Archive for: February, 2008

Why bother about savings and credit? News this week that remittances from the US to Mexico grew a measly one percent to $23.9 billion in 2007, compared to growth of 17 percent in 2006.  That hurts people who depend on remittances. The Mexican central bank recently cut its economic growth forecast for 2008 by half a percentage point.

Low-value remittances to some extent sit at the center of branchless banking channels both card- and mobile- based. Their significance for economies like Mexico or Philippines or Kenya and elsehwere has been a driver for new low-cost remittance solutions such as G-Cash and M-Pesa. These approaches have been the inspiration for the new banking channels that CGAP has been writing about and working on over the last year.

When it comes to branchless banking, the remittance volume helps make both the business case to financial providers and is an important part of customer adoption of branchless channels. The high volumes for some corridors ($12.8 billion in official international remittance to Philippines in 2006) make the case for banks (and telecoms and others) to possibly invest either themselves in a sprawling cash-handling infrastructure or work with gas stations, post offices and retail providers to set-up agent networks. Customers are likely to use these channels to access remittances that are an important part of their livelihood. Some would even argue that the high remittance flows and their impact on the economy serve as a motivator for regulators to encourage lower cost innovations as they have in the Philippines.

But we have yet to crack the puzzle of how remittance recipients get to savings and credit. The frequently used Brazil example is worth mentioning again: billions of dollars in government transfers to low-income people via over 90,000 points - but just one in 25 of them (based on a CGAP survey) are actually saving. 

RBI Executive Director R B Barman said this week that a central bank committee is examining the regulatory challenges raised by mobile banking. The committee is expected to report recommendations next month, leading next to RBI drafting the requisite changes to the country’s regulatory framework.

The report is the latest or progressively more encouraging signs from RBI that it plans to provide additional guidance for mobile banking to take off. In its Financial Sector Technology Vision document, released in October, RBI indicated it sees high potential for electronic banking to increase efficiency in retail banking. But RBI is also concerned about mobile security, particularly authenticating users accessing bank accounts remotely.

RBI is also closely watching several pilot schemes using mobile connectivity to improve access to financial services among low-income Indians. As the Economist reported earlier this month, one program in Andhra Pradesh is testing how to deliver pensions and unemployment benefits to around half a million people in villages, via specially-equipped mobile phones in the hands of local payment agents and smart cards issued to recipients. A parallel POS-based system is also being tested. So far, 40,000 cards have been issued.

What’s not yet clear is whether RBI guidance on mobile phone banking will be mostly concerned with mainstream banks providing mobile as an additional channel for current customers, or whether RBI will extend permission to some more far-reaching initiatives. Will mobile operators get a window to become licensed to provide electronic wallets for international remittances, bill payments and other payment services?

The G2P pilot in Andhra Pradesh also makes extensive use of local payment agents, and we understand at least some of these to be local merchants. In rural areas, its often the local store owner who has enough liquidity to pay out cash on the government’s behalf. But so far, RBI regulation on outsourcing doesn’t provide clear permission for banks, microfinance institutions or mobile operators to follow suit and use local merchants to extend banking services in places where bank branches may otherwise be too expensive to build. Will RBI make regulatory changes on issues like this, too?

• Black Hat Conference: Security Researchers Claim To Hack GSM Calls
• Microfinance Braces for Hard Times in Post election Violence
• Centurion Bank mulls mobile banking villages
• Competition compels local banks to meet global standards
• Equity now boasts of 2 million customers
• Money is going mobile through phone services
• mChek, Airtel bag Global Mobile Award 2008

…the bank can go to the customer. Or the drug store.

This is a pharmacy in a major slum in Karachi, Pakistan – it has been in business for 30 years through two generations. A couple of weeks ago, the pharmacy became an agent / corresponsal of a microfinance bank. The bank’s decision to create this agent is to some extent experimental. This location is just down the street from their branch and bank faces little competition from other providers – they are the only one in that part of the slum. They have equipped them with a GPRS point-of-sale device and some forms. The bank’s customers can come here to withdraw and make deposits, drawn down on their loans, repay loans, and eventually pay utility bills and remit money.  The anticipated demand is high. Small business owners told me that an immediately accessible bank deposit service saves them time and gives them security when they have a lot of cash on hand.

CGAP is supporting Tameer Bank in its work. Agents and customers equipped with cards or cell phones are at the heart of what we call branchless banking. We were inspired by similar efforts in this part of the world, in Brazil, Colombia and in Africa and East Asia.

In setting up this agent location, this Pakistani bank has already learned that their set up cost is a fraction of that of their branch (1/30th) and they anticipate running costs to be even cheaper (1/100th). The bank will open agent locations further and further away from its branches. For remote rural areas, it will partner with a postal network, a government run food distribution system, and the direct distributors of one of the major telecoms.

• Vodafone Launches Mobile Payments in Afghanistan
• Mobile telecoms: Small, but disruptive
• Mobile commerce gets ready for the next big step in India
• Majority of Consumers Concerned Over Mobile Safety
• Cellular Firms, Entrepreneurs Roll Out New Efforts To Profit From Consumers’ Many Small Purchases
• LUUP unveils cutting edge mobile wallet application
  

• Operators, banks should cooperate on mobile payments
• GrameenPhone Plans For Money Transfer Business In Bangladesh
  
• Will mobile phones extend banking to all four corners of the world?
• Regulating Transformational Branchless Banking
  

Conventional wisdom says cash is king. It’s cheap to use, attracting no fees or minimum balances, unlike credit and debit cards.

But the equation can radically change in emerging markets, making cash unduly expensive for financial service providers and clients alike.

Up to 70% of the 2000 ATMs installed in Pakistan are reportedly unable to dispense cash accurately. Pakistan’s has two Rs 1,000 notes in circulation, and the quality of the notes themselves can vary dramatically. As a result, ATMs routinely jam, or fail to accurately count notes dispensed. Branch-housed machines are repaired more quickly, but even there the error rate is reportedly 30%, according to a study by ShoreBank International. Consumers shy away from using ATMs, and banks’ investment in ATMs yields a diminished return, rather than cost savings they may have hoped for as customers are reluctant to give up the teller window for ATMs.

In Kenya, cash represents risk for ordinary people sending money home. Friends and bus companies are the preferred way to send money to family in other parts of the country, according to FinAccess, a nationwide survey of financial service behavior. However, Kenyans are quick to cite neither is perfect: money can too easily go “missing” with friends, and though bus companies are more reliable, the transit times are still long (often days). By contrast, clients of M-PESA, Safaricom’s mobile wallet service, say its cheaper for both them and their family, as there is often a Safaricom agent close by which will receive or dispense cash.

Cash can be costly for providers and clients alike. Moving transactions into electronic channels could make services more affordable to offer and use.

Around 45% of existing microfinance institutions still track and record their operations and accounting in excel sheets or even completely manually.  This costs a massive amount of time and resources, leaves room for error, prevents them from growing quickly, and undermines their ability to manage risk. Especially for smaller institutions the relative investment and maintenance cost is enormous compared to their size and operations.

How about completely outsourcing information systems (IS) to an external technology provider, so that the MFI can focus on its main business: handling client relationships and providing financial services?   Read the rest of this page »