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Mobile-phone Banking Expands into Rural Philippines

Through its microfinance program in the Philippines, USAID and Chemonics have found a way for Filipino microentrepreneurs to make loan payments with text messaging, which can help lower transaction costs significantly.

​The Philippines is the text-messaging capital of the world. About 33 million Filipinos own cell phones and send an estimated 200 million text messages a day.

But there is more to text messaging than personal communications. With the help of USAID, Filipinos are using their cell phones to bank.
 
Through its microfinance program in the Philippines, USAID has found a way for Filipino microentrepreneurs to make loan payments with text messaging, which can help lower transaction costs significantly. The program is called Rural Bankers Association of the Philippines Microenterprise Access to Banking Services (RBAP-MABS).

 
The new service, called G-Cash, essentially turns a cell phone into an electronic wallet that people can use to send and receive payments via text message. Filipinos can use G-Cash to make payments to utility companies, pay tuition to schools, make purchases at retail outlets like Shakey’s Pizza and McDonalds, and even pay business registration fees.

Globe Telecom, one the largest mobile phone companies in the Philippines and a partner to RBAP-MABS, introduced G-Cash as a way to allow Filipinos to send and receive money using their cell phones.
 
As of March 2006, 1.3 million people were using the G-Cash system, which handles about $100 million per day. This includes microenterprise clients using their phones to bank.
 
“Using cell phones to send and receive money isn’t just something that big businesses can use,” said John Owens, chief of party for MABS since 2001. “It can change the way rural microentrepreneurs operate and make a living.”
 
Once the service is more widely used, loan officers will travel less and spend more time processing loans and increasing the quality and size of their loan portfolios. This saves banks valuable staff time and travel costs.
 
According to Owens, savings are already being passed on to bank clients through reduced service fees and lower interest rates.
 
 
“This new mobile-phone banking opportunity can help strengthen rural banks in the Philippines,” he said. “Using mobile phones to send and receive money allows rural banks to expand their services to clients in rural areas without increasing costs or taking on additional risk.”
 
Accepting payments through text message also reduces the risks associated with the collection and transfer of money in the field. Loan officers, who would normally carry around large amounts of cash while collecting payments from rural borrowers, have in the past been a target for theft and robbery.
 
The system is also safer for microentrepreneurs, many of whom travel long distances to do their banking. Now, with mobile-phone banking, this is beginning to change.
 
“We don’t have to waste our time and money going to the bank anymore,” said Gloria Baguisa, a client of the Green Bank of Caraga in Mindanao. “Just one text and we’re done.”
 
To enroll, users register with the service provider by sending a single text message, which costs only two cents. From that point on, subscribers can use the MABS-designed Text-A-Payment (TAP) service to make payments through text messaging.
 
Getting mobile-phone banking applications using the G-Cash platform up and running took the effort and collaboration of GXchange and the RBAP-MABS program, and numerous meetings and reviews with the Philippine Central Bank. GXchange, a subsidiary of Globe Telecom, manages G-Cash.
 
Today, the MABS program works with RBAP to serve as the bridge between rural banks, GXchange, and the Central Bank.
 
Earlier this year, MABS helped RBAP gain approval from the Central Bank to expand the ability of rural banks to provide G-Cash services and also helped RBAP to facilitate Central Bank approval for interested and qualified rural banks.
 
To get these banks prepared to process mobile-phone banking transactions using the G-Cash platform, the MABS team developed manuals and trained staff at more than 200 rural banks with the support of GXchange and RBAP. To ensure compliance with Central Bank regulations on electronic banking, MABS developed an orientation course on mobile-phone banking compliance, procedures, and internal controls.
 
MABS then supported RBAP in its efforts to get Central Bank approval to prescreen banks wishing to send or receive money using the G-Cash platform and offer other mobile-phone banking applications, including a new service called Text-A-Deposit that is currently pending approval.
 
While G-Cash has enjoyed much success since its introduction in 2004, challenges remain. GXchange and its partners must continue to build a network of retailers, clients, and outlets that accept and sell G-Cash to further expand outreach and use of the service. To do so, a marketing campaign targeted at increasing use and acceptance of G-Cash is now being launched in collaboration with rural banks that will be able to introduce G-Cash as a mobile commerce payment platform for micro and small businesses in their communities.
 
For this service to succeed in rural areas, banks will need to build their own network of businesses using mobile commerce services such as the G-Cash platform as a way to buy and sell goods and services.
 
RBAP now has an application pending in the Central Bank to expand mobile-phone banking to include Text-A-Deposit service. Text-A-Deposit allows funds to be transferred directly to the accounts of clients facilitating remittances without needing access to a mobile phone. This new service would also give micro and small business owners the ability to accept electronic money like G-Cash, then deposit these funds into their bank account via text message, which eliminates the need for them to leave their businesses.
 
Despite the challenges, Owens believes that mobile commerce services will revolutionize the Filipino microfinance industry. “The potential benefits are incredible,” he said.
 
The use of mobile-phone banking represents the latest step forward in one of USAID’s most successful microfinance projects to date. MABS, launched in 1997, leverages the Philippines’ existing network of rural banks around the country to provide financial services to microentrepreneurs in rural areas.
 
 
Using what came to be known as the MABS approach — a seven-step roadmap to building a sustainable microfinance operation — MABS was able to show banks that microentrepreneurs were an untapped market and show microentrepreneurs that savings and loans with rural banks was in their best interest.
 
Today, the MABS team works with more than 80 rural banks and 275 branch offices to help them profitably expand their services to low-income entrepreneurs. Most of the participating banks now have profitable microfinance loan portfolios and have expanded their deposit services, leading them to expand their services to more rural clients.
 
The MABS team also works with rural banks in the conflict-affected areas of Mindanao, helping to improve their access to banking services in this crucial area of the country.
 
In the past eight years, more than 750,000 micro loans, totaling more than $165 million, have been disbursed to more than 260,000 microentrepreneurs. More importantly, participants have also expanded their savings services and now manage more than 880,000 micro deposit accounts. MABS has expanded to serve all regions of the Philippines in response to growing demand for training in microfinance best practices.
 
With mobile-phone banking, that expansion may accelerate even more.
 
“Text messaging is so easy for people to do,” Owens said. “Text messaging and cell phones have changed the way Filipinos live and connect with each other — and we think it will change microfinance.”

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