Archive for: Policy

The success of mobile money services such as M-PESA has raised the question of how to regulate nonbanks—most notably mobile network operators, which are often well-placed to reach customers with affordable financial services due to their existing customer base, marketing capabilities, network of agents, physical distribution infrastructure, and experience with high-volume, low-value transactions. Yet regulators are often reluctant to permit operators to directly contract with customers for the provision of financial services. Chief among regulator concerns is how to protect customer funds.

These issues are examined in a new Focus Note by Michael Tarazi and Paul Breloff: Regulatory Approaches to Protecting Customer Funds for Nonbank E-Money Issuers.

-Jim Rosenberg

Amid the flurry of news coming out of Toronto, you’d be forgiven for missing this important development:

The G20 Leadership Summit in Toronto this past weekend highlighted the importance of the work being done by the G20’s Financial Inclusion Experts Group (FIEG). The group released nine “Principles for Innovative Financial Inclusion” formed through the efforts of the Access through Innovation Sub-Group (ATISG). “We have developed a set of principles for innovative financial inclusion, which will form the basis of a concrete and pragmatic action plan for improving access to financial services amongst the poor. This action plan will be released at the Seoul Summit,” the Toronto declaration said.

Read the nine principles here and over on the Microfinance Gateway you’ll find the Principles and report from the Access through Innovation Sub-Group of the G20 Financial Inclusion Experts Group.

Want the backstory? Check out an interview I did in March with Paul Flanagan, co-chair of the G-20 Financial Inclusion Experts Group and General Manager, International Finance Division, Australian Treasury: “The G-20 eyes financial inclusion using mobile phones, other ICTs.”

-Jim Rosenberg

What can we learn from recent acquisitions of banks by mobile network operators? Over the last year we have seen a number of mobile network operators (MNOs) buying stakes in banks or looking to acquire their own banking licenses. Are these isolated incidents or does this point to an industry trend?

On November 21, 2008 Telenor Pakistan entered into an agreement to acquire 51% of the shares in Tameer Microfinance Bank. A year later, in October 2009, Globe Telecom received permission from the Central Bank of the Philippines to acquire a 40% stake in Pilipinas Savings Bank with their parent company taking a further 20% stake. And, most recently, China Mobile confirmed earlier this month that they are in talks to buy a stake in Shanghai Pudong Development Bank in an explicit strategy to enter the m-payments market.

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To promote effective regulation of branchless banking, especially mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized the third Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. This week we’re blogging from the seminar, where the conversation has focused on technology, but also business models and especially distribution networks. A session on banking agents was chaired by Ignacio Mas of the Bill & Melinda Gates Foundation. The broad consensus was that agents (so far) have not created significant risks for consumers or the soundness of any banking system among the countries where agents are doing cash-in cash out transactions.

It is easy to slip into a shorthand vocabulary when dealing with a technical issue like mobile banking. Is that a challenge when we talk about agents?
For me, the key word is distribution. That’s the main problem we are trying to solve. It means two things. First, getting services closer to the customers – proximity. The second is being able to conduct smaller transactions affordably. Those two together are a basic enabler to serve poor people. Solving the problem of distribution is solving a business case and getting closer to the customers with the ability to do small transactions. In general, the broad solution to us seems to be to take banking transactions outside of traditional bank infrastructure, which is why I prefer to say that we are seeking “banking beyond branches” rather than “branchless banking.” Branchless banking cannot work without branches. The small store doing cash-in/cash-out transactions still has to go somewhere to get rid of the excess cash – and that’s usually a bank branch. So it actually isn’t branchless at all. The objective is to create outlets for people to transact in every town and village.

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To promote effective regulation of branchless banking, especially mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized the third Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. This week we’re blogging from the seminar. One session on branchless banking from the consumer’s point of view (download the presentation here)  was chaired by Daryl Collins, a Senior Associate at Bankable Frontiers and co – author of the influential Portfolios of the Poor: How the World’s Poor Live on $2 a Day. The book draws on year-long surveys of financial diaries from families in Bangladesh, India and South Africa. The surprise conclusion: many of the people they tracked were not living hand-to-mouth. Rather, the poor often rely on a variety of complex tactics and tools to manage money. In preparation for the session, Daryl reviewed household survey data from Brazil and Kenya - what experiences the poor have had with branchless banking and how this might inform the choices that regulators make when it comes to branchless banking. This is the second part of a two-part interview I conducted with her.

