The goal of community development should be to improve the lives of as many disadvantaged people as possible with a minimum amount of resources. The field can achieve this goal by identifying those community development projects that are both efficient and have significant social impacts, and then scaling up. However, without effective evaluations, it is impossible to gauge progress. Effective evaluations include randomized experiments and well-designed observational studies, both of which can measure the impact to society. This article analyzes the best evaluation methods in international development, including examples of evaluation toolkits, with the aim of helping community development practitioners apply the methods to projects in the United States. The article also includes steps and recommendations to increase the quantity and quality of evaluations for community development projects.Unbanked

Tillman Bruett

English

Research Papers in Economics

The Latest Frontiers for Financial Inclusion: Using 
Mobile Phones to Reach the Unbanked
Tillman Bruett
UN Capital Development Fund
F
inancial institutions are not winning any popularity contests these days. Banks are 
derided as the instigators of crisis and pillagers of wealth instead of caretakers of 
savings and partners in growth that they are meant to be. Even worse, many claim 
that it was policymakers’ obsession with helping uncreditworthy low-income house-
holds gain access to mortgages that caused the crisis in the first place. Subtly implicating the 
poor in the colossal mismanagement of the financial sector by the (primarily) rich and the 
regulators that enable it is wrong. The truth is that banks and other financial service providers 
haven’t done nearly enough to help the poor. The good news is that this is beginning to 
change—and we have the world’s mobile network operators to thank. 
What is financial inclusion?
As much as the citizens of the developed world may disdain banks, they still rely on all 
sorts of financial service providers for dozens of services such as checking accounts, auto-
mated teller machines (ATMs), Point of Sale (POS) devices, credit cards, and insurance just 
to name a few. In most developed economies more than 90 percent of households use bank 
accounts to save and to make payments. In many developing economies nearly 90 percent 
of households lack access to bank accounts and operate in a world of cash and informal 
borrowing and saving arrangements that are neither transparent nor regulated. The basic 
premise of financial inclusion is that the only way to bring financial services to the poor is 
to engage the formal financial sector. While specialized microfinance institutions are part 
of this, it makes little sense for 90 percent of the population to be excluded from the main-
stream financial sector. To borrow from the United Nations, “Inclusive financial sectors are 
defined by a continuum of financial institutions that together offer appropriate financial 
products and services to all segments of the population.”1 And this goal is important even in 
low-income communities in the United States where the percentage of unbanked people can 
rival the numbers in the developing world.
Much more than microcredit 
In the popular imagination, microfinance is microcredit, making small loans to groups of 
women to support a family business or farm. While this remains an important part of finan-
1  UNCDF and UNDESA. “Building Inclusive Financial Sectors for Development.” May 2006. 
FEDERAL RESERVE BANK OF SAN FRANCISCO
Community Development INVESTMENT REVIEW 114cial inclusion, it represents a decreasing share of a rapidly growing movement to change the 
world’s financial systems to better serve the financial needs of everyone, including the poor. 
Some groundbreaking research has shown that despite a lack of options, poor households 
across the globe are incredibly active money managers and create mechanisms that imitate 
formal financial services. In “Portfolios of the Poor: How the World’s Poor live on less than 
$2 a day,” the authors assist dozens of low-income households across three countries to 
track their daily cash flow.2 The diaries show that these families are often using ten or more 
“financial instruments” during the course of the year to allow them to accumulate (and 
spend) money in the needed amounts to get by. The records also suggest that poor house-
holds can grow their way out of poverty if they are able to avoid (or better manage) major 
calamities that destroy their savings or force them to sell off their possessions. When a family 
member loses a job, gets sick or dies it can push an otherwise upwardly mobile family back 
into poverty. 
 In developing economies low-income families lack government-sponsored social safety 
nets. To protect themselves, they seek different ways to save and manage money for medical 
treatment, funerals, school fees and costly family obligations. In other words, the benefit of 
financial inclusion is not just about providing financial opportunity; it is helping households 
everywhere to increase financial security. 
 
