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Using Technology to Build Inclusive Financial Systems

This short note begins by arguing that banks will not aggressively target the poor as a market until they find ways to serve these customers profitably. It suggests that this will require delivery channels that are inexpensive to set up, a wider range of financial services to poor customers, and the ability to handle transactions at low cost. It notes that in developed countries, low-cost “direct banking” technology channels, such as Internet banking and automated teller machines (ATMs), process transactions at only one-fifth the cost of a branch teller.

This Focus Note attempts to answer the following questions through surveying the use of technology to deliver financial services to poor people in developing countries:

  • Can banking technologies, applied innovatively in developing countries, make microfinance profitable for formal financial institutions?
  • Would they reduce costs to such an extent that banks could profitably serve even those whom MFIs have mostly excluded to date, such as very poor and remote rural customers?
  • Will these customers be comfortable using technology?

Its main findings are that:

  • 62 banks and MFIs report using ATMs, POS terminals,8 and mobile phones to deliver services.
  • A handful of banks are reaching new customers by using ICTs to deliver services through retail outlets. But most banks simply migrate existing customers to technology channels to reduce costs.
  • Banks still have to build transaction volume and find ways to profitably lend in the informal sector using ATMs or POS channels.
  • Poor people are probably gaining access to services through these technologies, at least in Brazil and South Africa, but the service quality is uncertain. It is not known if poorer and remote people are benefiting.
  • Innovative channels are not possible without the right policies and adequate financial sector infrastructure in place. Managing cash security and liquidity at a wide network of terminals is the main operational hurdle.
  • Resource type
  • Author G. Ivatury
  • Organisation
  • Year of Publication2006
  • Region
  • LanguageEnglish
  • Number of pages19 pp.
  • EditionEnfoques (Focus Note)

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