Archive for: Africa

…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.

Stefan Staschen works with CGAP’s technology and policy teams. He presented on CGAP’s behalf at the Third African Microfinance Conference in Kampala late in August, and shared with us his impressions of the conference.

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.

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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….

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Sci-fi seer William Gibson said “The future is already here: it’s just unevenly distributed.” If that’s true, then the future of mobile is already happening in places like Kenya, the Philippines and South Africa. And two numbers released this month by Wireless Intelligence tell us why mobile payments and banking is much more likely to happen in poor countries than rich ones.

August saw the world’s three billionth mobile phone connection made. The first billion mobile connections took a dozen years, and the second just two and a half years, with 82 percent of new subscribers coming from developing countries. The third billion: just under two years. The growth of mobile is centered squarely in places like Mumbai, not Munich, Lagos, not London.

Meanwhile, ARPU, or average revenue per user, continues its downward trend, sliding another 12 percent globally. This means mobile operators are earning less per customer. The trend is most pronounced in poorer countries. In Africa, blended ARPU has declined by a quarter from 2005, down to 13.9 Euros, compared to the world average of 22.6. ARPUs look even less enticing if you also factor in churn (percentage of customers lost), which increases customer acquisition costs.

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Some pioneers are using technology to deliver financial services to low-income clients, often with business models built around payments. Their success mirrors that of microfinance institutions (MFIs). A 38-country analysis found that 349 MFIs are more profitable on average than the 1799 commercial banks in those same countries.

Nothing attracts competition like success. Most new entrants to branchless banking will be honest, but some might be less-than scrupulous. Consumer protection is already a hot topic in the microfinance industry.

So are there special consumer protection issues with branchless banking, or the delivery of financial services to poor clients using electronic channels and cash-handling agents? Some US utility companies’ tie-ups with agents are already attracting scrutiny and some criticism, and the potential exists for the same thing to happen in developing countries with branchless banking aimed at the poor. Read the rest of this page »

Vodafone’s M-Pesa mobile phone payments and transfer service in Kenya has signed up an impressive 140,000 customers in just 3 and a half months, according to Vodafone’s head of mobile payments. Although there are anecdotal reports of customers who are confused by the service, glitches in the sign up process, etc., it’s a good start. With this in mind, one wonders about India.

India’s cell phone user population doubled during the past year to 150 million at the end of 2006. That’s amazing growth and helps explain Vodafone’s recent purchase of most of the shares of Essar, India’s fourth-largest mobile operator.

So what about mobile phone banking? The Reserve Bank of India has so far been less open to allowing a mobile operator to issue e-money, at least in comparison to the central bank of Kenya.

One strategy an operator might take would be to partner with a financial institution that could hold customer accounts. If Vodafone could partner with a bank to make sure customers have accounts at  a licensed financial instution rather than offering virtual accounts as it does in Kenya, then the regulatory hurdle becomes much more manageable. However, the business arrangements naturally grow in complexity.

A second major regulatory question, also dealt with in CGAP’s recent diagnostic on the regulatory framework in India, concerns agents. Key to a successful m-banking model is the ability to use agents such as airtime resellers to open accounts and take in and give out cash.

Emergency aid used to be a short-term fix to a grim situation: handouts of food and other needed goods to alleviate the suffering of some of the world’s poorest beset by famine, drought or flood. Now, aid agencies increasingly deliver cash in continual social protection payments which help the poor build safety nets and avoid crises. And a few pioneering thinkers in the aid industry realize that cash + technology can also = infrastructure for financial services. Donors and governments can not only get social payments to the right people, but improve access to finance for entire communities historically off the radar screen of traditional banks.

Aid agencies are wising up to new ways of delivering help. They’ve realized that smaller amounts of aid, spread out over time and in the form of cash, can help poor people build there own safety nets, before a crisis hits. Cash is also much cheaper and more efficient way of delivering aid. Some 65% of America’s US$ 2 billion food aid program is eaten up by red tape and logistical costs, according to a US government report.

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Recently I had the opportunity to talk with Lazarus Muchenje. Based in South Africa, Muchenje is the CEO of Celpay Holdings (Pty) Ltd., which operates mobile phone banking in the Democratic Republic of Congo and Zambia. He says working within existing regulations – which often do not take into account the technology – is Celpay’s toughest challenge.

Tell me about Celpay. We really operate in two markets, Democratic Republic of Congo and Zambia. If I was to compare the two then Zambia is a little less challenging, the stage of development today vis-a-vis the Congo. Zambia has been a democratic country for a long time, while DRC has just had its first democratic elections last year.

Regulations are not clear-cut? In DRC we don’t have clearly defined legislation governing e-commerce yet. This is quite normal in a post-conflict country, however, if tomorrow a new law to regulate e-transactions, that does not support our current business model is promulgated this may jeopardise our investment. The Central bank of Congo has assured Celpay that they are working on the necessary regulatory framework. In Zambia, the National Payments Systems Act has just been promulgated last month. It is very broad in its current format but it is an excellent starting point in defining how e-commerce is regulated. Generally I would say the regulatory environment is extremely challenging, from undefined to starting to define how to manage e-transactions, e-commerce. Read the rest of this page »

The Consultative Group to Assist the Poor (CGAP), United Nations Foundation (UN Foundation) and The Vodafone Group Foundation (VGF) today released the first public findings on how low-income individuals in South Africa use mobile phone banking (m-banking). The findings confirm early optimism about the potential for mobile phones to bank the poor, in particular showing that m-banking can be up to a third cheaper for customers than the current banking alternatives.”Mobile phone ownership is exploding in developing countries, presenting a tremendous opportunity to deliver financial services cost effectively to the nearly three billion people who do not currently have bank accounts,” said Elizabeth Littlefield, CEO of CGAP. “And that matters because financial services can help poor people increase household incomes and build assets, making them less vulnerable to crises so that they can ultimately plot their own paths out of poverty.” Globally, there are more than 2.5 billion mobile phones, more than half owned by people in developing countries.

press release | download the report

Focus Note No. 38, October 2006
Use of Agents in Branchless Banking for the Poor: Rewards, Risks, and Regulation (pdf)
This Focus Note examines the experience of five pioneering countries–Brazil, India, South Africa, the Philippines, and Kenya–where agent-assisted branchless banking that targets poor customers is already a reality. It introduces the main issues involved in regulating branchless banking, particularly regarding the use of retail agents.