Estimates reveal that nearly 2.5 billion of the world’s adults do not have access to financial services (Chaia et al., 2013). The majority of these adults live in developing countries where the lack of banking infrastructure and facilities that help advance banking services is acute. Microfinance addresses this need by providing small loans to the poor in an attempt to stimulate small-scale businesses and augment the poor’s income-generating abilities (Brau & Woller, 2004; Cull & Morduch, 2007; Robinson, 2001; Yunus, 2007). However, the practice has become contentious due to emergent criticism addressing issues such as inability to achieve scale and fulfil intended objectives of social impact and financial return (Bateman & Chang, 2012; Morduch, 1999). In an attempt to confront such criticism, MFIs have started to search for solutions that mitigate risks of high costs, lack of outreach and failure to meet their financial and social objectives (Kauffman & Riggins, 2012). The basic mobile phone seems to provide one viable solution (Dermish, Kneiding, Leishman, & Mas, 2011; Donovan, 2012). It has become one of the first technologies used by consumers in developing countries to fill market needs on a large scale (MPesa Kenya being the most widely cited example) (Dermish, et al., 2011; InterMedia, 2014a; Kumar, McKay, & Rotman, 2010). Its fast pace of diffusion, and simplicity of use highlight the mobile phone’s prospective relevance and importance to the microfinance industry. The latter pertains to facilitating outreach and ability to measure social impact, reduce operating costs, as well as increase monitoring capabilities. However, the use of the mobile phone to advance financial services to the poor brings along challenges in implementation and execution that pertain to most microfinance stakeholders. Indeed, this reflects in the differences in adoption rates of mobile banking across the developing world. For instance, in India 800 million adults lack access to formal banking services (Nielsen, 2013). Meanwhile, 81% of the adult population already has a mobile phone, and yet active mobile banking users represent only 0.1% of the adult population. In comparison, financial services penetration rates in the country have been estimated at 25% (InterMedia, 2014b).
Reflecting on the above, this paper investigates the role of mobile banking in advancing the viability of microfinance. It examines India-based MFIs and explores how mobile banking solutions assist in meeting microfinance’s dual objective of social impact and financial return. The study further examines benefits and challenges to implementation across major microfinance stakeholder groups: customers, MFIs, the microfinance industry, and investors. Preliminary results outline a number of benefits and challenges that stem from implementation of mobile banking solutions across these stakeholder levels.
Methodology
This study adopts a qualitative approach and has an exploratory perspective (Patton, 1990). Empirical data are gathered via in –depth interviews with India-based MFIs. The interview technique involves semi-structured, open-ended questions. Mix Market is used to identify participating MFIs. Mix Market serves as an aggregator for financial and social performance indicators of approximately 2,000 MFIs worldwide (MixMarket, 2014). Data analysis involves an inductive approach and the technique of grounded theory (Glaser, Strauss, & Strutzel, 1968). All interviews are recorded, transcribed, and coded both manually and in NVivo 10 (QSRInternational, 2014). Following, coded text is broken into themes in order to analyze emerging patterns. Similar properties of some first-order themes allow the grouping of second-order themes. The second-order themes are then coded, analyzed and reassembled to enable the identification of preliminary results.
