Mobile financial services have proven to be an ideal means to connect rural and remote populations to the financial sector. In several countries now—for example, Kenya, Uganda, Pakistan, or the Philippines—financial services are successfully delivered to the rural population using mobile phones and agents.
Traditional banking involves developing and maintaining an expensive branch network. However, in rural areas, the network is often not sustainable due to the low number of customers. By leveraging agents with mobile technology the outreach of each bank branch can be greatly increased.
Frequently used bank services, such as cash-in/cash-out, are offered more cost-effectively through agents, while technology links the transaction to the bank in real-time. Visiting a bank branch only becomes necessary for more sophisticated services, such as a loan application, whereas repayments can be made through agents.
With this model, banks can boost outreach to rural areas and attract new customers—all at a lower cost. In addition, the rural population gains access to financial services delivered through agents nearby, who they know and trust, using technology they are familiar with—a mobile phone.
In the Kyrgyz Republic, the majority (65%) of the population lives in rural areas, where the population density is only 27 inhabitants per square kilometer. So far, banks have focused on urban areas where banking services can be delivered profitably. Consequently, access to formal financial services remains sparse in rural areas, which are limited to 1.6 commercial bank branches per 1,000 square kilometers.
Not surprisingly, given these figures, only about 10% of the population has an account at a formal institution. On the other hand, the mobile network covers basically the whole country and mobile phone subscriptions represent 116% of the population. No wonder that mobile financial services are considered an effective tool for boosting access to financial services to the underserved population in the Kyrgyz market.
The Kyrgyz Investment and Credit Bank (KICB) has successfully piloted a mobile money product in the cities. As a next step it plans to extend this innovative product to rural areas. For this, the development of a sustainable agent network is crucial. The Asian Development Bank (ADB) is supporting KICB in developing this agent network.
Once this new service is available throughout the country, the underserved rural population will have better access to banking services, such as deposit accounts, sending and receiving money transfers, or loans for business purposes.
ADB and KICB have hired consultants from the Frankfurt School of Finance & Management to bring international experience in mobile money and mobile banking together with local knowledge of the Kyrgyz market. The aim is to develop an agent network and related mobile banking products, as well as offer further support in market and risk management.