Banking everywhere, and not a single village left out


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Only about one-quarter of households living in developing countries have any form of financial savings with formal banking institutions. Even in countries that have experienced substantial development over the last decade or two, this statistic remains stuck stubbornly at a level that would not be acceptable for any other measure of socio-economic development: 10% in Kenya, 20% in Macedonia, 25% in Mexico, 32% in Bangladesh.


Access to financial services –whether in the form of savings, credit or insurance— is a fundamental tool for managing a family’s well-being and productive capacity: to smooth expenditure when inflows are erratic (occasional work, seasonality of crops), to be able to build up purchasing power when expenditures are lumpy (school fees, buying seeds), or to protect against emergencies (natural disasters, death in the family).

But in the same way as access to clean water is more than being able to buy a bottle of water, access to finance is more than being able to get the occasional loan. Much like the national grid, access to finance really involves being connected to a national payments system. Once I have a transactional account in a “payment grid”, I can receive and repay loans, save up and withdraw from a savings account, and use the proceeds to pay for what I need. This transactional account gives me a financial history, and is the basis from which I can manage my financial life.

To achieve universal access, banking practices will need to adapt to a low-value, high volume transactional environment. Low-value transactional accounts –which are merely the gateway to a range of banking services for the poor— should involve lighter regulation because of the lower risks and the relative simplicity of the product. And banks offering these accounts should be able to build a more flexible, scalable retail network of points at which people can conveniently pay into or cash out from their transactional accounts. It is unlikely that banks will ever achieve ubiquitous banking by deploying branches ubiquitously due to the high cost that would entail, so they must take advantage of the many stores that already exist in the remotest communities.

We can now use technology to ensure that banks and their customers can interact remotely in a totally trusted way through local retail outlets. For instance, customers can be issued with bank cards with appropriate PIN-based or biometric security features, and the local store can be equipped with a point-of-sale (POS) device controlled by and connected to the bank using a phone line, wireless or satellite technology. If a customer wishes to make a deposit at a store, swiping his card puts him in direct communication with the bank. The bank automatically withdraws the equivalent amount from the store’s bank account to fund the deposit, and issues a paper receipt to the customer through the POS device. The store keeps the cash in compensation for the amount taken out of its bank account.

If the next customer wishes to make a cash withdrawal, the opposite happens: the store provides cash from the till, but is compensated by an equivalent increase in its bank account. Of course, the store manager will at some point need to go to the bank to balance the till. In effect, the bank customers have ‘delegated’ to the store manager the bothersome (and, in some cases, risky) job of having to go to the bank to balance the community’s net cash requirements, and for that he gets a commission per transaction.

This is now happening. Brazil has seen 90,000 such “bank correspondents” open up, most in the last five years, with the result that all municipalities are now covered by the formal banking system. In Philippines and Kenya, payment services by mobile operators rely on their broad prepaid card distribution networks to double up as cash in/cash out points. The model is being adopted in South Africa, Colombia, Peru, Mexico, Pakistan and India.

This system must and can be made to work across many banks, otherwise we have only created a patch-work of local banking monopolies which will not serve the needs of the poor. As long as the store has one bank account and that banks are connected through an inter-bank payments system, this account can be used to service the transactional needs of customers of all banks who walk into that retail outlet. This would be analogous to how VISA and MasterCard work: the bank that “acquires” the merchant services the cards issued by any bank in the association.

With such arrangements, we envision a world where people are able to make small deposits into their bank account through a variety of cash handling outlets right in their neighborhood. Depositing and withdrawing money from your account should be just another product that your local store offers, along with toothpaste and mobile prepaid cards. Retail stores could work for all banks, and neither the depositor nor his bank need to have trust in the store, beyond what they would normally expect when buying toothpaste or a mobile prepaid card. Banks, like Colgate with its toothpaste, can concentrate on product quality and marketing –i.e. branding—, and can leave retail operations to local players.



Ignacio Mas

Consultant on Mobile Money

June 29, 2009

Some form of payment system is definitely needed to foster economic growth in rural areas. Once people can get away from a cash mentality, their minds will open up to the concepts of investing in business for the long-term as well as making larger purchases - both good for overall economic growth and job creation.

