By IPS Correspondents
BRUSSELS, May 23 2007 (IPS)

Mobile phone banking is expanding across the region from South Africa to Kenya and is putting the poor directly in control of their own finances like never before.

In Africa, traditional banking is not a viable option for many of the poor and those living in rural areas. High fees, low education and literacy, as well as long distances between banking facilities get in the way of simple transactions. According to the Consultative Group to Assist the Poor (CGAP), an estimated 80 percent of those living in the United Nations-designated least developed countries (LDCs) are unbanked.

However, technologies like mobile phone banking are contributing to overcoming these constraints.

Only one billion of the world’s 6.5 billion people have bank accounts, according to CGAP, yet about three billion have mobile phones. CGAP figures these new technologies will open the door to more than two billion people worldwide who currently do not have access to banking services.

Thanks to a 26-million-dollar partnership with the Bill and Melinda Gates Foundation launched in February, CGAP hopes to discover how to best use technology to deliver banking services to the poor around the world and “make it possible for people anywhere, anytime, to have access to all kinds of financial services,” says Elizabeth Littlefield, chief executive officer of CGAP.

“Poor people are very willing to use mobile phones as a basis for moving money around. In places like the Congo, mobile phones are used to transfer money around the country, circumventing the banking system as well as the more traditional money transfer,” she said.

The bottleneck in delivering microfinance services such as savings accounts, money transfers, and loans to the poor has been the cost of “making tiny little transactions” in sometimes rural areas using traditional banking practices. Yet mobile phones and other technology can cut the cost of such transactions and make widespread microfinance economically feasible.

“The bottom line is that there is no way you’re going to reach the last mile with financial services unless you do it with technology, because it’s always simply going to be too costly to do that with human service agents,” Littlefield says.

In conjunction with Vodafone, Kenya’s largest mobile phone provider Safaricom launched M-PESA earlier this year, a system offering subscribers the ability to deposit, transfer and withdraw money using their mobile phones. Through Safaricom agents, local mobile phone “top-up” shops have turned into virtual banks.

“Safaricom and Vodafone’s M-PESA mobile money transfer service is an example of Kenya leading the way in the advancement of mobile technology and its users…we believe that there is a great deal to be gained for Kenyan consumers as well as for mobile and financial sector companies,” said Michael Joseph, CEO of Safaricom.

According to the Vodafone group, the M-PESA service was originally created as a pilot project jointly funded by Vodafone and the British Department for International Development (DFID) Financial Deepening Challenge Fund. The programme ran the pilot in partnership with Faulu Kenya, a local microfinance institution.

In South Africa, mobile banking start-up company Wizzit was launched in 2005 and has had great success in the townships and rural areas of the country. According to Wizzit’s chairman Charles Rowlinson, “Many people in South Africa still rely on cash as their only means of transacting.”

With Wizzit, which issues all of its customers a Maestro-branded debit card, “people are now able to transfer money instantly using their mobile phones and make in-store card-based purchases,” he said.

Wizzit boasts over 100,000 active users since its inception less than three years ago and employs otherwise unemployed young adults nicknamed “Wizz Kids” to go into townships and rural areas to recruit and educate potential users about the system.

For the small rural town of Waterpoort, South Africa, the nearest bank branch is 100km away. Many of the population are migrant workers from Zimbabwe who are paid in cash and often lose money either in bribes or get robbed while trying to take the money across the border to their families back home.

Wizzit went into Waterpoort and set up accounts for the migrant workers who can now purchase goods at the local general store or safely transfer money via their mobile phone to relatives in their hometowns in Zimbabwe.

CGAP’s Ivatury says that mobile phone banking and other similar technologies have great potential to give the poor in Africa access to banking services, and stresses the need for customer education and increased research into feasible solutions.

“Improving financial services for the poor means ensuring that customers are making informed choices and using products that are right for them. Market research and financial literacy programmes are essential,” Ivatury says.

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