Using Technology to Build Inclusive Financial Systems (Focus Note No. 32)

Publication Date: 2006
Published by: Consultative Group to Assist the Poor (CGAP)
Document Type: Paper

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This focus note provides an analysis of the current use of technology to deliver financial services to poor people in developing countries.

This focus note surveys the current use of technology to deliver financial services to poor people in developing countries. It aims to address the following questions:

• Can the innovative application of banking technologies in developing countries make microfinance profitable for formal financial institutions?
• Can they reduce costs so that banks can profitably serve the poor and rural customers?
• Will these customers be comfortable using technology?

The study finds that:

• Financial institutions are using information and communication technologies (ICTs) to deliver financial services to poor people;
• Banks are able to reach new customers by using ICTs to deliver services through retail outlets;
• It is uncertain whether technology channels will make microfinance profitable for banks, because banks still have to build transaction volumes and find ways to profitably lend in the informal sector;
• Poor people are gaining access to services through these technologies;
• Innovative channels in not possible without the right policies and adequate financial sector infrastructure in place.

The note describes:

• The various types of ICTs;
• The various ways in which these technologies benefit banks;
• The difficulties that banks experience in:
  • Making microfinance profitable,
  • Assessing the access of these technologies to poor people.

The note concludes by listing the factors that banks should address to effectively deliver services through ICTs:

• Implementation of supportive regulation;
• Perceived value addition to customers;
• Consumer education;
• Usability of the technology;
• Cultural fit.