Archive for: Mongolia

Welcome to the CGAP Virtual Conference on microfinance and mobile banking!  This conference is taking place right here on the blog, no registration is required. Just post your comments using the “Leave a reply” option at the bottom of each thread.

This discussion is moderated by Sarah Rotman, CGAP co-author of the Focus Note Microfinance and Mobile Banking: The Story So Far.

Mobile banking has become a subject of debate within the microfinance community largely because most MFIs believe that there are certain benefits m-banking can bring to their institutions. But what is the reality on the ground? We asked this question focused on three specific benefits:

1. Can m-banking help MFIs serve existing customers better? The case studies of SMEP in Kenya and XacBank in Mongolia show that m-banking can help existing MFI customers save time and money, experience greater security, and manage their cash flows with more flexibility. For example, at any time during the repayment period when a SMEP customer has the cash flow to make her repayment (or even a portion of the repayment), she can use M-PESA to send the electronic value to the SMEP account directly. Meetings with loan officers now involve a quick verification of the transaction. Obviously, customer willingness to pay a transaction fee depends on the previous cash collection method used. If customers were responsible for transporting cash to make their repayment, they may be willing to pay an M-PESA-like transaction fee. But if MFI loan officers collect cash, customers may want to protect their “free” cash collection rather than pay a fee to make the repayment.

2. Can m-banking help MFIs reach new customer segments? We found little evidence to suggest that m-banking has helped MFIs reach new customer segments largely due to the fact that microcredit methodology relies heavily on human interaction. The case study of Kenya Women’s Finance Trust (KWFT) shows that this particular MFI does not expect M-PESA to help it expand its loan customer base significantly since loan officers still need to have face-to-face interaction with groups. However, KWFT does see M-PESA as a way to mobilize new deposits easily and cheaply.

3. Can m-banking reduce costs for MFIs and for customers? Early evidence suggests that m-banking can reduce operational costs for MFIs and that these costs can be passed on to customers in the form of lower interest rates. The case study of Green Bank in the Philippines shows that once customers began using GCash for loan repayments, there was less need to send collectors to gather repayments directly. As a result, Green Bank agreed to reduce interest rates from a flat monthly rate of 2.5% to 2%, as well as reduce its service charges from 3% to 2.5%.

What do you think?

• Do these benefits outweigh the costs associated with linking into a mobile banking system?

• Do you think that new customer segments will eventually be reached through m-banking or will the group accountability of microfinance prevent this?

• Will both customers and MFIs see significant cost savings thanks to the use of m-banking technology?

Recently we caught up with Damdinjav Dorjdamba, the Director of the E-banking Department at XacBank. Based in Mongolia’s capital Ulaanbaatar, XacBank is a community development bank and microfinance institution working to extend financial services to poor and underserved people, including nomadic groups, in both remote and urban areas in Mongolia.  It is providing electronic banking and payment services through a combination of cellphones and cash-handling agents. XacBank is also aiming to create the first nationwide payment system using mobile phones in Mongolia.

How is your mobile banking service faring?
In February 2009, we began piloting mobile banking and payment services in three locations and, the following month, we expanded into more places, including Ulaanbaatar. These pilots, along with several stress tests and focus group discussions with the first users of the mobile banking services, have contributed to the development of the m-banking platform. We went fully live with the commercial launch of our m-banking service AMAR (EASY in Mongolian) in July. By the end of September, the Bank had reached 11,200 clients served via around 1,000 agents.

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Thursday, Dec. 11 from 2pm – 5pm Eastern we’ll have a live webcast from the World Bank in Washington and if you can’t join us in person, join us online here at the CGAP Technology Blog.

We thought it would be great to get some of our partners together to share what they’re doing with each other – and with you. Share your questions at the end of this blog post, as a comment. We’ll put  them to the panelists on Thursday. Here are the details:

Mobile Banking for Poor People: Pioneer Perspectives
a CGAP roundtable and webinar

Dec. 11, 2008 | 2:00pm – 5:00pm
World Bank Headquarters, Washington DC | online at http://technology.cgap.org

Join CGAP for a lively discussion on how mobile phone banking can deliver a range of financial services to poor people and change lives for the better.

