June 16, 2009
ATLANTA—In the Maldives Islands, isolation is part of life. A trip to the bank, for instance, might involve getting on a boat. Through necessity, as well as recent advances in technology, however, the Maldives are now on the frontier of mobile banking.
“They're living on a very large number of small islands, so there is no way that branch banks are going to be put on each one of those islands. That really hinders their development,” explains Mark Budnitz, the Bobby Lee Cook Professor of Law at Georgia State University College of Law.
Last December, the Consultative Group to Assist the Poor (CGAP), along with the World Bank, asked Budnitz to assist them in drafting regulations, which have been submitted to the Maldives Monetary Authority for its consideration. The regulations Budnitz helped draft focus mainly on privacy protection, unauthorized use of banking services, disclosures, and transaction confirmation from banks.
The project will give local residents of this nation of nearly 1,200 islands and atolls (200 of them inhabited) in the Indian Ocean access to banking services that would normally require a trip to a local branch. Because of its isolation, the local inhabitants—close to 200,000 strong—need a secure way to conduct business. According to Budnitz, it is essential that a new infrastructure be put into place that aids in banking, but more importantly, that the rights of those citizens using this new technology are also protected.
“The proposed regulations provide a lot of the basic protections that we felt consumers need to have when they're using banking services. You don't want people to lose their money if something goes wrong. In the regulations we drafted we wanted to make sure there were proper safeguards,” says Budnitz.
Last year, the World Bank approved a $7.7 million credit to Government of Maldives designed to improve access to financial services by allowing users to access any bank account using their mobile phone. The Mobile Phone Banking Project will create a single currency payment system which offers a set of mobile telephone-based accounts. The system will enable subscribers to transfer funds to and from bank accounts and to and from telephone-based accounts. In addition, the project aims to build an enabling environment and the capacity to support successful mobile phone banking systems.
“The widely dispersed population in the Maldives makes delivering financial services through traditional branch banking networks very difficult,” said Alastair McKechnie, World Bank Country Director for the Maldives. “But given its highly literate population and high coverage of the mobile phone network, the country has a great potential to use technology to overcome the barriers of geography and low population density to deliver financial services at low cost across the country. This project will in particular help reduce the vulnerability of people living in remote areas who currently have little access to formal bank outlets.”
Budnitz believes the introduction of new banking tools will assist the continuing economic development of the Maldives. “This project will benefit Maldivians by allowing them to be much more efficient in terms of how they pay for things and how they transfer money,” says Budnitz, who specializes in consumer protection, with a special interest in electronic payment systems. “Their payment system will have a great deal more liquidity. They will be able to move money more efficiently and faster. It should open up a lot of new avenues for trade and commerce for them.”
Budnitz's experience in consumer payment systems in the United States brought him to the attention of this international project which is part of a global movement that is expanding the ways in which developing countries lacking an adequate banking infrastructure can improve banking services. He states, “It's part of a larger international transition to using mobile phones for transferring payments and for doing banking.”
Budnitz explains that mobile banking is being developed in other countries as well. For example, several African countries are part of this trend, including Kenya. “Kenya, is very mountainous and there are not a lot of banks. To go to a bank you may have to travel over mountain ranges. Mobile banking brings the bank to your cell phone.” he says.
Budnitz notes that it is the smaller, developing countries that are leading the way in this new technology. Recently, some banks in the United States launched mobile banking services. He hopes the regulations he helped to draft will provide a useful model for the United States.
Georgia State University