Archive for: Remittances

This is the fifth and final post in our series on remittances and branchless banking.  You can read the first four posts here.  So far, we have highlighted the emerging success factors and challenges featured in our 2012 landscaping exercise.  Paolo Baltao from Globe’s GCASH shared with us the lessons learned over a period of eight years during which time he led one of the first services to link remittances to a mobile wallet.   Subsequently, Stefan Staschen explored the untapped opportunities in leveraging the large flows of remittances between Russia and Tajikistan by linking them to other financial products.  This week, we revisit the study conducted by CGAP and Dalberg Global Development Advisors, by focusing on the role of bigger players such as Western Union and BICS Homesend in consolidating existing corridors and accelerating further adoption. 

Since we started this series, new remittance data from several countries has been released by the World Bank. This newly available dataset reveals that officially recorded remittance flows to developing countries reached $372 billion in 2011, an increase of 12.1 percent over 2010. This is higher than our earlier estimate of $351 billion. While there is clearly some market potential there, so far we have seen that uptake for mobile enabled remittances services has been anaemic to say the least.

Source: CGAP & Dalberg Global Development Advisors

As our understanding of the factors that lead to customer adoption of branchless banking expands, there is a growing consensus that for international remittances services to reach a significant level of scale, they will require an existing mobile money ecosystem that allows for downstream transactions which give users access to a wider array of cost-effective services and products such as payments and access to savings.  This will provide not only value-added for consumers but also the much needed transaction revenue for providers.  It is evident that these recalibrated strategies will no longer place remittances as the core driver for adoption, but factor them in as one of the many financial services which can be provided to a customer once a branchless banking ecosystem has reached a certain level of maturity and depth.

One thing is certain: although some new innovative models have emerged, traditional remittance providers or MTOs like Western Union still have a huge advantage through the benefits they offer to partners. These include fast access to a broad range of sending countries as well as significant brand recognition and regulatory compliance, though often at the expense of their partner’s pricing power (an expense which could end up being passed on to consumers, ultimately reducing the demand for these types of services).   Nevertheless, Western Union has already launched mobile money transfer services in nine countries: Bangladesh, Burkina Faso, Canada, Kenya, Madagascar, Malaysia, the Philippines, Tanzania and the U.S, and in the last couple of months, has announced strategic alliances with MTN Uganda, Roshan in Afghanistan and Tigo in Paraguay.  This move will allow senders to remit funds directly into the recipient’s mobile wallets from any of Western Union’s agent locations around the world.  It is evident that MNOs remain optimistic about deploying international remittances through mobile money, yet they are increasingly aware that the full benefits will only be realized in the long-term.  As mobile money ecosystems become more mature in these markets, these flows could play a pivotal role in consolidating corridors and accelerating adoption.

Alternately, hub providers such as BICS Homesend are now making it possible to integrate mobile wallets or money transfer systems of two different providers. Besides facilitating services that are mobile centric from sender to receiver, HomeSend can provide access to other service providers, such as MTOs and banks which can offer technical solutions to streamline domestic interoperability between systems and competing regulatory frameworks. Given their structure, Homesend is a cheaper alternative to giants such as Western Union and can provide a more flexible partnership without having to cede too much control from the side of the operator or bank.  However, they don’t have the same instant global reach and given their lack of direct interface with mobile wallet users, they are completely reliant on their partners to market and push transactions which make the issue of consumer education even more critical.

Nevertheless, operators seem to remain optimistic over the long-term opportunity to deploy international remittances through mobile money, and hope it will eventually contribute to the economic viability of their deployments through the added revenue opportunities for them and their agent networks.  It remains to be seen how these remittance flows are actually tied to specific financial products and services.  Only then will the real impact of mobile-enabled remittances on the unbanked be uncovered.

- Camilo Tellez

This is the fourth post in a series on remittances. The previous blog in this series discussed the scale of the remittance flows between Russia and Tajikistan and the huge potential for linking them with other financial products. Stefan Staschen works regularly as a consultant for CGAP’s Government and Policy Team and is an Associate with Bankable Frontier Associates. 