The problem of distribution
As C.K. Prahalad noted in “The Fortune at the Bottom of the Pyramid: Eradicating 
Poverty Through Profits,” that for decades companies have learned how to package things 
small enough and distribute them wide enough to reach the low-income market.3 Satchels 
of shampoo, small bars of soap and bottles of cola can be found in the most remote places 
in the world. The global financial services industry needs to do the same. While the micro-
finance industry has helped show how to package services for the poor, including credit, 
savings and insurance, it has has not been nearly as successful at distributing them widely. 
When a microfinance institution reaches ten thousand clients and does so profitably, it is 
considered successful. But there are a billion more to reach. 
Microfinance institutions and those that support them look to the business community 
for lessons on distribution. There have probably been hundreds of studies and articles on the 
distribution networks of Coke and Pepsi. Almost anywhere in the world you can find a cola in 
a shop that is painted or decorated with the colours and logos of one or both of the soft drink 
companies. In the past decade there have been experiments in using the distributors of every-
thing from gasoline to beer to help solve the problem of mass marketing financial services. 
2  Collins, Daryl and Morduch, Jonathan, Rutherford, Stuart, & Ruthven, Orlanda. Portfolios of the Poor, Princeton 
University Press. 2009.
3  C. K. Prahalad, The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits (Philadelphia: 
Wharton School Publishing, 2005).
FEDERAL RESERVE BANK OF SAN FRANCISCO
Community Development INVESTMENT REVIEW 115The masters of distribution are the mobile network operators (MNOs). For readers who 
have never been in a developing country or subscribed to a prepaid mobile phone service, 
it is worth explaining how it works. The prepaid mobile phone services is a “pay-as-you-go” 
business in which subscribers purchase air time incrementally (or “top up”) as they need 
it. Subscribers first purchase their own phone and SIM card (which contains their unique 
mobile phone number) and then buy air time from a local store or street vendor, usually 
in the form of a scratch card. These air time distributors are ubiquitous in most developing 
countries—in any small village the local shop is likely to sell air time along with sugar, soap 
and cola. In most cases, these air time sellers have no contact with the mobile network 
operator. They are part of a vast, multi-layered distribution network that is often managed 
by one or more companies that specialize in getting goods and services to the mass market. 
MNOs are increasing the rate of mobile connectivity in developing countries from below 
10 percent to 90 percent in just a few years. And this is exactly what we wish to accomplish 
with financial services. 
If you’ve read the mainstream news in the past year, it is likely that you’ve heard about 
mobile phones being used for banking. In this case the developing world is far ahead of devel-
oped economies. A New York Times article recently noted that while about 50 percent of 
Americans used on-line banking, only about 10 percent use mobile phone-based banking. In 
the developing world hundreds of millions have recently begun using their phones through 
an entirely new method of banking which is called “mobile money.” 
Mobile money’s roots date back nearly a decade to the Philippines when two operators, 
Smart and Globe Telecom, introduced domestic payment platforms that operated through 
mobile phones. These two companies realized that the mobile phone is a securely connected 
channel for data not unlike that which is used for ATMs and POS devices around the world. 
Rather than having to work through traditional and often expensive money transfer services, 
customers could go to Smart Money or GCash (Globe) agents throughout the country, 
deposit money into their m-wallet accounts, and then transfer it to someone else using their 
mobile phone number. This is commonly known as a person-to-person, or “P2P” transfer 
service. If either the sender or the recipient of a transfer lack a mobile phone the notification 
will be sent to the nearest agent, the same agent that offers “cash in” and “cash out” services. 
The technology is not so different from the system used for prepaid air time. Mobile money 
operates like a system of prepaid debit cards, with m-wallet holders “buying” electronic value 
(cash in) which remains in their account until they “sell” it (cash out). Because all m-wallets 
are prepaid, all transactions are performed in real time and balances of all clients are updated 
instantly so there is very little risk of fraud. The same technology that allows MNOs to track 
how much air time a subscriber has in real time is ideally suited for managing millions of 
small financial transactions. 
The holy grail of mobile money is Safaricom’s M-Pesa service in Kenya. Safaricom, a 
subsidiary of the Vodafone Group, launched a mobile money service four years ago that now 
serves over 12 million Kenyans. Once users add value to their m-wallet, they can use that 
FEDERAL RESERVE BANK OF SAN FRANCISCO
Community Development INVESTMENT REVIEW 116electronic value to purchase goods, buy top-up (purchase air time) , or transfer funds imme-
diately to another Safaricom user anywhere across Kenya.  M-Pesa’s subscribers can also 
exchange the electronic money for cash at an M-Pesa agent or at a number of ATMs around 
Kenya.  M-Pesa was not the first to use mobile phones to provide financial services to the 
mass market, but the almost “viral” way in which the service has grown has changed the way 
we look at the world and in particular, financial inclusion.
