Module 8 - Vietnam: Mobile Banking for Rural People

Benefits and Impacts

By overcoming a key impediment to providing rural finance—high transaction costs—mobile banking can be a suitable delivery mechanism for remote areas. The main benefits are cost reduction and increased geographical coverage. In Vietnam impact studies of the mobile banking project have found that:

• It provided better financial services to people in remote areas by allowing access to formal banking services. Previous financing opportunities had been limited to informal moneylenders charging extremely high interest rates.
  
  
• Borrowers served by the mobile offices managed to expand their businesses, and 99 percent of them had increased their income as a result of the project.

Lessons Learned and Issues for Wider Applicability

Mobile banking can be considered an alternative to “fixed” delivery mechanisms (branches of financial intermediaries) in areas where it is not feasible to maintain a network of rural branches. The advantage of a mobile office (attached to a branch) is that it can visit remote rural areas for loan analysis, disbursement, and repayment depending on the needs of the area (for example, weekly or monthly). This flexibility permits one office to achieve greater geographical coverage and thus reduces fixed costs. This successful experience in Vietnam, and the continuing use of mobile banking by Vietnam’s dominant rural bank, demonstrates that this operation is a cost-effective way of delivering rural finance.

The applicability of mobile banking to other countries and settings will depend on the cost effectiveness in a given setting—for example, transportation costs may vary according to road conditions and networks—as well as cultural and social compatibility. Although the initial capital investment in mobile offices is substantial, these costs need to be seen in relation to the cost of establishing and maintaining a fixed delivery mechanism in remote areas. Indeed, the mobile banking services in remote rural areas of Vietnam proved to be much more cost effective than the established branches in those areas.

The commitment of bank management to increase outreach and provide people in remote areas with access to financial services is seen as a key factor in the success of the project. Given that mobile banking operations require that monetary transactions are conducted away from the branch office, security is also an important issue. Consequently, a key precondition for successful mobile banking operations is low levels of crime in the countryside and the country as a whole, as well as a well-maintained system of law and order.