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Low Cost Banking: How Retail Stores and Mobile Phones Can Transform Access to Finance

Ignacio Mas's picture

More than 3 billion people in the world today don’t have access to savings accounts. Many of these 3 billion fall below the less-than-$2-per-day benchmark of the world’s poorest people. Why are banks not doing a better job to help them manage their financial lives?

The problem is largely one of cost. Providing financial services to the poor is prohibitively expensive for banks. Each time a client stands in front a of a teller’s window it costs most banks from $1 to $3. If poor clients make transactions of $1 or $2, or even less, banks won’t be able to support the costs.

It’s also too costly for the poor. Most poor people, especially those in rural areas, live far away from bank branches. Let me give one example of a woman in Kenya. The nearest branch may be 10 kilometers away, but it takes her almost an hour to get there by foot and bus because she doesn’t have her own wheels. With waiting times at the branch, that’s a round-trip of two hours – a quarter or so of her working day gone.  While the bus fare is only 50 cents, that’s maybe one fifth of what she makes on an average day. So each banking transaction costs her the equivalent of almost half a day’s wages.