Branchless banking is a technology-led solution that promises to advance the motives of microfinance, which revolve around access to financial services for the bottom of the pyramid. According to Wikipedia, branchless banking includes the provision of products such as cash deposit, withdrawal, and payments, through the following means:

• Mobile banking and Automated Teller Machines (ATMs) – payment cards or mobile phones (mobile banking) that allow customers to initiate transactions remotely.
• Point of Sale (POS) terminals – use of third-party agents (post offices and small retailers) to provide financial services such as cash handling and customer due diligence for account opening.

Branchless Banking Allows Low-Cost Financial Inclusion

As evident, branchless banking is the provision of financial services to customers without requiring them to visit the bank’s actual branches. As a result, branchless banking platforms offer a low-cost alternative to banks willing to provide financial services in rural areas, because the cost of establishing a traditional banking infrastructure (bank branches equipped with skilled employees) is quite high.

Branchless Banking May Have Better Outreach Compared to Microfinance Institutions

A recent survey conducted by CGAP (McKay and Pickens, 2010) shows that branchless banking solutions have the ability to quickly acquire “more previously unbanked” clients compared to the largest microfinance institutions in the country. Eight branchless banking service providers were studies across seven countries and results showed that over a period of just three years, 5 of these providers had reached more clients than the largest MFIs that had been in operation for 15 years. The following table (taken from the survey report) lists some explanatory figures:

Source: GCAP Report

This implies these branchless banking providers had grown five times faster than microfinance institutions. The survey report points out that “in Tanzania, the 2009 FinScope study showed approximately 11 percent of registered M-PESA clients had no other access to formal or semi-formal finance”. This figure may not be as encouraging as it seems, because the survey also discovered that “Low income people represent a clear majority of clients in only one instance—Brazil”.

The sample size is not large enough to come to a solid conclusion that branchless banking is a better financial inclusion tool compared to microfinance, but it certainly is a to ol that warrants much attention.

Reference: McKay, C and Pickens, M . (2010). Branchless Banking 2010: Who’s Served? At What Prices? What’s Next?. Available: http://www.cgap.org/gm/document-1.9.47614/FN66_Rev1.pdf. Last accessed 15th Oct 2010.