Pakistan

State Bank of Pakistan has cleared the way for banks to use agents to handle cash, and outlined a risk-based approach to customer due diligence to enable banks to extend their reach to lower-income clients. The regulations also come with detailed guidance on minimum standards for data and network security, customer protection, and risk management procedures.

But only for banks… This shouldn’t be a surprise. SBP’s policy paper on branchless banking (last year) was clear on this point: a nonbank model “may be allowed at a later stage after we have sufficient experience in mitigating agent related risks using bank led model and need to think about mitigating only e-money related risks.” So for now, mobile phone companies are still waiting for the door to be opened to them as well, test the waters without clear permission and detailed guidance, or find a JV with a bank. For those with deep pockets, buying a bank outright might be an option, too.

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…the bank can go to the customer. Or the drug store.

This is a pharmacy in a major slum in Karachi, Pakistan – it has been in business for 30 years through two generations. A couple of weeks ago, the pharmacy became an agent / corresponsal of a microfinance bank. The bank’s decision to create this agent is to some extent experimental. This location is just down the street from their branch and bank faces little competition from other providers – they are the only one in that part of the slum. They have equipped them with a GPRS point-of-sale device and some forms. The bank’s customers can come here to withdraw and make deposits, drawn down on their loans, repay loans, and eventually pay utility bills and remit money.  The anticipated demand is high. Small business owners told me that an immediately accessible bank deposit service saves them time and gives them security when they have a lot of cash on hand.

CGAP is supporting Tameer Bank in its work. Agents and customers equipped with cards or cell phones are at the heart of what we call branchless banking. We were inspired by similar efforts in this part of the world, in Brazil, Colombia and in Africa and East Asia.

In setting up this agent location, this Pakistani bank has already learned that their set up cost is a fraction of that of their branch (1/30th) and they anticipate running costs to be even cheaper (1/100th). The bank will open agent locations further and further away from its branches. For remote rural areas, it will partner with a postal network, a government run food distribution system, and the direct distributors of one of the major telecoms.

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Conventional wisdom says cash is king. It’s cheap to use, attracting no fees or minimum balances, unlike credit and debit cards.

But the equation can radically change in emerging markets, making cash unduly expensive for financial service providers and clients alike.

Up to 70% of the 2000 ATMs installed in Pakistan are reportedly unable to dispense cash accurately. Pakistan’s has two Rs 1,000 notes in circulation, and the quality of the notes themselves can vary dramatically. As a result, ATMs routinely jam, or fail to accurately count notes dispensed. Branch-housed machines are repaired more quickly, but even there the error rate is reportedly 30%, according to a study by ShoreBank International. Consumers shy away from using ATMs, and banks’ investment in ATMs yields a diminished return, rather than cost savings they may have hoped for as customers are reluctant to give up the teller window for ATMs.

In Kenya, cash represents risk for ordinary people sending money home. Friends and bus companies are the preferred way to send money to family in other parts of the country, according to FinAccess, a nationwide survey of financial service behavior. However, Kenyans are quick to cite neither is perfect: money can too easily go “missing” with friends, and though bus companies are more reliable, the transit times are still long (often days). By contrast, clients of M-PESA, Safaricom’s mobile wallet service, say its cheaper for both them and their family, as there is often a Safaricom agent close by which will receive or dispense cash.

Cash can be costly for providers and clients alike. Moving transactions into electronic channels could make services more affordable to offer and use.

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Mobile banking and other technologies need a balanced regulatory approach

Washington D.C. (January 31, 2008) – Basic, everyday financial services are out of reach for more than two billion people in developing countries. But the rapid growth of branchless banking – including mobile phone banking – is reducing the cost and expanding the availability of such services.

“All of this innovation presents challenges and opportunities for regulators,” says Elizabeth Littlefield, CEO of CGAP. “Policy will determine not only where branchless banking is allowed, but also which business models turn out to make economic sense - and how far they will go in reaching poor people.”

Regulating Transformational Branchless Banking is a product of collaboration between CGAP and the UK’s Department for International Development (DFID), in partnership with the GSM Association, the global trade association for over 700 mobile phone operators. The authors also benefited from conducting three of seven diagnostic missions with the World Bank’s Financial Markets Integrity Unit.

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South Africa’s mobile money
Unisys Identifies Five Security Issues Likely to Emerge Across Multiple Industries in 2008
Microfinance firms could avail of i-banking services
Even simple tech helps reduce poverty
Pakistan ends 2007 with 76.6 million mobile users
Econet sells stake to Essar to finance Kenya roll-out

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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.

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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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We’re in the last day of the conference CGAP co-organized with IFC, sponsored by Visa. This morning, three partners of the CGAP technology program are presenting their experiences on using technology to increase access to finance.

Delivery Channels for Microfinance. Banking agents are becoming a popular way of signing up new customers and offering services outside of the branch environment. Can these agents deliver a range of products? How far from the bank branches can this model reach to serve rural areas? Moderator: William Schoch, Vice President, Consumer Products, Visa International.

• Abbas Sikander, Group Executive Director for Operations and Technology, Tameer Bank, Pakistan
• Alex Acosta, Credibanco Visa
• Rizza Maniego-Eala, President, G-Xchange, Inc.

You can watch it live here.

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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.

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