December 24, 2008

I see that the blog has a new look.

Looks better now. :-).

If I am not mistaken many older posts have been removed. Will those be posted again?

Dr. Joseph Portland
January 15, 2009

This would really be a good practice since it will be easy for a every person to make transactions with the bank. Buy things in a store without having to bring hard cash which is good and safe at the same time. Here comes the future!

Olumuyiwa Taiwo
January 27, 2009

Hi. I'm a doctoral candidate at a New Zealand University, and my research area is very closely aligned with the model you describe here. I have developed a socially appropriate cellphone technology based cash transfer transactions support system for the truly unbanked, and plan to test the model in Africa sometime this year (2009).

I am currently seeking financial support for my field research, and would appreciate any pointers regarding appropriate funding agencies to approach and how best to do so.

Can you please contact me so we discuss this?


February 13, 2009

I see that the blog has a new look.

Looks better now. :-).

Targeted Credit
February 21, 2009

In my part of the world(philippines), rural banking is the way to go for most small municipalities. Whenever there's a paved road, chances are, there's a small rural bank somewhere. Of course the hinterlands is altogether a different matter but I do think we're getting there with the advent of cellular technology. Once people in far flung barrios started getting their hands on mobile phones, banking (even if it's the mobile banking that Bill & Melissa Gates are financing for third world countries) is inevitable.

March 01, 2009

I like this post..And it will help for the safety of our fellow citizens...Hectic Capiznon Bloggers 2009

March 02, 2009

Hello, Ignacio

Thank you for a great article, i agree with you in every point. There is a vital need for financial access and banking infrastructure for every family and household in order to develop a good and healthy economic system. And the importantest thing is that every single citizen and family could have a possibility to use these services ie credits, insurance, loans etc.


March 26, 2009

That's a very insightful article, I wasn't well informed on financial options of developing countries and I think it's important to be aware of these information because financial development can also influence us. Developing countries are growing markets for the financial institutions. The way I see things the future looks optimistic because it will bring so much more development and interaction opportunities world wide.

May 13, 2009

I have developed a socially appropriate cellphone technology based cash transfer transactions support system for the truly unbanked, and plan to test the model in Africa sometime this year

April 11, 2009

There is a direct connection between emerging markets, developing countries, and rural banking in the sense that they bring together commerce and technology to brige the gap.

April 13, 2009

Easier access to banking services can dramatically improve the lives of village residents. Instead of facing the arduous travel over many kilometers to reach the nearest bank, a new generation of handheld banking devices now makes it possible for the bank to come to the customer, no matter how remote the village.

May 07, 2009

Great article. The fundamental reason is that the banking system is the way to get money from savers to companies and people who want to put those funds to use, whether by growing a business or buying a home. And not only in South Asia but everywhere

ben noruack
May 16, 2009

Banking agents are potentially able to provide financial services in rural and remote areas and do it quite effectively. Agents allow banks or microfinance institutions to increase the coverage of clients at no additional costs to create a new bank. Since the establishment of a network of bank agents does not require high initial and operational cost, the savings can be used for the benefit of customers by providing to poor people access to high quality and affordable banking services.

ajith de alwis - Nucleus T&M
July 10, 2009

This exercise supported by the WB will bring about a distinct uplifting of the lives involving a large community. It should be taken seriously & exposed to other developing countries in Asia. .
However the danger of a large expansion leads to innocent village folk getting caught to unauthorized collectors who will spoil a great humanitarian initiative.
Unless there is a sincere effort in having the collections captured with enough computerization, transparency of this project will be doubtful.
To address this, an affordable software on open source must be introduced. Else the efforts of licensing will be huge.
The borrower must be comfortable and trust the figures and loan balances as indicated by the bank officials.

Andres Lawson
April 29, 2010

Ignacio, my hopes is that you receive this comment. If so, you could e-mail so i can get in touch with you!



August 06, 2010

Hi Andrés. You can contact me on Happy to talk.

Dr Mike Beaverton
April 06, 2011

This is definitely the way of the future. I love reading about advancements being made to help people of 3rd world nations.

May 27, 2011


Merchant Services
June 09, 2011

I really like reading articles like this... Thank you for sharing...