Page last updated at 10:35 GMT, Friday, 25 July 2008 11:35 UK

Mobile banking boosts Maldives

Aerial view of destroyed homes on Vilufushi island
The tsunami of 2004 cost many Maldivians their life savings

The small Indian Ocean nation of the Maldives has begun setting up a pioneering system which it hopes will make it one of the first countries whose citizens bank primarily using mobile phones.

All the country's banks have been brought together under a single system to allow the islands' residents to pay money in and out swiftly without the need to travel to the nearest branch - which could be many miles away.

The Maldives received a US$7.7m loan from the World Bank in April, allowing it to begin establishing m-banking. It was seen as an ideal place to start up, with a relatively high GDP and lots of people with mobile phones.

"People are quite supportive, because the project is targeted at the rural islands, and especially the people who don't have any banking," Maldivian journalist Zahina Rashee told BBC World Service's Culture Shock programme.

"For example, in the 2004 tsunami, a lot of people lost all their life savings because they had them in a pillow or a tin can at home."


Because the Maldives are a widely-dispersed group of small islands strewn across the Indian ocean - some 250 of which are inhabited - it is not always easy to find a local branch.

Dhiraagu flag (Pic: Steve Donlan)
Use of government-owned phone network Dhiraagu has raised questions
As the mobile network on the islands does not support text messaging, the system works through phone calls - which has the additional benefit of being accessible to illiterate workers.

However, there have been some questions raised about the government's role in the project.

The government owns over half of the largest telecom company on the islands, Dhiraagu, which is the dominant of the two mobile networks and the sole landline network.

Because it would therefore receive revenue from any banking transactions made using its network, critics have asked whether the scheme is little more than a money-making fix.

Meanwhile others have queried whether mobile banking should be a priority when there are more basic concerns that they feel need addressing.

"What strikes me as funny about this scheme is that on the rural islands there aren't really any health or education facilities, and we're taking this huge loan to provide mobile banking," Ms Rashee said.

Extending credit

But Tom Standage, Business Editor of The Economist magazine, said that mobile banking has been a major success story in the developing world and is in fact ahead of the developed world.

He explained that in a typical developing country, for each extra 10% of people with mobile phones, an extra half a percentage point is put on GDP growth a year.

Woman using mobile phone

And he predicted that the next wave of economic development will be driven by "m-banking".

"There's are some very interesting things happening in Kenya, in South Africa, in the Philippines, with mobile banking - and this is taking it to the next level," he said.

"What's interesting about this system in the Maldives is that it's an experiment, as far as I can see, that the World Bank is setting up as a way of extending credit to people."

He added that it would be "very interesting" to see the impact of getting all banks together and applying a single system across the whole country.

"I think it's a very promising area," he added.

"Yes it does make money for the operating companies - essentially it costs the same amount as a text message to send money in or out - but even the poorest people who use this are prepared to do that, because there are benefits for them there."

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