The mobile banking phenomenom is one of the more exciting and unpredictable offshoots of the cell phone revolution in poor countries. People who until very recently had no phones and no bank accounts are now transferring money by phone.

M-banking is most pronounced in the Phillippines, where it started, but it’s heating up in Africa. Vodafone in conjuntion with Safaricom in Kenya recently launched M-PESA (“mobile money” in Swahili), initially with the intention of streamlining microfinance operations by allowing loans dispersal and repayment by cell phones. In three months, the service has attracted 175,000 subscribers, who aresigning up at the rate of 2,500 a day.

Nick Hughes, Vodafone’s head of international payments, told The New York Times (In Poorer Nations, Cellphones Help Open up Microfinancing):

“The idea was to reduce the cost of loan disbursal and recovery, but what we found was that customers were using it for person-to-person transfers.”

Customers don’t need a bank account, but can load money into their phones by paying cash at selected outlets, including grocery stores and gas stations. They then text money (“stored value”) to other cell phones.

The Vodafone/Safaricom m-banking case study is fully detailed in Innovations journal (MIT Press), in the current issue (M-PESA: Mobile Money for the “Unbanked” Turning Cellphones into 24-Hour Tellers in Kenya). The June 28th Economist has a piece on M-PESA called Dial M for Money. And, of course, there Chapter 9 in my book, Cell Phone as Wallet, which tracks the evolution of mobile banking. 

The Times’ article (above) also describes the way new technologies, including fingertip authentication, are being used by microlenders to extend the reach and efficiency of their lending operations.

The village-phone scheme pioneered by GrameenPhone in Bangladesh has been successfully implemented in Uganda and Rwanda by South Africa’s MTN, and in the Philippines by Globe Telecom. The common thread to these replications is consulting advice from the Technology Group at Grameen Foundation USA.

After several years working out the kinks and writing manuals to ease implemenation, Grameen Foundation has now released a Village Phone Direct kit, which it sells to microfinance institutions around the globe. The kit includes:

• Nokia mobile phone with earpiece
• External booster antenna for areas without strong mobile signal coverage
• Custom designed cables to connect the phone to the antenna and the recharging equipment such as a automobile battery or a solar panel

To complete the Village Phone Equipment Kit for the microfinance client, a SIM card and prepaid airtime, which can be purchased through regular outlets.

That’s 1,321 Philippine pesos, sent from London to Manila via cell phone, as described in New Conductors Speed Global Flows of Money from The Washington Post.

It’s no secret that remittances sent home by foreign workers eclipse both foreign direct investment (FDI) and foreign aid in many countries. In the Philippines, for example, remittances equal nearly 16% of total GDP. In India, nearly $23 billion is sent home from overseas, but just 3% of GDP.

Those numbers are going to increase, thanks to the cell phone, which is facilitating the process and speed of transactions, and dramatically lowering costs. Overall, anywhere from $250 to $300 billion in remittances are sent each year, with bank costs and fraud eating up 20-30% of the money. People in 17 countries can now send money to the Philippines by cellphone.

From a 2006 editorial in Dhaka’s The Independent, as quoted in You Can Hear Me Now:

“Further rapid increase in the use of cell phones is a good indicator of social progress. The fact that these phones are also being used widely by rural people is a happy trend in the reduction of distance in urban-rural communication.”