Hannah Siedek joined CGAP in 2003, helping private and public microfinance organizations use their resources more effectively as part of the Aid Effectiveness team, based in Paris. In 2006 she joined CGAP’s Technology Program, where she explores technology-enabled delivery channels for financial services and how these channels can increase outreach to more remote and poor clients in a profitable way. Based in Washington DC, Hannah is the team’s lead researcher on banking agents, using third parties such as retail shops to work on behalf of banks. Work includes understanding the business model, agent management, and customer adoption challenges. Before CGAP, she interned with NM Rothschild & Sons in London and the Momentum in Madrid. She has a Master’s degree from ESCP-EAP, Paris, and has studied in England, Spain, and France.
IBM hearts MFIs
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 »
Giving due credit to credit bureaus
It is nothing new that access to credit to small businesses and low-income individuals is limited in many developing countries. One of the many reasons, besides lack of collateral, informal economic activity, and physical distance to credit providers, is the lack of a formal credit history in a local credit bureau.
FAQ - What are banking agents?
Reaching poor clients with financial services in rural areas is often prohibitively expensive for financial institutions since low transaction numbers and volumes typically would not cover the cost of a branch. To overcome that challenge, financial institutions in developing markets are increasingly turning to banking agents, using retail outlets to process financial transactions that would usually be handled by a branch teller. Lower set-up and running costs of banking agents should enable providers to viably offer a full range of financial services to low-income clients in rural and remote areas.
How do you spell success with banking agents? P-e-r-u.
Right after the government in 2005 had enabled banks to use banking agents, retail and postal outlets to handle transactions on behalf of banks, a number of Peruvian banks started to roll out their agent networks. One of them, Banco de Credito (BCP) with their “agentes BCP.”
Already in November 2006, Mr. Luis Almandoz, BCP’s man in charge of their agents, had presented the bank’s thorough planning of the network roll out at a conference in Colombia. Last week, newspaper El Comercio, described the bank’s success story installing more than 1,000 banking agents with lightening speed (1.5 agents per day!). Rather than the expected 300,000 transactions, the agents process today 900,000 transactions per month (i.e., around 30 transactions per day per agent).
The planning phase paid off and the bank’s learning curve was steep: “At the beginning it took us 3 days to open a new banking agent, today we need maximum 4 hours. Once we have one agent in a neighborhood, within three months, there will be three more.” said Almandoz.
The new channel, for which BCP won the 2006 Business Creativity Award (Premio Creatividad Empresarial), benefited all actors involved:
- Clients can now transact closer to their home at agents not only in urban Lima, but also in some parts of rural Peru. Almandoz also mentions reduced transaction cost: “mine workers often pay up to S/.30 (US$10) to transact in non-bank establishments.” Whereas bill payments at the BCP agents are free of charge, and account fees are low.
- Seventy percent of the agents were able to increase their sales by around 12% due to the increased foot traffic generated from their work for BCP. In addition, they earn around US$45 – US$200 per month in commissions.
- BCP was able to increase their coverage by 1,000 points and process transactions for over S/. 1m (US$ 330,000) at each agent each month.
The question is what are BCP’s secrets of success….. one is definitely their marketing (the bank’s anual marketing budget is around US$300-450k) and definitely their commitment and thorough planning. But how are they managing cash? We hope to find out….
Other banks like Interbank, Scotiabank, and Mibanco are also gearing up in Peru and the network of agents is expected to increase massively next year.
Surfing, beaches….this week microfinance is the main attraction in El Salvador!
For some, El Salvador is famous for some of the best surf spots in Central America. For others it is the kilometer-long black-sanded beaches that come to mind. This week, for the Latin microfinance community, San Salvador will be famous for one of the largest and most reputable microfinance events of the region: The 10th Inter-American Forum on Microenterprise.
Looking at the agenda, the three day conference brings together an amazing group of around 1,500 of the region’s microfinance providers, its networks, governments, donors, and even the royals with the participation of H. M. Queen Sofia of Spain.
CGAP is organizing a panel on technology’s potential to increase outreach and depth of access to finance. Our project partners Visa Credibanco and GXI, as well as Opportunity International will share their lessons learned and challenges to implement technology projects.
Watch this space for more.
Location, location, location! A tool to strategically place your banking agents
An important part of effectively rolling out a banking agent network - a network of retail or postal outlets that handles transactions on behalf of financial institutions and mobile operators - is the agent location.
Our project partner, Credibanco VISA in Colombia, is using a georeferencing tool to advise banks as to where large numbers of their target clients are located, and also which retail outlets in that area might make good “corresponsales no bancarios”, as the Colombians call their banking agents.
The process is easy. Based on the bank’s target clientele (e.g., income up to COP 250,000 per month [US$122] and “estrato 2″ reflecting the Colombian economic classification of 0-6, where 0 is poorest and 6 highest income) and preferred location (e.g. high population density, no financial infrastructure, etc.), VISA uses census data, financial infrastructure coverage, and retail information from yellow pages to develop heatmaps which combine the following:
- poverty and income levels
- population density
- postcode boundaries
- existing financial infrastructure (e.g. branches, ATMs, etc.) and card holders
- stores and other commercial activity
- areas that generate a lot of foot traffic (e.g. bus stations, markets, hospitals, etc.)
