Low-value remittances to some extent sit at the center of branchless banking channels both card- and mobile- based. Their significance for economies like Mexico or Philippines or Kenya and elsehwere has been a driver for new low-cost remittance solutions such as G-Cash and M-Pesa. These approaches have been the inspiration for the new banking channels that CGAP has been writing about and working on over the last year.

When it comes to branchless banking, the remittance volume helps make both the business case to financial providers and is an important part of customer adoption of branchless channels. The high volumes for some corridors ($12.8 billion in official international remittance to Philippines in 2006) make the case for banks (and telecoms and others) to possibly invest either themselves in a sprawling cash-handling infrastructure or work with gas stations, post offices and retail providers to set-up agent networks. Customers are likely to use these channels to access remittances that are an important part of their livelihood. Some would even argue that the high remittance flows and their impact on the economy serve as a motivator for regulators to encourage lower cost innovations as they have in the Philippines.

But we have yet to crack the puzzle of how remittance recipients get to savings and credit. The frequently used Brazil example is worth mentioning again: billions of dollars in government transfers to low-income people via over 90,000 points - but just one in 25 of them (based on a CGAP survey) are actually saving. 

How about completely outsourcing information systems (IS) to an external technology provider, so that the MFI can focus on its main business: handling client relationships and providing financial services?  

Here now, an exciting development. IBM has developed a “microfinance processing hub,” i.e., a shared infrastructure and software platform that provides groups of MFIs with a centralized core banking system, data center, operations management, and transaction processing. “When we started to work on the Microfinance initiative of IBM, we found that gaining access to appropriate back-office technology was the single most important obstacle for the growth of small institutions and the microfinance industry in general,” says Alberto Jimenez, Global Business Advisor for the Financial Services Sector of IBM.

In Africa, IBM has partnered with CARE to develop an “African Financial Grid.” The Grid is a “shared services and infrastructure model designed to help MFIs reduce operating costs, streamline lending processes, scale rapidly, and integrate with other resources such as credit bureaus, financial institutions and international payment networks.” Initially the plan is to cover 11 countries and is open to all kinds of financial institutions.

IBM acquired some valuable knowledge on what it takes to establish and operate a processing hub for microfinance institutions, which some also refer to as a core banking application service provider (ASP) solution. One of the main challenges to do this is not even a technical one, but lies in the concern of MFIs to outsource client information to a third party.  However, according to Alexander Bloch, who leads IBM’s Global Microfinance Initiative, “these concerns can be effectively addressed through a rigorous governance  associated with the management of client information, which IBM implements for MFIs”. Connected institutions will have to slightly standardize their business processes and product features. Since MFIs access their new outsourced IS over the Internet, some rural institutions may run into connectivity problems, which is one of the problems IBM is also working on.

But these challenges seem worthwhile when looking at the long list of benefits:

• MFIs act in a group permitting them to negotiate prices with different service providers; 
• Investment fixed costs are turned into variable costs (e.g., cost per client per year, or by transaction);
• To open a branch, one only needs an internet connection, no installation of hardware or software is needed;
• New products can be added without difficult adjustments to the system;
• Portfolio, accounting, and client information is readily available for internal and external purposes; improving the overall transparency of the industry.
• Local banks feel more comfortable funding MFIs since reporting is transparent and readily available;
• Connecting with additional distribution channels like ATM networks, retail agent chains, etc. is a “plug and play” issue.

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Mexican telecoms sector sees 31.1% growth in Q3
The Mexican telecommunications sector saw 31.1 percent growth in Q3 2007 vs the year-earlier period, according to figures from Cofetel, Mexican telecommunications regulator. The growth is the highest for seven years. The growth is 10 percentage points higher than in Q2 2007 vs the year-earlier.

Full-spectrum dominance - Telecoms in India
India has met its ambitious target, set two years ago, of 250m fixed and mobile-phone connections. But the government is sadly unprepared. It has not given India’s mobile operators enough space on the radio spectrum to carry calls crisply and reliably. India, the operators complain, faces a “spectrum crunch”.

Tanzania reaches 7.7 mln phone subscribers in Q3
The number of mobile phone users in Tanzania reached 7.562 million at the end of September, up from 6.720 million at the end of June. The fixed-line user base at TTCL fell to 160,964 from 169,135 three months earlier, according to figures from the Tanzania Communications Authority.

Indian Bank pacts with NCR for e-ticket, portable ATM¼br> Indian Bank today said it has partnered with NCR Corporation, engaged in design and deployment of portable ATM centres for many Indian banks, for launching its first e-ticket kiosk and portable ATM centre.

Dabbawallas, postmen helping banks extend access to services
Across India, and notably in Mumbai, banks are using “correspondents”, or people who effectively serve as extensions of branches, in an effort to reach out to people who do not have access to banks and banking services. One such bank, the Corporation Bank, is using the city’s famed dabbawallas, the men who ferry hot lunches to office goers across the city, as its correspondents.

