Providing financial services to entrepreneurs is a challenging operation in developing countries where small businesses may be isolated in a rural village without reliable roads or internet coverage. Service providers must pay the high costs of employing staff to reach out to remote villages while capturing limited revenue from small-scale products. Yet entrepreneurs in these regions need tools like credit and insurance to make investments and grow their businesses as just as do their counterparts in more developed regions.

Mobile phones are changing the financial landscape helping to expand the possibilities of service models. With novel mobile solutions to bridge the financial access gap, innovators can provide entrepreneurs with new tools and opportunities to support their businesses.

Here are a few cutting-edge models rendering financial services more portable:

Portable Bank. Opportunity International (OI) is putting its bank on wheels. With a portable bank that offers savings, loans, and other such financial services regularly circulating within walking distance of clients’ farms or small businesses, entrepreneurs do not have to miss out on business to trek to the bank. OI is developing these portable bank branches in locations around the world. OI also offers electronic wallets that allow customers to make deposits on mobile phones. With this cashless solution, the bank reduces both the risk of client theft/robbery and also the likelihood of staff fraud. OI’s electric wallets are currently in use in Malawi and seven other African countries.

Portable Credit. The Entrepreneurial Finance Lab (EFL) is helping banks, MFIs, and other partners improve operations with portable technology. Not only can loan officers complete credit applications electronically on a mobile phone or tablet, but they can also collect photos and the precise location of their clients with the use of mobile GPS. With near-real-time scoring of the EFL Tool, an application that captures the ability and willingness of customers to repay a loan, banks have the opportunity to pre-approve clients on the spot. The improved efficiency of automated data collection and credit assessment decreases service turnaround time and increases credit access. The EFL Tool has been used in over 20 countries to date and has processed over 50,000 credit applications.

Portable Insurance. The mobile network operator, MTN, has partnered with Hollard Insurance Group to offer Mi-Life, a mobile phone life insurance, which provides entrepreneurs and their families with financial security in the case of death. MTN clients can buy life insurance, pay premiums, and initiate claims using their mobile phones and SMS. By using mobile phone technology that keeps servicing cost low, MTN can offer insurance premiums a low as $0.65 USD/month. If clients have enough money deposited, the entrepreneurs among them can also use their insurance policy as collateral when applying for loans. Mi-Life is available to MTN Mobile Money users throughout Ghana.

Portable Asset Financing. Portable asset financing enables entrepreneurs to invest in costly assets by making small installment payments with a mobile phone. This financial tool opens a large range of opportunities to enable low-income consumers to access utilities and investments. Former head of Vodafone’s Global Payments and M-PESA founder, Nick Hughes, helped develop a company called M-Kopa. M-Kopa enables Kenyans to acquire a device, like a d.light solar home system up front and pay for its use with affordable installments. M-Kopa operates with small computer chips integrated with M-PESA that are inserted into the devices allowing customers to make electronic payments.

Image credit: Entrepreneurial Finance Lab

Have you read?

Microinsurance Innovations: What’s Next?

Catch and Release – Checking in on Recent Mobile Money Happenings

Four Ways Big Data Will Impact Financial Inclusion

The following post, written by Tilman Ehrbeck, CEO of CGAP, was originally published on the Huffington Post Business Blog, with the title

In Sweden, all new drivers start out registered to be organ donors in the event of their passing. They have the freedom to opt out without negative consequences. Fourteen percent decide to do so and 86 percent remain organ donors. Across the Oresund, less than 10 miles away, Danes have to proactively decide whether they want to become organ donors. Less than 5 percent do, and more than 95 percent don’t. On the global scale of things, Sweden and Denmark are culturally quite similar: generally credited with being open-minded, socially responsible, common-sense Scandinavians.

The vast difference between Swedish and Danish organ donor participation rates (technically “presumed consent”) despite all the cultural similarities is one of the most dramatic examples of the power of policy design that takes into account pervasive human cognitive and behavioral biases to help us do what we generally think is a good thing, but often have a hard time following through with. One such bias is that, when decisions are tough, we tend to prefer the status quo; and relatedly, it’s much harder to proactively opt for something, rather than to simply stick with the offered default choice. (The approach, popularized by the term ‘nudging,’ even led the UK Prime Minister to set up a ‘nudge’ policy advisory unit.)

Based on the earlier path-breaking work on human decision-making by psychologists, an increasing number of economists have pushed and developed the notion of behavioral finance over the last decade, and increasingly business leaders, policymakers and regulators are picking up on these ideas to advance financial access for the poor and to improve consumer protection that actually works in financial services. New products are being developed and new policies are being formulated not on the basis of how people ought to behave, but based on what they actually do and not do.

In Malawi, Opportunity Bank observed that farmers had a hard time holding onto to post-harvest cash and often reached the next planting season without the required resources. Based on this observation, the bank developed a commitment savings product that allows farmers to stash away post-harvest payouts and distribute them over the year to smooth cash flows. The introduction of this project was accompanied by a randomized impact evaluation. The effects were significant. Farmers with access to the new product managed their savings and cash flow better, and in the subsequent season used more agricultural inputs (a 26 percent increase), had higher crop sales (a 22 percent increase in value of crop output) and a 17 percent increase in household expenditure relative to a control group without such access.

There are other such examples of behaviorally-informed product innovations. Green Bank in the Philippines offers a SEED (Save, Earn, Enjoy, Deposit) commitment savings product, which enables clients to withdraw from the account only once their goal date or amount is reached. Jipange KuSave in Kenya has tested the provision of interest-free loans with a third of the amount held back as savings. And Bancomer in Mexico has developed a savings product concept that mirrors the savings behavior of low-income Mexican households who literally use different cookies jars to separate savings for different future purposes.

Similarly, policymakers have begun recognizing that statutes on the books that ignore the reality of low-income families are of limited value. They have started to incorporate demand-side insights into their approaches. In Mexico, for example, the financial consumer protection agency “mystery shopped” financial services to assess how well bank staff were conveying disclosure norms to consumers. They found widespread misinformation and biases towards different types of personalities and even styles of dress that prompted them to rethink their approach to disclosure.

In the Philippines, consumer testing of credit contracts has led to reforms to the Truth-in-Lending Act. And in Senegal, policymakers have used consumer surveys to test and improve the functioning of dispute resolution mechanisms.

To read the rest of the post, visit the Huffington Post Business Blog.

Image credit: Paragon Wealth Management

Have you read?

Child and Youth Finance – Governments Step in

Towards Behaviorally-Informed Financial Consumer Protection

An Excellent Resource on Regulating Client Protection: IFMR Trust’s Blog Series