Whether you’re in a small MFI with just a few dozen clients, or a big organization, your responses will help build a picture and create greater awareness of what’s going on around information technology for the industry. To be eligible for the raffle to win up to $15,000 in free consulting services, please take part before our deadline of September 15, 2008. The survey is available both online and offline in English, French, and Spanish, and offline in Arabic. Thanks for your help.

That said, who will pay for interoperability? If I am a service provider, why should I subsidize/pay for the infrastructure that could benefit my competition?  Visa/Mastercard and the like were not interoperable at first, and we might well expect the same in the mobile banking space. So initially, it makes sense that the field of mobile banking is developing the way it is.

This week our team has been in Cairo for the first ever Mobile Money Summit. Organized by CGAP, DFID, IFC and the GSM Association, 429 delegates from 67 countries gathered to hear from telecom CEOs, banks, microfinance organizations, solution providers, and regulators. GSMA tells us that delegates were more or less evenly comprised of these four groups: telecoms, financial service providers, vendors, and the NGO/government/donor community.

In between powerpoints and conversations in the exhibition hall, some common threads have emerged:
-an awareness of the need for developing domestic financial services and systems, not just international remittances;
-a real emphasis on the vital role played by banking agents, who conduct the cash-in and cash-out function on behalf of a service provider;
-seeing poorer customers as a big opportunity.

As noted in a recent CGAP Focus Note, mobile banking won’t automatically benefit poorer people. There’s a need for the development of interoperable payments platforms, practical and risk-based approaches to regulation, as well as shared networks of cash-handling agents. There is also a need for product development that overcomes the lack of human interaction and reliability concerns that may hinder customer adoption today.

Those challenges are evident in places such as Kenya. Andy Chung of Vodafone spoke about M-PESA, which today boasts 2.3 million customers and is expanding in Afghanistan and would like to expand into even more markets. But are those customers poor people? Would M-PESA automatically reach poor people?

“Any new product penetrates from the top-down. This is the early adopter model that we see with all technologies,” said Chung.  Only with active engagement and perhaps subsidy from development organizations would the people making less than $2 a day begin to take on such services.

Is this discouraging? No. It just means that for mobile banking, it is really early days. The  Mobile Money Summit has been billed as the world’s first global mobile banking conference, and that’s true. It would have been difficult to convene a gathering of this size and shape even one year ago. Now seems to be just the right time to convene this sort of gathering.

What is next? Will industry momentum continue? Will poor people be served by ever
more providers? What will the status of industry be one year from now?

Watch this space.

Early registration closes April 1. CGAP encourages you to register with a discount code: CGAPMMSVIP to receive a $100 discount. For questions, contact Jim Rosenberg, CGAP Communications Officer.

Mobile Money Summit 2008 is two-day conference designed for senior executives from financial services institutions, mobile network operators, development organizations, solutions vendors and regulatory and policy makers. The inaugural event will provide for the first time a comprehensive demonstration of the addressable markets, showcase new solutions, and share key success factors and learnings from around the world. The goal of the Summit is to stimulate greater understanding and collaboration between all stakeholders — globally, regionally and locally. Most importantly, Mobile Money Summit 2008 will better equip participants to develop and deploy their own Mobile Money portfolio effectively, efficiently and at scale.

At this highly interactive event, you will learn:

• How Mobile Money can drive top-line growth and customer value in both financial services and telecommunications
• How Mobile Money solutions can drive economic growth and financial inclusion for individuals, communities and countries
• Best practices in the market today, and key innovations coming to market
• Strategic, operational, regulatory and market challenges to effective deployment and scale
• Key propositions for various customer segments in different markets.
• Rationales for partnership between financial services institutions and telecom companies to deliver converged mass market Mobile Money.
• Where and how to kick-start activity most effectively.

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.

That was fun. What did we learn? 

We reaffirmed that small, including micro, enterprises have proven themselves to be reliable and sustainable ways to help people out of poverty and that, in that context, we have abundant proof that microfinance is a workable idea.

