James Militzer

A Revolution in the Making: CGAP’s Greg Chen discusses how smartphones could transform financial inclusion and microfinance

China has been the world’s biggest smartphone market since it surpassed the U.S. in 2011. So when the news came out this week that smartphone sales just experienced their first contraction in six years, plenty of people in the tech industry took notice.

But while China’s market has begun to reach saturation, smartphones have been growing aggressively in other emerging economies. The world’s new leaders in smartphone growth? Latin America and the Middle East/Africa, which recorded growth rates of 59 percent and an unprecedented 83 percent, respectively, last year.

Greg Chen works as Senior Financial Sector Specialist at CGAP, exploring the ways digital technology is changing how people interact with their financial services. When we spoke at the recent World Bank forum on microcredit research, smartphone access was a recurring topic.

“I’m really excited about how the user interface of smartphones could potentially change how poor people are able to interact with their financial services provider in ways that they really can’t over conventional phones,” he said. He outlined three core changes he anticipates: First, smartphones will let users “move away from texts to a graphical interface. This could be quite powerful for people who don’t like to read or count or do other things over conventional means.” Second, “[users] might be able to navigate a menu more or click on a screen in a way that is much more intuitive.” And third, the devices could feed information back to users and prompt them verbally. “That would be potentially quite powerful, because as we know, many illiterate people much prefer to interact orally with their service providers.”

In spite of prices that have plummeted to USD $30 in some countries, Chen said that the commercial viability of smartphones isn’t quite there in most markets. And interestingly, the country that is drawing particular attention from CGAP at the moment is Myanmar. “It has not had cellphone penetration historically, and is going through a very rapid telecoms revolution as a result of its reform,” he explained. “And there is a very early high rate of use of smartphones even among the illiterate and poor of Myanmar. So we are wondering whether this is a country that might significantly leapfrog beyond the basic handset straight to an almost entirely smartphone-based market.”

Regardless of which country leads the way, it’s becoming clear that the rest of the developing world won’t be far behind. As Chen puts it, “If you look at the numbers, by 2020, countries like India might have 60 percent of adults using smartphones, including many below or at the poverty line.”

But how will this increasingly ubiquitous tool impact microfinance? And what does the industry need to do to navigate risks like over-indebtedness? Chen discusses these issues, outlines a useful potential application of digital access to credit, and tackles the touchy question of why the microfinance sector is so often accused of overstating its social impact in this video interview.

James Militzer is the editor of NextBillion Financial Innovation.

financial inclusion, microfinance, mobile finance