Informal savings mechanisms throughout the world show that poor people save and that they value low transaction costs and external support for deposit discipline. Formal savings mechanisms might complement these strengths with safety, positive returns, and quick access to funds. However the problem is formal financial service providers do not see these poor people in the country as viable customers since their transaction sizes are small resulting in not allowing poor people to access formal savings mechanisms and keeping them in poverty forever. This will block growth of the economy and slowdown the development of the entire country.
It was recently reported that 70% of the population of our country have no or less access to formal financial intuitions resulting in having large amount as "Dead Money" which is not routed through the formal banking system.
Formalization of informal capital is thus the key to capital formation in the country. This has the great advantage that capital formation will be primarily in the hands of the poor, which will give them the strived-for opportunity to participate in the growth and development.
Therefore formal financial service providers should look at a way of tapping those poor people in a profitable manner. Banks should refocus their effort on "sachet marketing".
The idea is to think in terms of small sizes but large volumes, while not sacrificing brand focus.
How can financial institutions approach "sachet marketing"?
Technology and telecommunication is developing rapidly, these two tools will play a major role in making access formal financial services to the poor people. So, a simple method that can cut across communities needs to be developed in order to reach the target market. We should look at innovative ways of getting them to have bank accounts or do transactions through banks."added kodithuwakku.
Mobile phone banking
A Branchless banking channel using mobile phones could be far preferable to poor people than the available options; travel to and queuing at distant branches, and savings in cash or physical assets.
Many banks launched into mobile banking without a well- articulated idea of what Poor peoples’ problems are and how to address those problems.
What is the "it" in mobile banking? The mobile phone itself has unique features that make it a close substitute to other banking channels, but unlike those channels, it is everywhere. To be sure, mobile phones are likely to always be limited in functionality than a PC that is online or a specialized point-of-sale (POS) device, but because of inherent functionalities and its ubiquity, the phone is seen as a possible lower-cost alternative to banking via internet or ATM or point-of-sale.
The Branchless banking software which is a 100% Sri Lankan is already developed in order to provide financial services to the poor. The model is flexible, thus it can connect all telecom service providers and banks in one network.
The unique feature of this system is that the customer need not register with any of the telephone service providers. The service can be made available through any of the existing telecom service providers (Mobile /Fixed Line) and any language (Sinhala, Tamil, and English)
What you can do with Branchless Banking?
* Microfinance operations (Repayment of loans/ Pawning/ delivering of small loans)
* Fund deposits to your accounts
* Fund deposits to children’s accounts
* Fund deposits for other Accounts
* Fund transfers
* Payment for utility bills
* Credit card payments
* Payments for goods and services
* And more….
Expanding branch network or establishing stand alone ATM is very costly. Giving a POS machine to every merchant is not practical. However POS machine, ATM and Bank branch could be replaced with the use of an inexpensive mobile phone /land phone and it will easily give poor people a chance of using formal savings mechanisms.
Model is capable of
* Enhancing the Sri Lankan Economy
* Making peoples life easier
* Providing employment opportunities to unemployed people
* Making unbanked people to bank
* Operating as an inward money remittances service
* Reducing the network costs of banks
* Generating a fee base income for banks
This model aligns with Debt Reduction Strategy, Financial Sector Development and Reducing rural poverty of "Mahinda Chinthanaya" and Model can be implemented in any area of the country and the government can invest in this project where the infrastructure facilities are limited including North/East areas. This could spur fast paced development in these areas". Also the model could be expanded to other developing countries such as Indonesia, Nepal,Vietnam, Maldives, Etc….
The government support along with assistance of Banks is much needed to implement this new branchless banking model in Sri lanka and it could be implemented through "PROMIS" (Promotion Of The Microfinance Sector) program which is conducted by Ministry Of Finance and Planning or "Gamidiriya" project conducted by Ministry of Nation Building & Estate Infrastructure Development in order to uplift the living standards of poor people in the rural sector.
Overall the country too will benefit once this concept comes into place and it could promote the culture of savings and create a conducive atmosphere for people to transact with responsible and regulated institutions which will boost the economy by generating revenue for the government,he concluded.
The writer can be contacted at "email@example.com or 0777 330977"