MFIs, although having reached increasingly impressive numbers of people, must nonetheless recognize that more than two-thirds of the inhabitants of developing countries remain to be touched by the MFI mission of bringing the advantages of banking to the unbanked and under-banked.

Both the time and the opportunity have arrived for MFIs to rethink their original ethic of experimentation, labor intensiveness and small scale and to extend access to finance to as many as possible of the 2.5 billion who lack access to finance.

This volume of clients can only be reached through significant reductions in the cost of MFI’s operation and a quantum leap in the scale at which the industry functions.

The response to this imperative for reduced cost and increased scale must include the optimum use of technologies that are available or that can feasibly be put in place, as well of credit bureaus and credit scoring.

We started our discussions with the promise that we would engage in a round of critical and in-depth analysis of what has worked in these areas and what needs to be done differently and more efficiently and effectively. Fortunately, we did not inaugurate this meeting with the idea or the promise that after three days of discussion we would be able to take a vote and announce to the world the answers to the questions posed by the pursuit of greater access to finance. Indeed, if anything, our attempts to find answers to questions often yielded a harvest of new questions.

Productive inquiry begins with the asking of the right questions, so, if all this meeting produced was a greater clarity of the issues that we need to address, our assembling here in Washington would have been of tremendous value. But we believe that we also achieved at least four other advantages. These are:

• A greater understanding of each other’s concerns, which, as we have seen at the level of individual partnership arrangements, is critical to any progress in the access to finance area.
• A greater awareness of each other’s successes, which we believe, are a necessary encouragement as we continue with the enormous task that access to finance represents.
• An understanding that the idea that every problem represents an opportunity is, in the context of access to finance, more than a jargon, and is in fact the only mindset that we can afford to take to the challenges and opportunities that beckon us.
• A belief that prevailing opportunities for reaching the next 2 or 3 billion of the world’s financially excluded inhabitants represent nothing less than a tipping point that we cannot afford either to ignore or to mismanage.

When the Meeting Began

So when we opened our meeting on Monday, what were the questions we set out to answer? Perhaps there were four main ones:

• How can we take advantage of the growth in MFI investments, lending volumes and outreach and the availability of a range of financial technologies to increase scale and reduce costs in microfinance operations with a view to increasing access to finance for those who still lack such access?
• How can the establishment and functioning of credit bureaus and the use of credit scoring enhance decision-making, portfolio management and other MFI functions?
• Is the suggested approach destined to leave the poor exactly where they are, or does it really have the potential to transform the financial sector in both developed and developing countries and generate what one speaker called a seismic shift in the circumstances of people in the developing world?
• And to look at that question another way, what are the likely consequences—for the financially disenfranchised, for the MFI as we know it today and for the new actors responding to the opportunities and challenges of access to finance—represented by the new disaggregated business model and the attempt to employ second-generation solution to first-generation problems.

After some 50 people have spoken on stage and many hundreds more taken questions and answers in the audience, some salient ideas.

The Technological Imperative

• While not understating the concerns that some have expressed on the possible negative impacts of certain technological innovations, there seems general agreement that using financial technologies in the pursuit of access to finance is not a question of whether or even of when, but one of how.

• Need to focus on the back end for information systems. “The back end is broken.”

• Interoperability

• Balancing need for a common platform perhaps based on open source technology (as against a plethora of individually customized systems) with the need to do sufficient customization to meet the peculiar needs of clients at the bottom of the pyramid.

• Cultural requirements—Multilanguage, literacy and related concerns.

The Efficiency, Transparency and Accountability Imperative

• As with technology, the use of credit bureaus and the introduction of some form of credit scoring are a sine qua non for financial institutions wishing to avail themselves of the opportunity to reach masses of potential clients without losing control of the management of the decisioning and portfolio-management processes.

• Increased presence of credit bureaus in emerging markets.

• Again, meeting the specific needs and circumstances of the target market.
Experiments, Experiences and Successes in Innovation

• We’ve received reports of a wide array of studies, plans, experiments, experiences and successes that seem to establish that, given the right circumstances and correct actions, innovation can work.

