Using Technology to Build Inclusive Financial Systems (CGAP Brief)

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

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Branchless banking – A study

Innovative use of information and communications technologies (ICTs) to inexpensively process a large volume of small transactions and deliver a wide range of financial services may help to make microfinance institutions (MFIs) more efficient and commercial banks more interested in serving poor people.

The paper substantiates this argument by listing the following advantages of branchless banking:

• Low hardware costs;
• Growing support infrastructure;
• Easy availability;
• Reduced delivery costs for banks;
• Inexpensive and convenient to use.

The paper:

• Presents details of the use of different kinds of ICT to provide banking services such as savings, credit, insurance, money transfers, etc.
• Discusses the potential profitability and viability of these channels for banks;
• Examines the use of these channels by poor and very poor people.

The paper identifies the following lessons that have emerged about branchless banking:

• Communicating with, and educating, the customer is the key to a successful channel;
• The operational risk involved stems from the need to accept, store and dispense cash;
• Government plays a critical role in stimulating banks to serve poor people.

The paper concludes with the following recommendations:

• Policy makers need to balance improved access with appropriate regulation and oversight;
• Further study is needed to understand what key design features will render technology channels comfortable, convenient and trustworthy to poor customers;
• MFIs must evaluate the challenges and opportunities created by technology channels.