Based on the resulting maps, the bank can see in which areas their agent would be most effective. Factors like poverty and income level, population density, and existing financial infrastructure will impact the agent’s future transaction volume; placing agents near bus stops and market areas will make them more visible and increase the likelihood that clients will repeatedly use the agent to conduct transactions.
On the picture you see the final heatmap. Red areas show neighborhoods with great opportunity to reach the bank’s target clients; the mountains refer to population density. If you would like more detail, please send me an email and I can forward you VISA’s complete analysis of Ciudad Bolivar, a poor neighborhood of Bogota, Colombia.
From the conference - the four things we have to tackle
Since Monday, more than 300 people from 60 countries have gathered at our Next Generation Access to Finance Conference in Washington DC.
The opening sessions covered the opportunities that technology provides, but also helped identify the areas we jointly need to tackle to unleash the power of technology to deliver financial services to people who are too poor, live too far from a traditional bank branch, or do not have a formal credit history.
The long and costly road to ‘bank the unbanked’…
…this is how Brian Richardson, CEO of WIZZIT started off his presentation at a conference earlier this month in Cartagena, Colombia.
The two-day event brought together a great cast of experts including representatives from the Procredit network, GXI(Philippines), Banco Azteca (Mexico), the Colombian Superintendent of Banks, as well as David Porteous and Ernesto Aguirre (who also advise the CGAP Technology Program). This very diverse group of practitioners, regulators, and technology providers created a great base to discuss and share experiences and challenges on how to provide low-income clients in Latin America and other regions with access to financial services. The presentations touched on a range of issues vital to successfully scaling up microfinance: market research, product development, financial education, innovative delivery channels, and supporting regulation.
Even though the use of technology and new business models to push the access frontier was a major theme of the conference, the constant theme throughout all the presentations was that technology and innovative delivery channels are only part of what it takes to scale up microfinance and reach people we cannot reach today.
BancoEstado from Chile presented impressive information about the clients they want to serve. They used this knowledge on customer perceptions and preferences to design an account product without monthly account fees, but “pay per use.” In India, banks have been experimenting with ways to support microfinance and ICICI Bank presented its partnership model, disaggregating the microfinance value chain: Banks use microfinance institutions and NGOs as banking agents to handle savings and credit transactions. The Central Bank of the Philippines explained how they started to adapt regulation to foster innovation, but at the same time protect consumers and the financial system.
All these delegates are true pioneers and still experimenting with the right operational approaches, organizational set-ups, regulatory frameworks, demand-driven products, and a lot of other issues to ensure client take up and increase access to finance in their market.
It will take time to unleash ready-made solutions that reach the very poor in remote areas on a viable basis, and it will require substantial commitment and investment from providers.
Want more presentations? Visit the Asobancaria website.
A joint venture gets disjointed. Will Banco Postal customers suffer?
Banking agents have helped increase access to finance in Brazil. But success seems to be bringing competition among partners. The Valor Economico reports that Correios, the Brazilian postal network and Banco Bradesco, the country’s largest private bank are fighting about the postal bank they operate together.
Banco Postal was born out of a joint venture between Branco Bradesco and Correios in 2001. Banco Bradesco bid US$90 million for the 10-year contract and beat Itaú and state bank Caixa Economica Federal.
“Before we arrived, people in São Francisco de Paula had to go 10 kilometers to the nearest town with a bank to withdraw salaries or pensions,” said André Rodrigues Cano, a former Banco Bradesco director.
This was in March 2002 when, Banco Postal’s first branch opened in remote Sao Francisco de Paula in the south of Brazil. Now it seems as if Banco Postal account holders in rural and remote Brazil may have to take the bus again to reach their branch.
Banco Bradesco did not plan on building branches; they decided to use the postal outlets as their correspondentes bancarios, banking agents that deliver financial services.
Within only five years, Banco Postal was able to turn 5,460 postal outlets into full-service banking agents at which clients could pay their bills and withdraw their salary, but also deposit money and transfer funds to a relative in for example Sao Paulo. Today, Banco Postal acquires 4,500 new clients per day, and as of May of this year had opened 5.5 million bank accounts.
But now, its existence seems to be in doubt. Early in 2007, the battle between Correios and Bradesco began in earnest. The government would like to launch its own bank through the postal network providing microcredit, pension plans, and other services. So it may cancel its agreement with Bradesco. The reason primarily being that Bradesco seems to be making too much money off the state’s distribution network. Of the newly planned financial institution, the Brazilian government would keep 51% and the other 49% would again be auctioned to banks such as Itaú, ABN Amro, and Bradesco that have shown interest.
What I’m wondering is what will happen to all the account holders? Will they be transferred to the new financial institution? Will Bradesco have to open outlets in some very remote locations to serve them? Banking agents have been so successful in Brazil…but would clients now be left behind?
What is a banking agent - and why should you care?
Banking agents, retail and postal outlets handling banking transactions for financial institutions and mobile operators, are mushrooming all over! It took less than four years to cover almost all of Brazil. Colombian banks established 3,548 service points in just one year. In Peru banks manage more than 2,500 agents. Equity Bank in Kenya is piloting agents in rural areas. Xac Bank in Mongolia is planning to develop an agent channel….