Archive for: Colombia

I think it is safe to say that the financial inclusion world has started to get used to the idea of thinking about financial service providers more broadly than traditional microfinance institutions, rural banks and financial cooperatives. With the recent growth of mobile network operators, technology providers and agent network managers, it’s evident that financial inclusion encompasses a broad set of providers. But even I am sometimes surprised to learn about some private companies that seem to have a very tangential link to the unbanked financial sector taking advantage of new opportunities in branchless banking.

Take OXXO as an example. OXXO is the largest convenience store in Mexico (comparable to 7-Eleven in the US) opening a new store every 8 hours…yes that’s 8 hours!  7.5 million people come through their stores every day, most of whom are looking for things that a normal convenience store would offer…food, snacks, paper goods, etc. But OXXO is diversifying its products to offer its wide customer base the “convenience for everything you’d need in life any time of day.”

In this video, Aiko Fujimura, Manager of Financial Services for OXXO, explains how this added convenience extends now to financial services offered through the OXXO e-wallet. She admits that there are certain challenges. “It is easy to sell soda and snacks, but not as easy to sell financial services.” Training a huge network of employees and convincing people to trust the store with their money are two issues OXXO is currently facing.

Few companies have the scale of OXXO, but convenience stores and other retail outlets are still being used to build up branchless banking agent networks. In this video, Johannes Kling of the agent network company DD-DEDO talks about the role that convenience stores play in Colombia in expanding the outreach of banks. As he explains, Colombia is still very early on in the growth curve when it comes to branchless banking. But as we all know, a strong agent network is one of the early pieces of the puzzle in building a branchless banking ecosystem.

Next week, we’ll share two more videos from more traditional players – a bank and a mobile network operator – but each with an interesting take on their new business model to reach the unbanked.

- Sarah Rotman

A "Red Cerca" agent location of Banco AV Villas in Colombia

CGAP, in partnership with the Inter-American Development Bank and Akya, a banking consultancy, recently completed some analysis on the business case for banks in branchless banking. Our findings, which we share with you in a series of posts, starting with today’s, are based on interviews with over 20 banks that play some role in a branchless banking deployment. We also looked closely at the financials of a few banks that have been involved in branchless banking for five or more years, running agent channels for payment products or as a way to reach unbanked customers.

Our findings should bring some good news to the banking industry that is quite beleaguered and battered by crisis, competition and alleged illegalities. These are not the best of times for banks globally. In one part of the world, banks are barely recovering from a crisis. While elsewhere, especially in markets across Africa, new actors, such as mobile operators or technology companies are making forays into the banking business. From Brazil to India, banks are struggling to innovate to develop services for the unbanked or reach new segments and keep up with demographic changes.

As we have done with other pieces of research, we detail our findings in this presentation. We make the following five main points:

(1) Agents are the most economical channel available at low transaction volumes. Banks that have all three channels – networks of agents, branches and remotely-managed ATMs (the closest equivalent to agents) — see the lowest transaction costs at their agent channel. Transaction costs at agents range roughly from 0.27 to 0.58 USD per transaction and are 50% the transaction costs at branches and ATMs (see slide 10).  However, at higher transaction volumes, fixed cost infrastructure like ATMs, is of course more economical for banks for basic transactions (slide 13).

(2) Banks provide three main reasons for doing branchless banking. In our analysis, we identified at least seven different roles for banks in branchless banking, from holding float to running their own independent payment business (slides 15-18). But based on surveys and interviews, banks are involved in branchless banking for three main reasons where there are major business case implications: (1) as an additional, efficient channel; (2) to grow faster or reach unbanked segments; (3) for payments-led banking proposition. There is evidence that banks benefit in all three cases.

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Fiji G2P payments (courtesy of UNCDF's Pacific Financial Inclusion Programme)

Over the last couple months, we’ve run a series profiling different government payments programs that have innovated on their payment mechanisms and in some cases linked payments to financial services. We looked at the case of UBL in Pakistan making payments to flood victims. We profiled GCASH using GCASH REMIT to make payments on behalf of LandBank to rural beneficiaries of the 4Ps program in the Philippines. We featured Colombia’s Familias en Accion program that has contributed to the build out of banking correspondents in the country and is testing interesting ways to incentivize savings. We discussed the HSN Programme in Kenya and how Equity Bank is making payments to a very rural area in northern Kenya via smart cards and agents. Finally, we looked at the new G2P program in Fiji offering payments to beneficiaries through accounts offered by Westpac. Of course, we could have profiled many more schemes in countries like India, Mexico, South Africa, Dominican Republic, and others.

These examples are diverse as much as they are similar. Some of them are still in a pilot phase (such as GCCASH), while others are at a national scale (such as Familias en Accion). Some of them are using card-based solutions (such as the HSN Programme and Familias en Accion), while others are experimenting with mobile phones (such as GCASH). Some of them are distributing a payment based on certain conditionalities (such as the 4Ps program in the Philippines and Familias en Accion), while others are distributing unconditional cash transfers (such as in Fiji and the HSN Programme). What are some observations and lessons we can gather from these examples and from others around the world?

