Credit SMS
Ben Lyon
Cell phones are bringing vital information and services to the developing world at an almost unthinkable pace. From CellBazaar in Bangladesh to Trade at Hand in Liberia, mobile network operators and third parties are producing myriad innovations to meet the demands at the base of the economic pyramid (BOP). Among the most successful innovations is the mobile payment, a system that enables users to deposit money into a ‘mobile wallet’ and distribute it via text message. Leveraging mobile payment systems to offer BOP users a full range of financial services is the next logical step, and FrontlineSMS:Credit was founded for precisely that reason.
If a rural farmer in, say, Uganda wants to borrow money to rent a market stall for her produce, she has relatively few options. Most likely, she will have to travel to the nearest microfinance institution (MFI), apply for a microcredit loan and accept a painfully high interest rate (usually around 28%). In addition to paying off her loan installments every week, she will either have to sit through lengthy group meetings or spend a great deal of time and money to trek to the issuing MFI. Either way, her opportunity costs are significant.
Enter mobile finance.
With mobile payment systems like MTN Mobile Money and Zain Zap now available in Uganda, the farmer in our example should theoretically be able to forgo her regular journey by submitting repayments via her mobile phone. Her time and resources – not to mention those of her loan officer – could then be devoted to more productive activities. In turn, both she and the MFI could simultaneously reduce operational costs and increase revenue. That’s the theory at least.
In practice, MFIs lack the necessary software to seamlessly integrate mobile payments into their management information systems (MIS), so they tend to overlook the channel entirely. Sending and documenting mobile payments to as few as five hundred clients, for instance, could take a loan officer all day. Consequently, manually managing thousands of clients from a single handset is out of the question.
By meshing the functionality of FrontlineSMS, a free & open source software that turns a computer into a mass text message communication hub, with the ability to process mobile payments, FrontlineSMS:Credit aims to mitigate this deficiency. Once released, FrontlineSMS:Credit will serve as a bridge between any mobile payment system and any MIS, which will allow MFIs to distribute mobile payments en masse, automatically generate client histories and maintain robust auditing trails.
As MFIs become more comfortable managing holistic financial products like savings, insurance and pensions, FrontlineSMS:Credit will allow them to offer these services via the available mobile payment channel. Microcredit clients will therefore have access to a full range of financial services wherever they have cell phone reception. If properly managed, such a development could mark the beginning of a new chapter in financial inclusion.
The short history of development is fraught with false promises and failed benchmarks, and neither mobile payments nor microfinance should be exalted as the next ’silver bullet.’ Nevertheless, the rapid emergence of mobile payment systems across the developing world presents a tremendous and exciting opportunity for billions of people.
To learn more about FrontlineSMS:Credit, visit http://credit.frontlinesms.com or follow @creditsms on Twitter.
