E-Banking With the Poor: Opportunities and Implications for Microfinance Providers

This briefing note explores various Information and Communication Technology (ICT) innovations that enable microfinance delivery. The note states that:

• Microfinance practitioners are increasingly beginning to see ICT innovations as a key strategy in taking the microfinance sector to the next level in terms of outreach and sustainability;
• Examples of ICT innovations are correspondent banking, card services, and mobile phone banking;
• However, the roll-out of ICT-enabled microfinance is likely to change the business models and methodologies that have been core to the microfinance enterprise, and microfinance institutions (MFIs) will need to respond accordingly;
• E-banking will also enable commercial banks to do microfinance more profitably, especially in serving the upper strata of the typical microfinance client group;
• This may put significant pressure on the financial viability of specialist MFIs.

The note describes each one of the following ICT innovations in detail:

• Mobile computing;
• Correspondent banking;
• Card services, EFTPOS and ‘automated teller machines (ATMs);
• Internet banking;
• Mobile phone banking.

The note concludes that:

• ICT innovation in microfinance is yet to become widespread;
• The microfinance sector stands at a junction point, where its business models and processes are going to be challenged by these innovations;
• ICT-enabled microfinance faces the challenges of digital divide issues;
• There is a need to pay attention to the concern that ICT innovations individualize the banking process, alienating clients from their peers.