Profiling Financial Inclusion: Credit SMS

> Posted by Kanika Metrecredit_sms
As so detailed from Elisabeth Rhyne‘s latest book, in roads into financial inclusion are being made all around us. To showcase some of these organizations doing their part of expand access to financial sevices, the Center will profile financial inclusion enablers each week.
This week, we’re starting with a group we’ve recently discovered called Credit SMS. The organization seeks to reduce transaction costs and expand accessability to microfinance, specifically through the use of Short Message Service (SMS) -aggregating software and mobile commerce systems to provide an efficient and accessible platform for MFIs to deliver and track loans. 
The following is an interview we just conducted with the Executive Director of Credit SMS, Benjamin Lyon. We would be happy to hear any comments you may have!
Question: Please provide us with a brief history of when and how Credit SMS was formed.
Benjamin Lyon: CreditSMS is a new initiative that was launched in June in order to leverage mobile money transfer (MMT) systems to make microfinace more accessible and affordable for bottom of the pyramid (BOP) entrepreneurs… [After hearing Josh Nesbit from FrontLineSMS: Medic describe]  how FrontlineSMS: Medic uses technology to connect community health workers to clinics and diagnostical tools, I wondered: Why can’t the barefoot doctor also be the barefoot banker?  Why not use pre-existing networks to distribute and keep tabs on mobile money transactions en masse?  Even more, why not make it possible to offer a full range of financial services via short message service (SMS)?     
Question: What kind of projects are you currently working on?

Benjamin Lyon: CreditSMS is currently constructing a financial data management module to be run through FrontlineSMS, a free and open-source software that turns a computer into a mass-SMS communication platform.  The software we envision will [allow for the formation of a branchless bank, through which] the end user will be able to send and receive microloans via SMS, hold client savings in the SIM card of the CreditSMS hub, extend micro-insurance services, send group payments for services, etc. – all from their laptop. 

By reducing their transportation costs, CreditSMS will enable MFIs to lower the interest rate they charge on loans commensurate with the amount of money saved.  In turn, microcredit loans will be less expensive for loan recipients and, therefore, more accessible for BOP entrepreneurs.  Implementing MFIs will then have a greater capacity to meet previously unmet demands for microcredit, and potential microloan recipients will be more willing to accept credit.  Every link in the chain will benefit.  

Once CreditSMS is fully operational, we will begin running pilot tests throughout Sub-Saharan Africa.  Current countries of interest include Democratic Republic of Congo, Ghana, Guinea, Mali, Uganda, Sierra Leone, Somalia, and Sudan.

Question: What would you say is technology’s role in the microfinance industry? In what direction is technology taking microfinance?

Benjamin Lyon: The worldwide demand for microcredit far exceeds the current supply.  Even though many MFIs are breaking free from subsidies and becoming fully self-sufficient, most groups are finding it difficult to turn a profit, which I think can be largely attributed to the fact that issuing microcredit is expensive.  If we use technology to reduce the cost of issuing credit, I think many more MFIs will be able to sustain themselves such that they can benefit from a virtuous cycle: as successful MFIs get more capital, they issue more loans, which are returned with greater interest, giving them more capital to issue more loans, etc…

Similarly, we need to leverage technology to remove geographic barriers to entry.  If a potential microloan client lives seventy kilometers from the nearest MFI, for instance, that person will most likely not be able to gain access to credit.  Using technology likes mobile phones removes that barrier entirely.

For more information on Credit SMS, check out the article “CreditSMS Helps Structure Informal Mobile Finance,” recently published in PC World and Ashoka Tech’s blog post, “Bringing SMS Technology to MicroFinance.”