How are consumer experiences with branchless banking driving the policy debate?
What we are trying to do is to talk about the evidence on the ground. A lot of times what drives policy is perception – through the media, what people may hear about rather than systematic evidence. So we conducted a bespoke survey on correspondence banking in Brazil and looked at an exsisting surveyon M-PESA to look at the incidence with which the poor have problems with branchless banking.

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To promote effective regulation of branchless banking, especially mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized the third Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. This week we’re blogging from the seminar.

Last fall, leaders of G-20 nations identified financial inclusion as a policy priority in a communiqué:

…we will launch a G-20 Financial Inclusion Experts Group. This group will identify lessons learned on innovative approaches to providing financial services to these groups, promote successful regulatory and policy approaches and elaborate standards on financial access, financial literacy, and consumer protection.

CGAP and AFI are working with the G-20 as it eyes increasing financial inclusion with information communication technology (ICT).  To dig deeper into this process and how it will be evaluated for success, I interviewed Paul Flanagan, co-chair of the G-20 Financial Inclusion Experts Group and General Manager, International Finance Division, Australian Treasury.

What is Australia’s interest in branchless banking and the G-20 agenda?
Australia’s interest in the Financial Inclusion Experts Group, and in particular the Access through Innovation Sub-Group, reflects Australia’s interest in ensuring the G-20 provides practical leadership on development related issues.  Korea has made it clear that development will be a major theme in the November Leader’s Summit, and our work will be an important part of this focus.  Australia is an active member of the G20 and is committed to supporting its work as the premier forum for international economic cooperation.

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To promote effective regulation of branchless banking, especially mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized the third Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. This week we’re blogging from the seminar. I had a chance to catch up with David Porteous, founder and director of Bankable Frontier Associates, a consulting firm focused on financial strategy and policy. David is co-author of the CGAP/DFID Focus Note Scenarios for Branchless Banking in 2020.

What is the key purpose of having a scenarios session for policymakers during this seminar?
The key has been to get people to focus on what the consequences of certain policy directives might have on how much – or how little – branchless banking truly increases access to financial services for the unbanked poor in the next decade. For example, for some countries which  aim to go from a low income country to a middle income country status in the next ten years, doing so might require growth by a factor of 100 the number of banking service points. Does that mean a change is in order around who can open a bank account, or what the requirements are for an unbanked person to get a bank account? Probably.

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In 1968, a film titled “Planet of the Apes” captured the dystopian mood of the time by vividly telling the story of an astronaut who gets lost in space for many years, and eventually crashes on a strange world where apes, not men, are at the top of the food chain. The main plot twist comes when the astronaut finds the buried head of the Statue of Liberty, and realizes he is not on another planet, but rather, is on a post-nuclear-holocaust planet Earth - many years in the future. Everything mankind took for granted is gone. Humans are relegated to a life of servitude, subordinate to the super smart race of apes that has come to rule the planet.

This week at the Mobile World Congress has felt a bit like a live-action version of “Planet of the Apes,” with a few differences. Instead of apes, we have apps. The species rising to power goes by the ticker symbols of GOOG (Google), YHOO (Yahoo!), APPL (Apple), though some telecom wags seem to think these are simply four letter words.

On Planet of the Apps, the species running in fear are the mobile network operators.

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Could new technologies in Bangladesh enable formal financial services to reach two-thirds of adults by 2020?

Conditions in Bangladesh offer scope for some optimism. Famous for high population density, Bangladesh may be able to deliver a larger volume of financial flows over a relatively smaller distribution network; possibly making the business case more tenable. The demand for remittance services is likely to be high.  There are large numbers of Bangladeshis remitting from overseas. There are plenty of internal migrant laborers needing to send money home – well illustrated by the the ubiquitous rickshaw drivers of Bangladesh’s capital, as one example. Other countries, notably Kenya, have seen branchless banking surge because of domestic money transfers.

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When it comes to regulating branchless banking, some regulators believe they need to spend a lot of time and energy in developing a comprehensive framework. But putting in place extensive regulations without first observing and understanding how the market is developing can often result in a regulatory framework that is ill-tailored to the risks involved.  A more effective approach is to “test and see” – permitting branchless banking business schemes on an ad hoc basis, conditional on measures addressing identified risks. As the market develops and risks are further clarified, regulators will be better positioned to issue more detailed and effective regulation.

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