Kristie Wang

Replicating M-Pesa: Mobile and Cloud Technology Spur Innovation in Financial Inclusion

Editor’s Note: This post is one in a series of articles highlighting innovations for financial inclusion. It was first published on the Ashoka Changemakers blog as part of the G20 Financial Inclusion challenge. Part one of the series can be found here.

Mobile technology and cloud computing are opening doors for low-income individuals and rural communities to financial services. High transaction costs and poor infrastructure have traditionally kept formal banks from serving the BoP. Today, firms like M-Pesa and Ekgaon are paving the way for affordable banking products tailored to the needs of the BoP.

This article, the second in our series on innovation in financial inclusion, examines the replicability of M-Pesa’s mobile money service and how Ekgaon’s mobile and cloud technology is bolstering the capacity of microfinance institutions in India.

Mobile money takes flight in Africa

In Kenya, mobile remittances have surged in popularity with low-fee services like M-Pesa (“M” for mobile, and “Pesa” for “money” in KiSwahili). Launched by the cell phone services providers Safaricom and Vodacom, M-Pesa operates independently from the banking system and allows users to pay bills and transfer money with just a few taps into a mobile phone. Small retail partners, like coffee shops and grocery stores, serve as cash points for deposits and withdrawals.

Wildly successful, M-Pesa has attracted 14.9 million subscribers since its launch in 2007 — that’s almost 70 percent of the country’s adult population. Another staggering statistic: Between US $7 and 10 billion flows annually through the service — at least one quarter of Kenya’s GDP.

But the question remains: Can M-Pesa’s success be replicated elsewhere?

Replicating the M-Pesa model

Other versions of mobile money (such as MTM Mobile Money, Airtel Money, and First National Bank’s eMoney) have been successfully launched in Uganda, Cameroon, Ghana, Cote D’Ivoire, Benin, South Africa, and Pakistan, most frequently through partnerships between telecommunications firms and banks.

However, no mobile wallet has replicated the lightening-fast and widespread adoption of M-Pesa in Kenya — not even M-Pesa’s own forays into other markets like Tanzania, Afghanistan, and India.

The reason has much to do with Kenya’s existing ecosystem and infrastructure. Kenya had a high population of mobile phone users, and a large number of urban workers who wanted to send money to their families in rural areas. Prior to M-Pesa, anyone who wanted to send money either had to pay a hefty transaction fee to Western Union or send cash via a bus driver and hope that it arrived. So a strong demand for low-cost remittances from customers already versed in mobile technology made market conditions ripe for M-Pesa.

Kenya’s ubiquitous national ID card also played a role in facilitating secure transactions and limiting fraud. (For more on M-Pesa’s success factors, see McKinsey’s analysis and this blog with photos by an Oxfam Shiftlabs Fellow.)

India’s untapped market

Examining M-Pesa’s success factors illuminates why India is comparatively behind Kenya when it comes to mobile money for the poor. Currently, most of India’s mobile banking users are those who already have formal bank accounts and are of the wealthier segment. More than 1 billion people in India are unbanked — an enormous untapped market.

Like Kenya, remittances are incredibly popular. Unbanked individuals must rely on taxi drivers who charge fees as high as 10 percent to send their wages back to their families. But despite this demand and India’s high number of mobile phone users (68 percent of the population), innovations like microsavings and mobile remittances for the unbanked have been slow to develop, partly due to the nation’s rigid regulatory environment.

Unlike Kenya, which allowed Safaricom to offer financial services, the Indian government only permits formal banks to collect deposits and transfer money. Due to stringent regulations, even most microfinance institutions (MFIs) are non-deposit taking, thus making savings and remittances far from reach for the unbanked poor.

Technology improving microfinance’s reach and sustainability

While savings and remittances remain limited to the formal banking system in India, technology is nevertheless boosting access to microcredit and other financial products, like pension payments. For example, Ekgaon has developed a cloud-based information management platform tailored to MFIs that serve rural customers. The free software includes a mobile application that enables microfinance officers to track transactions in real time in the field.

“We are addressing several key barriers to financial inclusion within the microfinance industry,” said Vijay Pratap Singh Aditya, CEO of Ekgaon. “The first is the high cost of doing business that is ultimately passed onto consumers in the form of higher interest rates. Instead of buying software, installing a server, and hiring staff to manage it, MFIs can use our open-source software for free and lower their operating costs by 25 to 30 percent.”

Ekgaon’s platform also shores up the historically inefficient information management systems MFIs use. To reach rural customers, MFIs have traditionally relied on field officers using paper-based recordkeeping to track loan requests and repayments. Without electronic information systems, transaction approvals and executions can be slow, and it can be difficult for MFIs to monitor the cash field officers collect and distribute.

With Ekgaon’s mobile application, however, field officers can communicate loan requests, receive loan approvals, and record cash transactions via text message to a cloud server. A manager can easily monitor any breaks in the journey cycle in real time. The end result is that the MFI delivers loans and collects repayments faster, tracks transactions accurately, limits fraud, and can ultimately stay in business and serve more customers.

Ekgaon is in the process of launching new software that allows MFIs to offer not only credit, but also insurance, mortgage payments, pension payments, and credit scoring. “By adding value to our free software, we are creating an environment that enables MFIs to provide more financial services and attract a broader client base,” Aditya said. “The customer, the MFI — everyone — wins.”

More opportunities for technology to boost financial inclusion

Mobile technology, cloud-based platforms, and better information systems all stand to spur new innovations in financial services. But it would be a mistake to ignore technology’s potential to address other key barriers to financial inclusion.

For instance, MFIs are still struggling to address the factors that led to the recent microfinance crisis that nearly toppled the industry: excessive lending, poor credit rating systems, and the inability of borrowers to repay their loans. Addressing the last point, Ekgaon provides farmers with a free advisory service that makes agricultural information and advice accessible via mobile phone.

“Technology is moving financial services in the right direction,” Aditya said. “But agriculture in India is suffering from a lack of innovation and services for farmers. Until productivity enhancement happens, rural borrowers won’t be able to repay their loans or afford insurance premiums.”

financial inclusion