As regular readers of this blog will know, we  are excited about the developments that we’re seeing in branchless banking in Pakistan, which have led us to call it a “laboratory” for innovation. Most recently I interviewed Mansoor Hassan Siddiqui, the Director for Banking Policy and Regulations at the State Bank of Pakistan about the recent changes to the Branchless Banking Regulations that, among other things, removed the need to capture biometric information at the time of account opening.

These changes to the regulation seem to have unleashed yet more activity. Easypaisa, the longest-established service in the market launched by Tameer Microfinance Bank and their parent company, mobile network operator Telenor, now claims over half a million mobile accounts following a major campaign. The mobile account will complement their over-the-counter bill payment and domestic money transfer services which together have processed a total of Rs 43 billion (US$500 million).

The other major player in the market is UBL, which launched their Omni service in April last year, only six months after easypaisa’s debut. UBL is supporting a number of government and NGO programs in the distribution of cash transfers to nearly two million beneficiaries through their network of 5,000 agents. Recently, UBL started accepting loan repayments for microfinance institutions (MFIs) and providing cash management facilities for businesses.

Two other players, First Microfinance Bank and MCB have already been granted branchless banking licenses under which they are running pilots. The State Bank of Pakistan last month issued a microfinance bank license to Waseela, a subsidiary of Orascom – who also own Pakistan’s largest mobile operator. The move was seen by many industry analysts as a necessary step towards getting a branchless banking license which will allow Mobilink to launch a service to compete with easypaisa.

There are several other banks that are also considering applying for branchless banking licenses and many non-banks such as the courier firm TCS. Other mobile operators are also looking for suitable banking partners that will allow them to launch their own services.

This CGAP Brief released today summarizes the latest developments and offers a commentary on the biggest challenges facing the branchless banking sector in Pakistan.

- Chris Bold

On a recent visit to Bangladesh Sarah Rotman and I met with Post Office Director General, Mobasherur Rahman, at his office in the middle of busy downtown Dhaka to hear about his foray into the world of branchless banking.

Rahman escorts us through winding corridors, deep into the heart of the Bangladesh Post Office headquarters, to a room unlike any other in the enormous building. Outside an innocuous looking door are about twenty pairs of shoes watched over by a small security camera. We were politely asked to remove our shoes and were shown into the room.

The Post Office now offers two branchless banking services. The longest established service, which was launched in March 2010, is the Electronic Money Transfer Service (EMTS) which allows customers to instantly send money from one branch to a friend or relative who can pick up the funds at 2,000 of the 10,000 post office branches. EMTS, it is envisaged, will soon replace the traditional money order. Post office staff use either a web interface, for those with internet connectivity, or a menu on a specially equipped mobile phone to key in information about the sender and receiver. There is also an option for a free text to be sent to the recipient notifying them of the transfer.

As we enter we are greeted by a blast of icy air from a room where the environment is carefully controlled – other post office staff have to brave the Dhaka heat and humidity with only the aid of a fan. In front of us is a small call center where half a dozen people are answering questions from post office staff and customers about the service. The other half of the room is taken up with huge server racks and we watch as transactions are processed, flashing up on the screen for a few seconds before the next transaction takes its place. Over two million transfers have now been carried out and the system now processes 14,000 transactions per day. As if to answer our questions about what happens in the event of a power cut, the lights momentarily dim and we hear a generator automatically start up in the background. The servers keep humming throughout and there is no let-up in the transactions popping up on the screen.

Read the rest of this page »

On June 20, 2011 the State Bank of Pakistan (SBP) introduced a new circular that significantly modifies the regulation for branchless banking in Pakistan. We talked to Mr. Mansoor Hassan Siddiqui, the Director for Banking Policy and Regulations Department at SBP about why they made these changes and the impact that they expect to see as a result.

Photo courtesy of Craig Kilfoil, ExactConsult

In March 2008, the State Bank of Pakistan introduced some of the first regulations anywhere in the world designed specifically to encourage branchless banking. The regulations allowed a number of different business models and permitted agents to deliver financial services on behalf of banks. Three years later the State Bank has significantly amended the regulations. Among the changes are:

• Rationalization of account opening process and requirements by removing the need to capture biometric fingerprint information at the time of account opening for the lowest value accounts. The requirement to capture a digital image of the account holder (which can be done at far cheaper cost with a low cost camera-phone) remains to ensure the physical presence of the customer at the time of account opening.
• Substantial increases in the transaction limits and elimination of the maximum balance, which remedies the situation that previously existed where a customer could perform more transactions “Over-the-Counter” than they could through their own account. Bill payments are no longer included in the transaction limits.
• Introduction of a new “Level 0″ account with the lowest transaction limits which can be opened electronically with no physical paperwork required.

We asked Mr. Mansoor Siddiqui, the recently appointed Director for Banking Policy & Regulations Department at SBP, about the reasons for introducing these modifications and their expectations for what this will mean in terms of the take-up of branchless banking in Pakistan.

1. Why did the State Bank of Pakistan think that the branchless banking regulations that were only introduced in 2008 needed to be updated?