By the end of 2008, the UN says there will be four billion mobile phone connections globally. Millions of air-time resellers and retail agents in developing countries make it possible to distribute financial services at far lower cost than through traditional channels.

Yet in many ways, it is still early days for mobile phone banking. Examples of successful large-scale implementations that target poor customers, and deliver products other than payments and transfers are rare. CGAP, with support from the Bill and Melinda Gates Foundation, is working to increase the numbers of such successful m-banking projects. CGAP has provided technical advice, market research and funding to the following organizations. The goal is to increase the reach and scale of financial services for poor people worldwide.

Panelists
-Nick Hughes, Vodafone Group
-Rizza Maniego-Eala, Globe Telecom (Philippines)
-Sam Kamiti, Equity Bank (Kenya)
-Ali Abbas Sikander, Tameer Bank (Pakistan)
-Ganhuyag Ch. Hutagt, XacBank (Mongolia)
-Brian Richardson, Wizzit (South Africa)
-Carl Johan Rosenquist, c/o Maldives Monetary Authority (Maldives)

Hear real-world experiences with implementing mobile banking solutions at scale, in multiple markets, with a diverse range of clients.

What do these countries have in common: Kenya, Pakistan, Mongolia, the Maldives? They share political challenges, conflict, as well as having highly dispersed populations across varied types or terrain.

They are also pioneers when it comes to mobile phone banking. Here’s why.

For financial services, there are few alternatives to cell phones. Banking infrastructure (branches, ATMs, POS at stores, internet penetration, etc.) in these markets is dismal and slow to change, but cell phone penetration is growing fast. There are four mobile operators in Mongolia, a country with the world’s lowest population density (1 person per sq km) and where 400 villages are spread across a vast geography the size of the lower 48 US states.

People incur high transaction costs to reach established banking services. Banking via cell phones at a local store can make a big difference in the lives of poor people who easily travel 20 or 30 miles just to get to a bank branch. In the Maldives, government employees and fishermen alike on one island must travel 4 hours by boat once a month to Male’, spending Euro 2.50, simply to deposit or collect their salaries.

High cost environments create demand for new ways of doing things. In countries like Kenya and Colombia, high crime and difficult geographies make it extremely expensive to move cash. In this context, technology-enabled banking channels that cut the cost in half can be game changing. Electronic means of moving cash are attractive when people are often vulnerable to theft. It is still quite common in Kenya and Philippines to hand an envelope stuffed with cash to a bus driver headed to family up-country.

Financial institutions are looking for alternatives in order to gain market share. Tameer Bank in Pakistan, Equity Bank in Kenya, and XacBank in Mongolia have staked their reputations and their business success on breaking the mould of doing business in their country. They are microfinance banks, but they want to reach millions of new clients quickly and it is not easy to do that with capital and labor intensive branch networks.

Political turmoil does not stop these companies that easily. In the past year, both Kenya and Pakistan experienced political violence. Almost a week after Tameer Bank found a telecom partner for mobile banking, two of its branches were looted and destroyed in rioting in the aftermath of Benazir Bhutto’s assassination. 72 hours later the branches were up and running again.

FMO’s UPsides magazine this month has a whole set of stories that look at how branchless banking (such as mobile banking) and remittances can help fight poverty. Two CGAP partners, G-Xchange Inc. (Philippines) and XacBank (Mongolia) are featured in this issue:

We are dead set on proving a hypothesis: good return to our shareholders can go together with reaching the poor.
-Riza Maniego-Eala, President of G-Xchange, Inc.

Our market research shows that 50% are keen to have mobile banking services made available through local grocery stores, post offices and gas stations. But getting the service out is proving to be a challenge.
-Ganhuyag Chuluun Hutagt, CEO, XacBank

Download the pdf here.

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.

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