Where the banks cannot reach, the ingenuity of the mobile phone is proving too essential in reaching across poor populations around the developing world to providing micro financial services that may help push unbanked millions out of poverty.

Now policymakers around the world are seriously considering turning the simple mobile phone into micro banks that would provide that push.

Despite regulatory challenges and the financial crisis, policymakers are embracing mobile banking as a means of providing financial access to the unbanked poor.

Africa represents the largest population of the world’s poor and, together with Asia, may gain tremendous benefits from this growing shift to branchless banking.

A case study in point is Kenya’s M-Pesa mobile banking service offered by Safaricom, the largest provider in any east and central Africa nation by registered users. Recently, Zain also launched the Zap cash transfer service across a number of countries where it operates.

More than a billion people worldwide lack bank accounts, but do have mobile phones, providing a dramatic opportunity to achieve greater financial inclusion, a meeting in the United Kingdom organized by the  Consultative Group to Assist the Poor (CGAP) was told.

CGAP, an independent policy and research center based at the World Bank, is dedicated to advancing financial access for the world’s poor. It is supported by over 30 development agencies and private foundations who share a common mission to alleviate poverty.

“Mobile banking services offer millions of poor people a route out of poverty by helping them to improve their incomes and pay for healthcare and education,” said Mike Foster, UK Minister for International Development.

“It is vital that policymakers ensure that the needs of the poor are central as they develop regulation for this innovative and emerging sector.”

The meeting for high-level policymakers and regulators who set policy for branchless banking, including mobile banking, was called to promote effective regulation of mobile banking, with UK government’s international development arm, the Department for International Development (DFID), and the Alliance for Financial Inclusion (AFI) in attendance.

Together, the three organizations boost of an array of experts who believe that going the mobile banking way in a massive scale could provide an easier route to addressing global poverty.

AFI is a global network of policymakers in developing countries that provides its members with the tools and resources to share, develop and implement their knowledge of evidence-based financial inclusion policies that deliver tangible results.

DFID supports long-term programs to help eliminate the underlying causes of poverty. DFID also responds to emergencies, both natural and man-made. DFID’s work aims to reduce poverty and disease and increase the number of children in school, as part of the internationally agreed UN ‘Millennium Development Goals’.

CGAP, on the other hand, provides market intelligence, promotes standards, develops innovative solutions and offers advisory services to governments, microfinance providers, donors, and investors.

“Mobile banking holds great potential, and CGAP is encouraged to see that governments everywhere are being deliberate and thoughtful as they merge the domains of finance, payments, and telecom to create a framework that balances customer needs with concerns around security and prudential regulation,” said Elizabeth Littlefield, CEO of CGAP.

Participants attending the meeting represent countries where branchless banking is growing quickly, or is poised to do so soon: Argentina, Bangladesh, Brazil, Colombia, Egypt, India, Kenya, Maldives, Mexico, Pakistan, Peru, the Philippines, Russia, Rwanda, Sri Lanka, South Africa, Tanzania, and Zambia.

Core issues around regulating mobile banking
Mobile banking is a triangle, with customers and providers joined by local merchants that act as the crucial interface between poor people’s electronic value on their phone and the cash economy in which they live. Special challenges these services present for policymakers include the following:

• Allowing non-bank third parties, such as local merchants, to conduct “cash-in/cash-out” transactions and interact directly with customers.
• Adapting the anti-money laundering and combating the financing of terrorism rules (AML-CFT) so they are based on real risks and are adapted to the realities of transactions conducted through remote agents.
• Figuring out the right regulatory space for the issuance of e-money and other stored-value instruments (particularly when issued by parties other than fully licensed and supervised banks).
• Determining how to ensure effective consumer protection (on a variety of fronts).
• Making sure payment systems are open to all players and adequately supervised.
• Getting the balance right in competition policies — the right incentives for pioneers to get into the branchless banking business without allowing customer-unfriendly monopolies.

CGAP’s Technology Program is supported by the Bill and Melinda Gates Foundation.

Daily coverage of the meeting will be available at the CGAP blog site: http://technology.cgap.org.

Image credit: Courtesy of Kiwanja.net