• These vary from the project being developed by CGAP and Xac Bank Mongolia to more mature examples in Kenya, India, and the Philippines.

• The experience of Alieu Conteh, who started the first GSM network in the Democratic Republic of Congo.

The Need to Balance Optimism with Realism

•This conference provided us with many moments when we could easily have been tempted to see the glass not only as half full, but as approaching the three-quarter mark. We should therefore thank those who kept calling us back to a  recognition of the reality and reminding us that, despite the wonderful successes, we are engaged in a work in progress, indeed a work barely begun. So we have to balance optimism with realism.

The Requirements, Benefits and Challenges of Partnership

However, one of the great takeaways from our discussions is the importance—indeed the inevitability—of conceiving, establishing and managing effective partnerships if we are to be successful either on the credit bureau/credit scoring or the technological side of the equation.

Bringing together elements previously seen as discrete—e.g. a large international bank and a small MFI/NGO, an international mobile-phone provider and a local bank downscaling to the microfinance market, or perhaps a larger consortium of actors including a systems provider, a number of MFIs, a credit bureau and a regulatory agency. Not to mention the silent partners, i.e. the hundreds or thousands of underserved clients.

Only a thin line stands between such actors being partners and becoming competitors—or between their working together at this important enterprise or walking away from the table.

Potential fault lines in this relationship relating to such variables as the sharing of fees and the question of exclusivity need to be carefully managed.

The Urgent Need for a Generation of Visionary Regulators

The need for an inviting regulatory framework, long a challenge in the world of microfinance, becomes even more critical with the degree of experimentation, the possible high investment costs and the larger number of stakeholders that must be managed in this new phase of access to finance.

Regulators now need not only to understand the distinctions between MFIs and the traditional banking sector but also the requirements and challenges of combining the peculiarities of different sectors and technologies—principally telecommunications and banking and finance.

The Future of MFIs

How could the management and sustainability of the “group loan” methodology be affected by both credit scoring and mobile lending?

Danger of the ethic, or the very existence, of the MFI being forgotten if not threatened by the emerging discourse between banks downscaling to reach the microfinance market and mobile phone providers becoming aware of that market.

Abbas Sikander’s (Tameer Bank) encouraging revelation of how he emerged from his identity crisis and his confusion about the future MFI role early in the conversations at his meeting an awareness that the growing interest of these new players and what they bring to the table represent new opportunities for MFIs.

While this number was down to 16% by early 2007, it exemplifies the immense operational challenges of implementing new channels. Elizabeth’s comments on the promise of new technology were coupled with a cautionary tone that has been a resounding theme of many presentations at the Next Generation Access to Finance conference this week. And we haven’t even heard from the regulators yet!

In the first day’s sessions on credit bureaus and bank-end systems, moderators and presenters made the convincing case that infrastructure is critical and must be in place before embarking on other technology-enabled delivery approaches. We’ve also heard from MFIs actively using credit scoring, m-banking, and agents.

Based on conversations with MFIs over the past two days, conference attendees lie on the spectrum from those without solid back-end systems or from countries without much financial infrastructure such as payment systems and credit bureaus, to those already using m-banking, scoring, and other advanced technology approaches. While some MFIs are mingling with the technology vendors on display and discussing their m-banking plans, others are interested in pursuing these ideas but know that they and the markets in which they work need to put some basics in place before it will be possible.

Despite the different starting points, several issues are emerging as critical to the sucessful planning and roll-out of technology approaches:

1. Strong back-end systems and regulatory clarity are the foundation to introducing advanced technologies.
2. “Ecosystems” where people can readily transact electronically or convert cash into electronic units will be important to develop scale.
3. Financial education is key to customer adoption.
4. Interoperability improves the value proposition to the agent (more traffic means more commission) and client (more points of sale) but can be challenging to implement.

All the cautions and challenges aside, the mood at the conference remains optimistic. Technology alone will not magically bring the millions of unbanked into the formal financial system, but coupled with the customer-focused approach that microfinance is known for, it just might.

