The future is banking and mobile, not bricks and mortar.
In 2016, the United Nations’ 17 Sustainable Development Goals (SDGs) officially came into force, galvanizing countries around the world to address the social and environmental issues that threaten the livelihood and well-being of many. Meanwhile, in Nepal, another historic change was underway: the country was transitioning to a federal republic under a new constitution. In 2017, Nepalis elected a surprising coalition government, launching an era of unprecedented political stability.
These two events (newfound stability at home, and an aspirational agenda from abroad) converged in an ambitious plan to address poverty in Nepal: the government promised that every one of the country’s 753 administrative districts would have at least one physical bank branch by 2021. The idea is that by giving isolated Nepalis easier access to the formal banking system, the country will see a rise in its financial inclusion numbers—an important contributor to at least 7 of those 17 SDGs, with impacts on poverty reduction, job creation, gender equality, and food security.
I’m glad to see a government-led initiative so genuinely committed to tackling poverty, particularly in a country with one of the lowest financial inclusion rates in the South Asia region. I worry, though, that this initiative’s “brick and mortar” tractic is premised on a series of well-intentioned but unexamined assumptions. It may do some good, but will it create the groundswell of positive change that the government expects? I’m not so sure.
THE “PROXIMITY PROBLEM”
I agree that distance from banking services does contribute to low financial inclusion rates, particularly in countries where large segments of the population are extremely isolated from formal infrastructure. Eliminating that barrier seems, on the surface, like the simplest solution—and there’s some historical evidence to support this initiative, like a 2005 study linking India’s state-led bank expansion initiative with lower rates of poverty in the country’s rural zones.
Importantly, that expansion initiative took place between 1977 and 1990. We live in a different world today. Yes, it’s a world where people in isolated areas may not have access to the mainstream banking system. But it’s also a world in which many of those people own a mobile device. In this way, they’re not isolated at all.
When Nepal’s financial inclusion initiative began, only about 50% of the country’s districts had a bank branch. By contrast, Nepal’s mobile phone penetration is hovering at 130%. To me, these facts blaze a logical trail: an objective (connect more Nepalis to secure financial services), a barrier (distance from formal banks), and a solution (mobile money). Other countries have followed this trail to great success, like Papua New Guinea, where 85% of the population lives in rural areas with low (or no) access to banks. In partnership with the South Pacific mobile wallet provider MiBank, Telepin helped to introduce isolated families in that country to mobile financial services. Today, nearly half of MiBank’s active mobile money subscribers are from rural areas, contributing to a 55% increase in mobile financial service accounts across the country.
The bottom line is that while may rural populations don’t have access to banks, most have access to mobile phones, which are quickly becoming the “new” banks elsewhere in the developing world. In order to see the greatest impact on poverty, Nepal’s governments should invest in the technology that their citizens are already using, rather than the banking systems that have long shut them out.
FOLLOW THE TRUST.
Some argue that Nepal’s expansion of the formal banking system is its best defence against persistent financial illiteracy. The implication is that only banks are qualified to educate people with little experience of formal financial services; by putting themselves within reach, these banks expect that people will be intrinsically motivated to engage and learn and find value in the formal system.
This argument assumes that financial education is the key to developing relationships with potential patrons. To me, that misses the mark. The real key is trust. A population that has been chronically excluded from the mainstream financial sector is likely to mistrust its late-stage promises. Justified or not, the perception of banks as purveyors of high fees, low reliability and unfair policies is a stubborn one. I expect this is why Nepali officials incentivized bank enrolment earlier this year, announcing that anyone opening a new account would receive NRs100 (about 90 cents). Putting banks in potential patrons’ backyards wasn’t enough without trust. In lieu of trust, they dangled money.
Mobile technology, on the other hand, already benefits from strong “trust equity” with its consumers. Mobile subscriptions in the country have increased by 90% in the past decade, and rural users are actively developing the skills required to unlock the potential of their mobile devices. These users, already familiar with concepts that shadow typical banking services (such as airtime top-up), are well positioned for mobile banking adoption. Where there is adoption, financial education will follow.
That was the case in Tanzania, where Telepin worked alongside Tigo Tanzania to develop a banking interface that would make the transition to mobile money as frictionless as possible for users. Supported by an operations team with the resources to help users develop their financial literacy, Tigo’s program was a resounding success; the company soon saw a 30-percent increase in revenue from its mobile financial services.
COMMITTED TO THE CAUSE
It’s not as though Nepal’s governmental and financial regulators are ignoring the potential of mobile money. In 2017, the same year that saw the launch of this expansion initiative, Nepal’s Central Bank issued its first ever license to a non-bank payment service provider. Meanwhile, mobile operators intent on expanding into e-wallet services are maneuvering for similar licenses, signalling an approaching digital transformation for the country’s financial sector. These developments mirror historic leaps forward in other parts of the world where large populations were underserved by the traditional banking system (like Malaysia or the Caribbean and South Pacific).
I’ll be watching with keen interest as Nepal continues to find its way toward greater financial security for its citizens. At the end of the day, all of us who are engaged in promoting financial inclusion—whether government leaders like those in Nepal, technology innovators like Telepin, or policy-makers in the UN—are united in the social and economic importance of our mission.