NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Last week I attended to a conference at Chemonics International by John Owens on mobile banking (m-banking). Almost every writer on NextBillion has written blog posts about this new approach to banking. According to John Owens -chief of party for MABS from Chemonics International- m-banking is the future of micro-finance and rural banking, especially in remote areas – and many people agree. With the increase in cell phone sales in the past years, more people have cell phones and therefore banking services have a broader market base in which to operate.

The advantages of mobile banking are many. It provides a more secure way of making transactions instead of carrying cash; it facilitates transactions such as deposits and withdrawals; and it makes operations much simpler for micro-entrepreneurs.According to Business Week, Filipinos are the text messaging kings. They send an estimation of 200 million text messages on a given day. Chemonics has been leading the program called Microenterprise Access to Banking Services funded by USAID in the Philippines and it has proven to be of great success.

The new mobile banking service that the conference was about is called G-Cash. In a nutshell: an approximately 10 dollar cell phone is turned into an “electronic wallet” that people can use to send and receive all different types of payments via text message. People in the Philippines are using G-Cash to pay bills such as utilities, school tuition, as well as to purchase goods and services and receive their salary via ’text-a-sweldo’ or remittances from abroad via ’text-a-remittance.’

As of March 2006, 1.3 million people were using the G-Cash system, which handles about $100 million per month. This includes microenterprise clients using their phones to bank. “Using cell phones to send and receive money isn’t just something that big businesses can use,” said John Owens, chief of party for MABS since 2001. “It can change the way rural microentrepreneurs operate and make a living.”

I found this conference very interesting because this new approach to banking offers many advantages. First, it strengthens rural banks because they can provide more services and broaden their client base. Second, it reduces interest and transaction costs for the clients when they use these services and third, it is much more secure and simple in the rural areas of countries where banks and ATMs can?t make it and it goes a step further into having a cash-only economy.

“Text messaging is so easy for people to do,” said John Owens at the conference. “Text messaging and cell phones have changed the way Filipinos live and connect with each other–and we think it will change microfinance.”

To read more about the MABS project in the Philippines here’s the complete report.

Concluding, this model has proven to be a huge success in the Philippines. There are similar initiatives that have been covered on NextBillion such as WIZZIT, CelPay, Smart Money, ARYTY, and M-Pesa also CGAP has a really well documented report on M-banking and low-income consumers on the BOP. These projects are clearly a win-win situation between the people in the Philippines and the rural banks; it is interesting to see how well it is expanding.