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.

Viability of technology approaches and business models. Mobile-phone banking for low-income clients, agent-based distribution networks for banks, outsourced information technology (IT) platforms for microfinance institutions (MFIs) are tested by only a few pioneers around the world. The viability and sustainability of these emerging business models will depend greatly on how well services and products are adapted to clients needs and wants to ensure uptake.

Infrastructure alone will not do the trick. In Brazil where 75 banks are currently operating 90,000 agent points and reach 98% of the country’s municipalities, access to finance is not a problem anymore. However, low-income populations are using their local banking agents only to pay their bills. In CGAP research in 2006, just 6% of the 750 surveyed actually deposit money at their pharmacy, bakery, or supermarket. Using technology is not only about developing infrastructure, but also about acquiring new clients in these often remote locations.

Regulation to foster innovation while protecting customers. The use of non-bank entities to deliver financial services, e-signatures, payment system and competition laws, telecom regulation, etc. are all issues which come into play when using a mobile phone or a retail outlet as the interface between the bank (and sometimes not even the bank!) and the client. Certain and conducive regulatory environments are the fundamental issue that can make or break the use of technology for microfinance.

A transactional channel cannot replace microfinance. Microfinance’s fundamental element is the strong relationship between the credit officer and the client. This strong link helps microfinance institutions make credit decisions, but also provides social integration for many customers, training, and empowerment. Can the use of a mobile phone or local merchant replace microfinance? Or what are the operational set ups to ensure that we do not lose the personal element which has been so powerful for microfinance’s impact?

Stay tuned.

Want to know more? Visit here for the full agenda.

We’ll be posting presentations as we get them…and this link should take you to a live video stream of the event.

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.

Not one or two or three, but four presentations at the AMC in Kampala, Uganda, dealt with the use of technology for increasing access to financial services. Richard Ketley from Genesis Analytics talked about Alternative Service Delivery Mechanisms and the card and phone revolution in Africa. His main conclusion was that African microfinance institutions (MFIs) can leverage existing technology such as mobile phones, ATMs and the internet to counter the negative impact of operating in a high cost environment and more often than not using inefficient business models.

Meliza Agabin, working for the USAID-funded Microenterprise Access to Banking Services (MABS) Program in the Philippines, showed how rural banks have been able to serve customers better by making use of Globe Telecom’s G-Cash mobile banking solution. Customer comments such as “So easy to use,” “Very convenient,” and “I no longer waste my time” speak for themselves. Frankfurt School of Finance & Management’s Willemien Libois introduced some examples how cell phone technology is currently used by banks in Africa.

And finally, I presented on behalf of CGAP’s Technology Program on various business models in branchless banking we have looked at in seven countries around the globe, including Pakistan, and how regulators have responded to them. It was obvious that many participants were hearing about this for the first time, but that they also wanted to know much more. One participant summarized her impressions by saying “Technology is going faster than us.”

The subsequent discussion focused on a number of practical issues with branchless banking models: What are the costs and returns for operators? What is the experience with fraud and customer satisfaction? Which criteria can be used to select agents? What risk mitigation measures can be used by the bank or mobile operator? Who is best equipped to build up an agent network? How do you manage liquidity across the network of agents? To many of these questions there is no clear answer yet. But practical experience is growing fast, and if we try to keep up with the pace of technological and business innovation, we might be much better positioned to present answers at the next African Microfinance Conference in two years time.

I have never been approached by so many people at the end of a presentation before. The interest to learn more about this is immense. Branchless banking is regarded by many as a way to reduce the still huge gap in outreach. Yet it seems to be an open question where to start. Is the first step to create a policy and regulatory environment which opens up space for branchless banking while at the same time mitigating any new or increased risks? Or isn’t it much more important to encourage the banking and also nonbanking sector to experiment in the branchless banking sphere? What we can say so far is that this probably depends very much on the country context. Regulation can play a role in promoting the use of technology for financial inclusion, but without some creative entrepreneurs you won’t get anywhere.

presentation (pdf)