Banks are also becoming more active in the market. As one example, ANZ Bank launched 
a  subsidiary  to  complement  its  banking  activities  in  Cambodia.  ANZ’s  WING  service 
initially focused on providing a reliable and inexpensive money transfer service for garment 
factory workers, mostly women, who often supported their entire families back in the villages 
through their wages. This was a customer segment that they never could have served through 
their bank branch. They also provide WING debit cards that allowed users to get cash at 
ANZ’s ATMs rather than rely only on WING agents. MTN, a large regional mobile network 
operator in Africa, has partnered with a regional bank, EcoBank, to launch its service across 
the continent. In late 2010 another MNO, Orange Telecom, launched an m-wallet that is an 
actual bank account held on the books of Kenya’s Equity Bank.
The spread of mobile money is accelerating. In Kenya, there is one mobile money user 
for every three Kenyans after only four years of operation.4 In the small Pacific island nation 
of Fiji, 25 percent of the population had a mobile money wallet within four months of the 
service being offered. There are nearly 100 mobile money deployments now active around 
the globe. The mobile money industry is still in its early phase and there are certainly fears 
that we are witnessing an “m-bubble” that could burst if MNOs are unable to make the 
service profitable. Still, it is the most promising solution to financial exclusion to date. 
Transformational change
Technology is often the driver of change in policy, industry, and consumer behaviour and 
leads to a transformational change. As an example, digital music has radically changed the 
industry, the laws around it, and the way we access music and other media all at the same 
time. The same is happening with financial services. 
Mobile phones and other technological innovations are bringing financial services to the 
mass market and forging new alliances between telecommunications and banking compa-
nies. It would not be surprising to see deeper integration between the two in the future. 
M-wallets are also changing consumer behaviours and will continue to do so as consumers 
find new ways to use the service. Wage earners are less tempted to spend all of their cash if 
they don’t receive cash (or have to stand in long bank lines) at the end of the week. Family 
members supporting others can now send money more regularly in smaller amounts, better 
managing the family’s finances. 
4  Reports from Safaricom press releases. 
FEDERAL RESERVE BANK OF SAN FRANCISCO
Community Development INVESTMENT REVIEW 117Mobile money is forcing regulators and supervisors to deal with a new actor in financial 
services and reconsider the best way to regulate services. Most regulators have taken a “watch 
and learn” approach, allowing mobile money services to grow provided that all of users’ 
money in the system is kept in trust accounts in regulated financial institutions. The global 
financial crisis has also led to some soul searching by policymakers on how to shape a global 
financial system that serves the masses rather than itself. In 2010, the G20 took on the issue 
and developed its own “Principles for Innovative Financial Inclusion” as well as list of key 
action items for its member countries.5 At the top of this list was working with the global 
standards setting bodies, to review their own policies and how they might help or hinder 
efforts toward greater financial inclusion. 
Perhaps the most important is reviewing the work of the Financial Action Task Force 
(FATF), affectionately known as the world’s “finance police.” The FATF sets guidelines for the 
world’s regulators on how to enforce anti-money laundering laws and combat the financing 
of terrorism. At a very practical level, it sets standards for client identification and customer 
due diligence. The new buzzword is “proportionate regulation” which means that regulators 
will consider regulations in proportion to the perceived risk of the financial service to the 
client and the financial system as a whole. It is now suggesting that regulators provide some 
flexibility to mobile money providers in verifying a user’s identity.6 So far, mobile money has 
proven to be a low risk activity. 
Globalization certainly has its detractors, yet this combination of international bodies, 
multi-national mobile network operators, and yes, even commercial banks might just be on 
the right track to reach the next billion with appropriate financial services. And this creative 
mix of actors and new tools might yield important breakthroughs in reaching the unbanked 
in low-income communities in the United States as well.
Till Bruett is the Regional Technical Advisor in the Pacific for the UN Capital Development Fund 
(UNCDF) and manages the Pacific Financial Inclusion Programme (PFIP), a regional financial inclu-
sion initiative to support innovative approaches to improving access to financial services. He is also 
a partner and co-founder of Alternative Credit Technologies (ACT) and a former adjunct professor 
at Johns Hopkins School of Advanced International Studies (SAIS) and Georgetown University. He 
currently lives in Suva, Fiji.
5   G20 Financial Inclusion Experts Group. Adopted in June 2010. Report is available at: http://www.
microfinancegateway.org/gm/document-1.9.44743/Innovative_Financial_Inclusion.pdf.
6   FATF 40. Recommendations. Financial Action Task Force. November 2010. 
FEDERAL RESERVE BANK OF SAN FRANCISCO
Community Development INVESTMENT REVIEW 118

The latest frontiers for financial inclusion: Using mobile phones to reach the unbanked

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The latest frontiers for financial inclusion: Using mobile phones to reach the unbanked

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