1. The link to financial inclusion is one that can often get forgotten in the quest for payment efficiency. Social protection programs rightly have the objective of making payments in a timely, efficient and cost-effective manner. While they often appreciate the link that financial services can offer to the beneficiaries, when push comes to shove, this will get sidelined if it becomes too complicated or costly to implement. Therefore we see that while the schemes in Pakistan and the Philippines have done an excellent job getting payments (and in Pakistan emergency payments no less) to poor beneficiaries, there is not yet a link to financial services. While this may be an added feature in the future, these examples should encourage all of us with a specific interest in financial inclusion to be deliberate and clear in our interaction with G2P partners about our real goals. Read the rest of this page »

This is the third post in our series on G2P, branchless banking and financial inclusion. Our first post on Pakistan can be found here and our second post on the Philippines can be found here.

In this post, our guest bloggers discuss the Government of Colombia’s efforts to use Conditional Cash Transfer (CCT) programs as a gateway to financial inclusion. Beatriz Marulanda is the CEO of Marulanda Consultores. She headed the team that advised the Colombian Government in the design and implementation of Colombia’s financial inclusion policy, Banca de las Oportunidades. She was also part of the team that helped in the design of the payments strategy for Familias en Acción through deposits into savings accounts. Mariana Paredes is an independent consultant with Marulanda Consultores. She worked on the design and implementation of Banca de las Oportunidades and also worked on the design of the savings pilot with Familias en Acción.

Familias en Acción is a CCT program administered by Acción Social in Colombia providing cash transfers to poor households on the condition that their children attend school and follow preventive health care measures. The program was launched in 2000 focused exclusively in rural areas, and by 2002 it had reached 300,000 families in 627 municipalities with less than 100,000 inhabitants. By 2005 the program had expanded to even smaller rural municipalities that did not have bank branches, making the payment of benefits a real challenge.

After the program’s first impact evaluation, the government decided to aggressively expand Familias en Acción to cover all 1,100 municipalities in the country, thus becoming an integral part of the government’s RED UNIDOS strategy to fight poverty. By 2009, 2.2 million families were being paid an average of USD 90 every two months.

The initial payment system was based on cash transfers paid at the branches of the public bank, Banco Agrario. This meant that many mothers had to walk for hours to reach the closest municipality with a bank branch to claim their payments. In response to this challenge, Banco Agrario began to use a strategy of “extended cashiers” that would transport cash in helicopters to recipients in rural municipalities on payment days. Even in the cities, bank payments were a challenge because the demand for liquidity on payment days surpassed most branches’ capacity.

Familias en Acción knew that it needed a more innovative payment system. In 2007, they introduced prepaid cards. 450,000 beneficiaries in seven cities were able to withdraw their payments at the ATM network of a private bank. Even this proved challenging at first…the bank’s ATM network collapsed the day after the first payments were made available because the network had breached its maximum transaction level. By 2008, Familias en Acción had a mixed payment structure as shown below.

Source: Prepared on the basis of information of Acción Social

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An important part of effectively rolling out a banking agent network – a network of retail or postal outlets that handles transactions on behalf of financial institutions and mobile operators – is the agent location. 

Our project partner, Credibanco VISA in Colombia, is using a georeferencing tool to advise banks as to where large numbers of their target clients are located, and also which retail outlets in that area might make good “corresponsales no bancarios”, as the Colombians call their banking agents.

The process is easy. Based on the bank’s target clientele (e.g., income up to COP 250,000 per month [US$122] and “estrato 2″ reflecting the Colombian economic classification of 0-6, where 0 is poorest and 6 highest income) and preferred location (e.g. high population density, no financial infrastructure, etc.), VISA uses census data, financial infrastructure coverage, and retail information from yellow pages to develop heatmaps which combine the following:

• poverty and income levels 
• population density
• postcode boundaries
• existing financial infrastructure (e.g. branches, ATMs, etc.) and card holders
• stores and other commercial activity
• areas that generate a lot of foot traffic (e.g. bus stations, markets, hospitals, etc.)

Based on the resulting maps, the bank can see in which areas their agent would be most effective. Factors like poverty and income level, population density, and existing financial infrastructure will impact the agent’s future transaction volume; placing agents near bus stops and market areas will make them more visible and increase the likelihood that clients will repeatedly use the agent to conduct transactions.

On the picture you see the final heatmap. Red areas show neighborhoods with great opportunity to reach the bank’s target clients; the mountains refer to population density. If you would like more detail, please send me an email and I can forward you VISA’s complete analysis of Ciudad Bolivar, a poor neighborhood of Bogota, Colombia.

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.

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.

…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.

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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Our very own Kabir Kumar made his public radio debut today to talk about the mobile banking work we’re doing:

All Things Considered, June 30, 2007 - In developing nations, many people still do not have bank accounts but they do have cell phones.

Now, a group with the World Bank is trying to develop a way to allow poor people to use their cell phones to save and transfer money.

Kabir Kumar of the Consultative Group to Assist the Poor talks to Debbie Elliott about the project.

NPR