Banking by mobile phone has really taken off in Africa. It's fast, relatively cheap, safe and easy to keep track of. Mobile banking seems perfectly suited to microcredit. So will the credit analysts be setting off into the bush with their PDAs? It will soon be happening in Kenya.

Lukas Wellen is an economist who has been involved with microcredit for many years. He helped set up microcredit banks in Ukraine and the Balkans, coordinated programmes run by the Dutch Development Organisation (SNV) in Vietnam and Cambodia and has recently been supervising projects in the Caucasus and East Africa.
 
He has come across the same problems in too many projects. The microcredit bank's IT department turns out to be the bottleneck. Administering the range of data involved in loans such as repayments and the behaviour of lenders is still mostly done by hand.

Know-how
The data is sometimes difficult to transfer between different software programs, ageing computers can no longer cope with complex data streams or there is insufficient IT know-how to get the entire system working efficiently.
 
The result of substandard data management is that there are insufficient checks on the loans so that investors do not have sufficient faith in the project and withdraw. The bank then remains too small and is unable to attract enough money to provide loans for terms of more than a few months.
 
Customers give up
Another problem Lukas Wellen came across was that customers of existing microfinance institutions often give up after a couple of months. They can't see the point of the loan, since it is generally a traditional group loan, whereby a whole group of people act as guarantors for each other.
 
People find the weekly group meetings, the collection of repayment money, the bookkeeping and the transfer of money to the bank far too time-consuming. And, as a local joke goes, "if there's a bar on the road between the group meeting and the bank, the money will never arrive."
 
Fraud
The economist says that fraud actually occurs in only a small percentage of cases. However, there are many stages at which things can go wrong. The person taking the money to the bank can mess around with the group bookkeeping, he may meet a friend along the way who needs money in a hurry and can't pay him back until next week. Then he can commit fraud with the receipt he receives from the bank and won't have to show to the credit controller for another week.
 
Lukas Wellen explains that mobile banking removes many of these obstacles. The weekly repayment to the bank can be carried out with a simple text message. All the data goes straight into the computer. Manual administration and paper receipts are virtually unnecessary, since everything can be checked directly by mobile phone and the lender doesn't have to rush off to the bank at three o'clock in the afternoon to deposit his money before it closes.
 
Safer and cheaper
The group meetings can be a lot shorter since the money doesn't have to be counted and it doesn't have to take place anywhere near the bank. It can be held at a different place - near a church or market, for example - where all the members go anyway on a weekly basis. In other words microfinance by mobile phone is more efficient, safer and cheaper for the customer.
 
Professor Robert Lensink, economist at the University of Groningen, specialises in research into microcredit. He regards mobile banking as a major step forwards, says it makes monetary transactions much safer. People who have made a lot of money in the market no longer run the risk of being robbed on their way home. And, since they no longer have to go to the bank themselves, it's also cheaper.
 
However, Lukas Wellen emphasises that the advantage for the bank is more significant. It has direct control and insight into the repayment behaviour of the lenders, which make it easier to attract investors who can be presented with a clear financial perspective.
 
Into the bush
In fact, credit banks no longer need local branches. Armed with a laptop and a mobile phone, the credit controller can travel into the bush to do his work. For the time being, however, he suggests they keep local branches open. He knows another overhead which can be made cheaper and more efficient.
 
The system stands or falls by virtue of a properly-functioning IT system at the bank manned by experts. Since this expertise can be found more readily and cheaply in the Netherlands, the banker will want to locate the administrative part of his company here rather than in Kenya.
 
The concept is of course only suited for regions where mobile banking has already taken off in a big way. But in East Africa the mobile phone looks set to be at the heart of modern microfinance.
 
Lukas Wellen is CEO at Musoni microfinance.