Amitabh Saxena started the Alternative Channels workstream at ACCION in 2006 after spending several years in developing credit card products for Capital One’s Innovation Center.  He has worked in strategy and implementation of various channels, particularly prepaid cards and mobile, for ACCION’s partner microfinance institutions (MFIs) in Latin America, Africa, and Asia.

Remember MFIs?  Ten years ago they were front and center in delivering financial services to the poor.   These days, it seems that you’re more likely to see the likes of retailers like Wal-Mart (Mexico), mobile operators such as Safaricom (Kenya), or even post offices (Brazil) in the same sentence as “access to financial services”.   Are MFIs, then, still relevant in branchless banking?

I just finished writing a comprehensive paper on this topic, based on ACCION’s experience the last few years working on alternative channels such as banking agents, cards, and mobile banking, and the answer is a clear yes.  And  while significant obstacles remain for MFIs to deploy innovative channels, they also hold some major advantages that to-date has not been fully taken advantage of.   I touch on two below.

The first is the fact that no other entity understands the financial needs of poor customers – and can connect with them – like an MFI does.  When hearing of banking agent and mobile banking pilots underway, I sometimes worry that we have defined “success” in terms of the implementation running smoothly (from an operational, technological, and regulatory perspective), rather than the actual adoption and usage of the channel by (poor) customers.   A truly successful branchless banking channel, then, is ultimately about changing consumer behavior.   This requires a deep understanding of the consumer to design the channel, and initial trust so customers can move from reluctance to a “trial” phase to experience it.  The best MFIs have both.

I am often surprised that not more MFIs have made the most of the second “hidden advantage”, which are developing retail agent networks.   Retail agents such as pharmacies, gas stations, and small convenience stores are essential to bring microfinance delivery to the next level: they are the physical infrastructure which electronic channels, such as cards and mobile banking, rely on.

In the last two years, I have repeatedly heard from practitioners that understanding and working with agents is tougher than it first appears – yet many of these retailers are precisely the same entrepreneurs that MFIs have been serving for years.  Whether it’s having a savings account with the agent to facilitate customer transactions, knowing cash-flow patterns from a previous loan application for liquidity management, or knowing the entrepreneur’s reputation in the community as an agent selection criteria, MFIs have built-in advantages to quickly and effectively setting up a wide retail agent network.

It’s not going to be easy for MFIs to play catch-up in this space – in the paper I highlight ten obstacles they’ll need to overcome to do so – but the beacons in multi-channel delivery, such as Equity Bank in Kenya and Mibanco in Peru, show that it is indeed possible.

What do you think?  Do MFIs have other advantages to leverage, or other challenges they need to surmount?    I’m curious to hear your thoughts.