January 29, 2007— Five years from now, millions of people in even remote regions of developing countries could be doing their banking with cell phones or other high tech devices.
That’s the goal of US$26 million program that will use technology to deliver banking services to poor people around the world.
If successful, the program will help developing countries “leapfrog” many stages of financial sector development and “make it possible for people anywhere, anytime, to have access to all kinds of financial services,” says Elizabeth Littlefield, CEO of the Consultative Group to Assist the Poor (CGAP), a 33-member, independent institution housed at the World Bank.
CGAP and partner Bill & Melinda Gates Foundation set the plan in motion today with the announcement the Gates Foundation will contribute US$24 million to CGAP's US$2 million technology and microfinance initiative.
CGAP’s program will fund 20 to 30 experiments in 15 to 20 countries, each lasting two to three years. Nine projects have already been selected from 71 proposals from 40 countries and will test cell phone banking, ATMs, card readers and other technologies in Kenya, South Africa, the Philippines, Pakistan, Colombia, Mexico, the Maldives, Mongolia.
In the area of cell phone banking, the plan is to take advantage of an explosive growth in cell phones in the developing world to extend banking services to as many people as possible. The number of cell phone subscribers has doubled in the last two years to 2 billion. In Africa, alone, it has jumped from 7 million to some 80 million in five years, says Littlefield.
Cell phone banking has already been tried in more than 10 countries and is taking off in places like the Philippines, Kenya and South Africa, she says.
“Poor people are very willing to use cell phones as a basis for moving money around. In places like the Congo, cell phones are being used to transfer money around the country, completing circumventing the banking system as well as the more traditional money transfer.”
The bottleneck in delivering microfinance services such as savings accounts, money transfers, and loans to poor people has been the cost of “making tiny little transactions in sometimes rural areas” using traditional banking practices.
Cell phones and other technology can cut the cost of such transactions and make widespread microfinance economically feasible.
“The bottom line is 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.
Part of a Trend
The CGAP-Gates partnership is part of a growing movement in international development to bring technology and know-how to areas of the world that need it most.
“It’s certainly on the cutting edge of a trend of partnerships between social enterprise and the private sector,” says Littlefield. “The key is for socially oriented organizations to find ways to motivate the private sector and subsidize some of the research and development.”
“What the money does—what the grants do—is encourage risk-taking,” adds Gautam Ivatury, CGAP’s technology expert and manager of the microfinance technology program.
The funding will be used to develop breakthroughs using technology that will “help prove the business case” for banks and other commercial players to enter the finance market and seek customers they may not otherwise try to reach for years, Ivatury says.
Many wonder if similarly innovative solutions can have an impact on seemingly intractable development challenges such as AIDS, hunger, and education. World Bank President Paul Wolfowitz, Microsoft Chairman Bill Gates, New York University professor and former Bank economist William Easterly, and Liberian President Ellen Johnson Sirleaf took up that topic in a session last Friday at the World Economic Forum in Davos, Switzerland.
Gates, whose foundation has committed billions to immunization programs, vaccine research, and other development, compared aid with venture capital investments, 70 percent of which fail, but a small percentage of which produce spectacular successes.
“You always have to look at the successes. If you look at it overall, the aid saved at least 100 million lives.”
“We've learned a lot in the last 40 to 50 years,” Wolfowitz said. One major change is in the attention paid to governance issues and to selectivity in delivering aid to where there are greater chances of success.
“There have been a number of innovative ways of looking at aid delivery. We're moving more toward decentralization, more toward community based development, more toward real recipients of aid being the ones who attest that it's being received.”
In addition, the Bank is increasingly “leveraging new ideas and bringing innovations into projects,” says Bank Lead Economist Mark Sundberg, co-author (with the World Bank's Senior Vice President for Development Economics and Chief Economist Francois Bourguignon) of a recent paper, Aid Effectiveness: Opening the Black Box .
“However, there is always room for further improvement and reflection on how to improve the Bank’s effectiveness.
“There’s a lot of evidence that efforts to learn from experience, be innovative in new methods of delivery, new collaborative efforts with partners, and scaling up successful innovations have led to a lot of positive outcomes and new project approaches,” Sundberg says.
“But greater investment is needed in evaluating the impact of Bank supported projects to expand global knowledge on what interventions work and what do not.”
Some of those new approaches have involved partnerships with the private sector, NGOs and grassroots organizations to leverage local know-how when the government's capacity to solve development problems is weak.
Examples of innovative delivery and design in Bank projects include expanded irrigation that has benefited thousands of farmers in Niger, delivery of health services to rural Afghanistan, greatly expanded access to telecommunications services in Nicaragua, and investment in improving Mozambique's water supply.
Examples of technological innovation include computerization and satellite imagery for land mapping and land-titling in Kyrgyz Republic and Armenia, e-governance projects giving citizens access to information and public services in India and Sri Lanka, and landfill gas-to-energy initiatives in Latin America, Sundberg says.
Sundberg also highlights the “relatively small but exciting” Bank-sponsored Global Development Marketplace as a “good breeding ground for new ideas.” The annual competition invites private firms and NGOs to compete for grants for small-scale solutions to development problems. Some innovations have been “very successful” and will be scaled up with World Bank Group financing. “We should consider ways to push this effort further,” adds Sundberg.
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