Bharti to tie-up with Barclays for mobile banking
Bharti Telesoft, software arm of telecom major Bharti Enterprises, is close to signing a deal with UK-based Barclays Bank for providing mobile banking services to the latter’s customers.

Banamex and Soriana recently launched a partnership making Banamex services available in all 240 Soriana stores, which see an average of 25 million customers per month. “Mi Ahorro Banamex” offers two products: a prepaid MasterCard card, redeemable at all Soriana and affiliated stores, and a savings card. They plan to introduce additional products, such as remittances and savings, in the future.

Wal-Mart’s approach is slightly different. Instead of partnering with a bank, they’ve decided to do it themselves. Banco Wal-Mart de Mexico Adelante is set to begin operations before the end of the year. Wal-Mart is certainly known for its low-cost, high volume business model, but will this carry over into their banking services? With 964 stores covering nearly every region of Mexico, the potential impact on the estimated 80% of unbanked Mexicans is huge.

Without getting into the debate on whether or not consumer credit is better, worse, or in fact the same as what microfinance institutions are offering, the impact of these new entrants will certainly be felt by both the consumer outlets as well as the microfinance institutions. And perhaps that’s not a bad thing, especially if it finally brings about price competition in this notoriously expensive market.

* Interbank, with currently the largest network, has contracted IQcorp, a local POS network to install the point-of-sale devices and take care of the technology platform.
* Banco de Crédito has placed its “Agente BCP” or “vía BCP” primarily in independent pharmacies, small supermarkets and other shops.
* Scotiabank has currently 205 points, but plans to grow the network to 850 until the end of 2007. In addition to banking agents, Scotiabank has also launched a range of mini-branches in large retail chains to provide consumer credit.
* Banco Del Trabajo has mini-branches in retail chains like Inkafarma or Metro. Two to three bank representatives do the credit assessment on-side and even if you do not have a credit history yet, you can count on a S./200 (US$63) loan directly given to you on a private label credit card. Banco de Trabajo also has a network of banking agents.
* Mibanco with currently around 350,000 client is a microfinance bank about to launch its agent network. The institution converted from an NGO in 1998 and has still been growing rapidly while also keeping high portfolio quality (2.85 PAR > 30 days).

Competition among these institutions is fearce. Not only in terms of clients, but also in terms of personal (Mibanco has lost around 10 staff to other banks since the beginning of the year.) Rather than competing for clients in urban areas, many banks now think about branching out. Banking agents will be a good way to support this outreach.

But it has to be seen if banks will apply the more Brazilian model, i.e., using stores and smaller chains as banking agents, or if banks go with the outreach model a la Mexico through partnering with large retail chains to set up full branches.

CGAP is planning a project with Te Creemos, a regulated microfinance institution, to test different models of rural service delivery. The project will focus on mini-branches, as well as cashiers in a pharmacy chain and independent retail stores. CGAP will test customer and cashier response to financial services delivered with point-of-sale (POS) and biometric technologies.

Rural Challenges
In several small towns in the southern state of Chiapas, financial services vary. For example, the town plaza of Teopisca (population around 8,000) has a Banorte ATM and branches of Grameen Mexico, Caja Populare San Juan Bosca and Bansefi. A few blocks from the town center is a Banamex Aqui agent. While there does seem to be a push for more services in rural areas, many rural municipalities have yet to be reached by financial services, costs are still prohibitively high for many potential customers, and each institution offers only a limited range of services.
Customers may have a savings account with one institution, get credit from another, and receive remittances through yet a third institution. Financial services in small towns like Teopisca are expensive and inconvenient. This keeps many people from using the services. And poor customers in rural areas tend to have no credit history with either of Mexico’s two credit bureaus.

Customers in urban areas tend to have a credit history, thought oftentimes that history is not very good. We met with one microfinance institution which explained that in Mexico City, loans are appropriaet for only one of every four customers. They accept clients without prior credit history, but do not accept those with a bad credit history. This is happening in an environment where the availability of credit is increasing.

Recent years have seen a proliferation of new entrants, such as Banco Azteca, Coppel, Wal-Mart, and Te Creemos. While some new providers are entering rural municipalities, these new entrants have thus far had the greatest impact on increasing access to credit in urban areas. In theory, increased competition should result in lower costs to the customer. But given the immense unmet demand for financial services, and the fact that so many new entrants focus on savings and consumer credit rather than working capital loans such as those provided by the many established microfinance institutions in Mexico, this likely will not be sufficient to reduce costs for poor customers.

Will technology be the key to improving access to a broader range of affordable products in both rural and urban areas? Will regulation be sufficiently open to innovations in the delivery of financial services?

There is promise in the potential for technology to improve efficiency and bring more licensed institutions to rural areas to deliver a range of services, but only if it is accompanied by sufficient consumer education and awareness efforts.