Well, as we are all aware, branchless banking is rapidly evolving as a major arena for financial inclusion and the regulators around the world have to keep abreast of the fast paced changes in this area. After issuance of initial branchless banking regulations in 2008, we have been constantly encouraging the banks to enter into this business field. At the same time, we have also been monitoring the progress of branchless banking service providers by getting regular market feedback. This two pronged approach helped us in developing an insight of the problems that the customers faced while opening and running the branchless banking accounts. These obstacles to some extent were limiting the quick take-up of branchless banking in the country. Despite a couple of successful branchless banking deployments with significant agent/merchant networks, we were witnessing very slow take-up of financial services. The total number of branchless banking accounts was only about half a million. Given the widespread financial exclusion and very low visible success of branchless banking deployments, SBP considered it necessary to review of the branchless banking regulations in line with the industry’s feedback and international best practices. Therefore the updated branchless banking regulations have been issued to tackle the bottle necks in the take-up of branchless banking through accelerated account opening and ease of operations of these accounts.

Read the rest of this page »

Over the past several months, we have taken a close look at the branchless banking industry in a few key countries. You can see all our postings here for Brazil, Mexico, India, Pakistan and Ghana. Today we continue with our analysis of South Africa and share this summary note on the branchless banking industry.

South Africa has often been used as a case study by those with an interest in financial inclusion. The country has an advanced banking infrastructure with nearly 10,000 ATMs and over 100,000 POS devices deployed. The Government has for a long time been committed to expanding access to financial services to the bottom of the pyramid and around 63% of South African adults now have a bank account, higher than the other countries featured in this series. They have employed a number of policy levers that have helped to achieve this:

• The “Mzansi account” – a basic entry-level bank account which has attracted 6 million customers – was launched in October 2004 by the four largest banks as well as the state owned Post Bank as part of a compact between government and the private sector. Recent evidence, however, suggests that a large number of these accounts are dormant and banks complain that the accounts are not profitable. Policy makers and banks are now looking for other approaches to advance the access frontier. 
• Government payments of R88 billion (USD 11 billion) are made to 14 million individuals – approximately one-quarter of all South African adults every year. Recipients can choose to be paid into a bank account which is the mechanism that has been chosen by one-third of recipients. This has been one of the primary drivers of uptake of banking services, but there is still un-tapped potential to offer financial services to beneficiaries. 
• The government has also made efforts to promote an enabling environment for innovation. A proportionate approach to KYC procedures for account opening has been introduced by removing the requirement for customers to give proof of address when opening low value accounts and non face-to-face account opening is permitted. The regulatory framework also allows for the use of agents to provide banking services beyond the branch network.  

Read the rest of this page »

This is the third posting in a mini-series in which we present new evidence from three countries on whether branchless banking is reaching poor people. This post looks at Orange Money in Mali. Previous posts looked at India and Pakistan.

Orange Money agent in Timbuktu, Mali

This is the final survey in the recent round of research conducted by Coffey International Development. 813 branchless banking customers of Orange Money in Mali were interviewed at 13 agent locations in and around Bamako. Due to logistical difficulties in reaching some of the more remote areas, some of the interviews in this case were conducted over the phone.  As with the other surveys in Pakistan and India customers were asked about the use of the service and also about their household living conditions to enable an estimation to be made of their likely income levels.

Below are the main results from Orange Money customers:

• Around two-fifths (41%) of active branchless banking customers in Mali are poor (defined as living on less than US $2.50 per day). Only 6% of customers were living on less than $1.25 per day.
• 62% of Orange Money customers were already using some other form of financial services. 40% had a bank account and 34% were customers of a microfinance institution. Just below a third also used the services of informal money lenders. 28% had not previously used any alternative source of finance.
• More than three quarters of users felt the service has a positive impact on their lives and two thirds of users ranked the service to be very effective.
• After depositing money, the most common transaction type in Mali was purchasing airtime which was used by 62% of respondents.

When we compare across all three services we see a surprising level of consistency around the characteristics of the customers they serve (see table).

In each of the three cases we find over two-fifths of customers living on less than US $2.5 per day. The figure for India may be considerably higher than this and Eko is the only service that is reaching significant numbers of customers living on less than $1.25/day. In all three services around two-fifths of customers lacked access to any formal financial services and over half did not have a bank account.

These studies when taken together do not give statistically significant evidence that branchless banking  is reaching poor people across the world since the sample size is only three, but they may give us the most helpful indication yet.

- Chris Bold

This is the second post in a mini-series in which we present new evidence from three countries on whether branchless banking is reaching poor people. This post looks at banking customers acquired and serviced by Eko as a Business Correspondent of banks in India. The first post looked at EasyPaisa customers in Pakistan.

In the second survey out of three that have been conducted, Coffey International Development interviewed 814 branchless banking customers of Eko’s service in India. Customers were interviewed at 32 agent locations in two states: the national capital region around Delhi and in primarily rural and peri-urban Bihar.  As with the survey in Pakistan, customers were asked about the use of the service and also about their household living conditions that allowed an estimation to be made of their likely income levels.

