Responsible Finance Forum

Microfinance and Mobile Banking: Blurring the Lines?

Michel Hanouch and Sarah Rotman
01 August 2013
Source:  Consultative Group to Assist the Poor (CGAP)

In January 2012 a new banking business was about to emerge in the Philippines. After being in the wholesale microfinance lending business for two years, BanKO (which is licensed as a savings and thrift bank) was ready to jump into retail microfinance by using the mobile phone as its main channel. With years of experience at Bank of the Philippine Islands (BPI), Chief Executive Officer (CEO) Teresita Tan knew all too well the high cost of branch operations and recognized that leveraging the mobile phone would be critical to successfully establishing a low-cost business that was scalable. What emerged was a new microfinance bank that offered customers payment, savings, credit, and insurance products accessible primarily over the mobile phone and at BanKO’s 2,000 partner outlets. As a customer builds a savings history, she qualifies for loans that are directly disbursed into her BanKO account without any prior in-person due diligence.

BanKO represents a new business model that has emerged over the past few years since CGAP first wrote about the intersection of microfinance and mobile banking (m-banking). However, at this point, BanKO is an exception. Most microfinance institutions (MFIs) are still grappling with how best to leverage m-banking for their own operations based on their own legal and regulatory frameworks and operational contexts. This paper explores the latest evidence of how m-banking impacts the way MFIs carry out their core business and serve their customers, as well as the new business models that are emerging.