Archive for: Brazil

The Economist this week takes on mobile banking and the challenges and opportunities regulators are dealing with when it comes to increasing access to finance, quoting CGAP’s own Tim Lyman: 

What can governments do to foster m-banking? As with the spread of mobile phones themselves, a lot depends on putting the right regulations in place. They need to be tight enough to protect users and discourage money laundering, but open enough to allow new services to emerge. The existing banking model is both over- and under-protective, says Tim Lyman of the World Bank, because “it did not foresee the convergence of telecommunications and financial services.”

CGAP has been working hard on this issue, in collaboration with DFID and the GSM Association – learning how regulation is working and how it could be improved in seven countries. The results of that work will be shared in a CGAP/DFID Focus Note in early 2008. For more information, please drop me a line or call me at +1 202 473-1084.

In her opening remarks, Elizabeth Littlefield used the example of Brazil to illustrate two points. Since the government began allowing use of banking agents to deliver financial services several years ago, 98% of the municipalities now have easy access to financial services. That number is enviable by all standards. At the same time, one network manager experienced an 85% turnover in agents during the first few years.

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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.

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Happy Monday…this Monday is more auspicious than most because it’s the start of our three day conference looking at how technologies such as card-based networks and mobile phones could increase access to finance. IFC is a co-organizer, and Visa is a sponsor.

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.

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?

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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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 »

When thinking of Peru, there are many things that come to mind: amazing ceviche at the beach, beautiful landscape in the mountains, and definitely also the mystic Machu Picchu attracting around 40,000 tourists each year. There are rumors that it will soon be possible to take direct flights from Germany to Cuzco without having to travel via Lima, the nation’s capital. Each year around US$40m is generated through this tourist attraction.

But it is not only tourism that has been booming over the last years. The stock exchange grew 140% in 2006, Starbucks coffee shops are springing up, and people start shopping at international clothing stores. Microfinance representing around 5% of the financial sector (and around 30-40% in terms of borrowers) has also experienced positive developments and attracted many of the commercial banks. What has previously be a sector primarily targeted by the 25 “cajas” and 14 NGOs, is now a competitive market in which banks like Banco de Credito de Peru, Scotiabank, MiBanco, Banco de Trabajo aggressively go out to bank low-income clients. Great news? Yes, definitely, but there are still more than 78% percent of the population without access to finance, and 54 percent live below the poverty line.
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We’re at a banking conference in Sao Paulo, where I had a chance to present on agents and our work in Colombia. In terms of using banking agents to reach remote areas and poor clients, the Brazilian financial system represents probably the future of many Latin American markets. Whereas countries like Colombia are just starting to develop such outlets, in Brazil they already make up 56% of all financial system points of sale are, reaching all municipalities.

Since our last visit in June 2006, the atmosphere has changed a lot. Whereas last year, banks were still experimenting with different approaches and were not yet convinced that banking agents were viable, today everybody we asked during our last week in Sao Paulo, considered banking agents a profitable channel. Banking agents move clients which are high cost for the bank (small ticket size, often only limited usage of products) to the low-cost agent channel, and free space in branches for clients which generate more revenue for the bank. Before branches were full of people just paying their bills. Read the rest of this page »

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.