The majority of the world’s poor live in remote areas, with rural, bottom-of-the-pyramid populations estimated to total 2.5 billion globally [1, page 14]. Mobile financial services (MFS) providers – from mobile operators to third-party mobile money platform companies – have largely failed to reach these far-flung populations, focusing instead on the more easily accessible urban poor. Breaking into the under-tapped rural market will thus require a concerted effort from MFS providers to design services that address the unique needs of rural populations.
Urban areas are often the epicenter of mobile money deployments, with more extensively developed technological infrastructure and agent networks, and a greater potential for growth. Rural markets, according to a 2010 Brookings report, are often considered the ‘last frontier’ for service providers to tackle, despite massive market opportunities [2, page 14]. In a recent USAID FACET webinar on mobile financial in agricultural value chains, SmartMoney CEO Michael Spencer remarked: “With the exception of Kenya, mobile money has been a largely urban phenomenon” .
Despite an urban focus, the need for financial services is high among rural populations. In low-income countries, for instance, only 22 percent of rural populations have an account at a formal financial institution, in contrast to 35 percent of urban dwellers . Tapping into this market could represent a significant commercial opportunity for mobile money providers, with rural poor accounting for between $850 billion and $1 trillion in income. For mobile operators, specifically, offering financial services could attract new customers, as an estimated 70 percent of new mobile subscribers come from rural areas.[6, page 14]
However, despite high need and a viable business case, providing mobile financial services for rural populations can prove challenging. Mobile operators and other private sector actors often have little understanding of the specific needs of rural populations and may attempt to impose ineffective, one-size-fits-all services copied from urban implementations.
According to the Malawi Microfinance Network, there are three key obstacles to the expansion of mobile banking in rural areas, including: illiteracy among consumers, lack of extensive agent networks and inadequate network coverage in rural areas.[7, page 24] In the USAID webinar, Spencer noted that affordability is another significant barrier, with transaction and withdrawal fees often prohibitively expensive for the rural poor. He further argued that current advertising strategies employed by mobile operators – such as billboard campaigns – were ineffective in rural areas, making it difficult to build consumer demand.
Designing successful mobile financial services for rural areas thus requires providers to address these challenges – developing products specifically tailored to the needs of rural, predominantly agricultural, populations. According to the Brookings report, “digital financial service systems will likely need to develop unconventional business models, if the services are offered at all, in the remotest rural areas.”[9, page 14] This idea was echoed by Dr. Lee Babcock, Mobile Agriculture Strategy Managing Director at ACDI/VOCA, who said in an interview that “MFS providers are now thinking more strategically about how to segment the market and design specific products and services for smallholder farmers, collectors, processors and other agricultural value chain stakeholders.” For instance, mobile microinsurance products with flexible repayment terms may address the specific needs of farmers, who often experience irregular income flows.
Beyond designing appropriate products or services, MFS providers must tackle the financial and technical illiteracy often widespread in rural areas. Limited experience using a mobile phone or managing financial tools may hinder adoption of MFS among some rural customers. The Brookings report notes this challenge, stating that “visual tools are particularly useful in training and can support understanding of complex technologies and concepts.”[10, page 17] According to Babcock, ACDI/VOCA is addressing this financial and technological illiteracy by developing pictorial and other appropriate financial literacy and mobile finance curricula that educate farmers and others about the features, benefits and functionalities of mobile finance, and responsible personal financial management in the areas of spending, savings and borrowing.
Even with relevant offerings and enhanced literacy, the success of MFS in rural areas is often contingent on forging key partnerships with private and public sector actors already working in rural areas. SmartMoney, an independent mobile financial services provider in Tanzania, for instance, partners with large, locally-based agricultural companies, through which they transfer electronic money to farmers, which can be used to purchase crops or other essential inputs. These companies further help to register users in remote areas and train farmers, buyers and agents in the use of mobile money.
Partnering with locally-based, non-governmental organizations can be an equally effective model for private sector actors to gain access to previously unreachable rural populations. According to Babcock, partnering with NGOs enables private companies to tap into a base of farmers, often aggregated at regional and national levels, for traditional agricultural trainings, seminars or workshops, through which they can promote customer awareness of their MFS products and, on an opt-in basis, drive farmers onto these platforms. Whether working with local companies or NGOs, collaborating with trusted partners on the ground is critical to bridging the gap between urban-centric MFS providers and rural populations.
Designing relevant MFS offerings for rural populations is possible (and profitable), as the innovators highlighted in the next article will show. Through strategic rural outreach campaigns, for instance, urban-centric M-PESA has recently improved usage among rural households from 29 to 59 percent.[11, page 35] Other providers have similarly overcome infrastructural or regulatory hurdles to bring financial services to those who need it most, which according to Babcock, “presents an opportunity for a revolution at the base of the pyramid.”