Here are some of the headline figures:

• 46% of respondents were likely to be living on or below the poverty line of USD 2.00  per day.* Nearly 14% were likely to live below a poverty line of USD 1.25 per day. We used a slightly different poverty line for our analysis of EasyPaisa customers, but the research suggests that Eko is serving a higher proportion of poor customers.
• 39% of Eko customers had not used any form of financial services before and only 48% had previously had a bank account. The unbanked were 20 percentage points more likely to be poor than those who had used a bank in the past.
• As in Pakistan, customers valued the service: circa three-quarters of respondents (76%) rated the service provided by the branchless banking outlets as highly effective. A similar proportion (74%) said that losing access to the service would have a negative impact on their life. 98% found the service very or moderately easy to use.

Unlike EasyPaisa customers in Pakistan, a large number of Eko’s customers use the service for saving money, especially the poor:

Read the rest of this page »

In this mini-series we explore new evidence from three countries on whether branchless banking is reaching poor people starting today with Pakistan.

Proponents of branchless banking, including CGAP, have for some time made the case that branchless banking has the potential to transform the lives of poor customers and in some instances is doing so already. With many more access points across the country and without the cost of expensive branch infrastructure, branchless banking – the theory goes – should be able to reach many more people and at a much cheaper cost. Financial services will be accessible and affordable to many poor people for the first time. But it is quite possible that in the first instance at least it will be richer customers and those who already have bank accounts that will make use of services that are cheaper and more convenient.

Until recently there has been very little data on the income levels of the users of branchless banking. CGAP commissioned Coffey International Development to carry out studies of customers of several branchless banking services. The first study to take place was with EasyPaisa customers in Pakistan. With over 10,000 agents across the country, EasyPaisa already has more access points than the entire banking sector of Pakistan combined, and allows customers to send and receive money to friends and family, to pay their bills and, more recently, to open an account on their Telenor phone. We wanted to find out whether poor customers and those that were previously unbanked were using the service.

327 interviews were carried out with EasyPaisa customers at 10 locations across both rural/semi-urban and urban Pakistan between January and February 2011. Customers answered questions about both their use of EasyPaisa, but also about their homes and their household that allowed us to work out their approximate income level by comparing their answers to a nationally representative household survey.

What did we find?

Read the rest of this page »

Over the past several months, we have taken a close look at the branchless banking industry in a few key countries. We have presented our learning from Brazil, Mexico and India over the last few weeks. Today we continue with our analysis of Pakistan and share this summary note on the branchless banking industry.

Pakistan might not be the first country that springs to mind as fertile ground for branchless banking. The country is certainly facing enormous challenges: from the fragile state of the economy to the rise of religious extremists. Pakistan has one of the lowest proportions of the population who are financially included of all the countries that we are featuring in this series with just 12% having access to formal financial services. But the huge numbers of people who are not currently being served represent a huge opportunity for branchless banking providers. Pakistan also benefits from a very competitive mobile telecommunications sector with low average-revenue-per-user (ARPU) and players hungry to look for additional revenue sources.

Pakistan’s branchless banking story started back in April 2008, when the Central Bank issued specific regulation on branchless banking which laid out the rules clearly: low value accounts with reduced KYC requirements were introduced, but only regulated banks would be allowed to hold the accounts and sign agreements with networks of agents to service these customers. Some 18 months after the regulation was passed the first branchless banking service was launched. Six months later their first competitor entered the market and several others have advanced plans to launch services during 2011.

So, who are the runners and riders in Pakistan’s branchless banking race and what makes them interesting?

Read the rest of this page »

As part of our efforts to promote branchless banking as a way of reducing the cost and expanding the reach of financial services, the Technology Program monitors the uptake of branchless banking around the world. We have recently completed a mapping exercise to estimate the size of the current global market for branchless banking by analyzing all services in Low and Middle Income Countries (as classified by the World Bank) that were live at the end of 2010.

Before we get to the numbers, let me start with a caveat: some of the numbers in this post have large margins of error. Our aim in this exercise was not to get an exact figure for the number of people in the world that use branchless banking, but a sense of the order of magnitude and more importantly the speed at which the market is growing and the regional variations in this trend.

So with that health warning – here are some of the headline figures.

At the end of 2010 our best estimate was that there were 238 million customers registered for branchless banking services, of which we estimate that approximately 185 million were active users. Interestingly, however, only 45 million used the services for saving.

Read the rest of this page »

In previous blogs Mark Pickens has lamented the lack of innovation by branchless banking providers in products that go beyond payments. But there are some green-shoots of innovation. In this blog we take a look at some examples of early experiments that we have seen involving in micro-insurance.

It could be argued that micro-insurance is the ideal financial product to be offered via branchless banking. Insurance requires a large base of customers: the larger the base, the more diversified the risk for the insurer, and the cheaper the insurer is able to offer the product. And branchless banking, we have long argued, is a business built on high volumes and low margins.

It seems that several others share this view. Here’s a quick summary of three of the most exciting examples that we have come across around the world that pair micro-insurance with branchless banking channels:

Read the rest of this page »