You can probably understand our excitement when CGAP learned about the initiative of two banks to leverage the large remittance flows between Russia and Tajikistan. Agroinvestbank in Tajikistan offers three such linkage products in cooperation with Russlavbank in Russia, which operates the CONTACT money transfer system.

The following three products are offered:

1. A “Road Loan” where migrants (before they leave Tajikistan) can receive loans up to US$1,000 mainly to cover travel expenses for their trip to Russia. The migrant, once in Russia, uses the CONTACT system to make repayments from Russia at a preferential commission rate (i.e. a lower rate than charged for remittances). In April 2011, Agroinvestbank had 6,000 road loans in its portfolio with an outstanding loan balance of US$3.2 million. (This is the only product which is also offered by a number of other banks.)
2. “Hamvatan” (meaning “compatriot”) is a basic deposit account offered by Agroinvestbank, which can be opened remotely at Russlavbank branches in Russia and can be replenished through the CONTACT system. Only the migrant can withdraw money from this account (and only once he has returned to Tajikistan). So in a way it’s a savings account in Tajikistan replenished by a remittance from Russia. As of mid-2011, only 38 accounts had been opened with an aggregate balance of US$30,000. Most clients close their account once they return to Tajikistan as they would rather deposit the money in an account earning a higher interest rate.
3. “Family Card” is a current account with two debit cards – one for the migrant and one for his family. The migrant worker opens the account in Tajikistan before he travels and he can replenish it from Russia through the CONTACT system at a preferential commission rate. Unlike the Hamvatan account, family members can withdraw money in Tajikistan even before the migrant returns home. (No data on number and volume of accounts was available for this, but I assume the banks would have touted the success if there was anything to tout.)

What are the reasons for the low take-up of these products, even though the potential seems huge, and what can be done to make them more attractive? The following are a few indications, although more detailed research would be required to provide definite answers to these question Read the rest of this page »

This is the third post in a series on remittances. Stefan Staschen works regularly as a consultant for CGAP’s Government and Policy Team and is an Associate with Bankable Frontier Associates. 

Tajik migrants, courtesy of Stefan Staschen

My colleague Olga Tomilova and I recently were in Tajikistan and Russia to learn more about the large remittance flows between these two countries. We were most interested in the potential to link remittances with other financial products, such as loans and savings accounts in order to increase access to finance on both ends of the remittance corridor.

Having lived and worked in Kenya for many years, I inevitably started comparing Tajikistan with Kenya, and I realized that this is actually quite an interesting comparison.

For example, taking one point of comparison, in Kenya there is a lot of talk about the high aid-dependence of the economy (5.7% of GDP). But it turns out that it is still small in comparison to the “remittance-dependence” of Tajikistan, which peaked at 50% of GDP in 2008 (i.e. just before the effects of the global financial crisis could be felt) and stood at 40% in 2010 (according to the World Development Indicators). Obviously remittances and donor funds are not the same, but if we are concerned about the changing mood of donors and its potential effect on Kenya, how much more should we be concerned about fluctuations in remittance flows to Tajikistan!

Such large remittance flows do not only benefit the recipients, but can also be great business for banks. (In the case of one bank, the revenues from commissions corresponded to 46% of its net interest income in 2009.) But they create the risk of precarious living conditions for Tajik labor migrants and expose the recipients and the Tajik economy as a whole to the whims of Russia’s immigration policy, which has already been tightened several times.

There is actually another analogy between Kenya and Tajikistan: in both countries remittances boom, only that in Kenya it is mostly domestic remittances exemplified by the run-away success of Safaricom’s M-PESA mobile money service. While every Tajik receives about $325 in remittances annually (of which at least 90% originates from Russia), domestic transfers flowing through the M-PESA system alone amounted to about $200 per capita in 2010. Mostly as a result of M-PESA, the percentage of the population excluded from formal financial services dropped substantially between 2006 and 2009.

Read the rest of this page »

Last week, we began a blog series and released a CGAP report on international remittances through mobile banking channels. The series continues this week with guest blogger Paolo Baltao, President of G-Xchange, Inc. (GXI), a wholly owned subsidiary of Globe Telecom in the Philippines. G-Xchange’s GCASH is one of the first mobile wallet services in the world and has been offering international remittances since 2004. In this post, Paolo shares some of the lessons GXI has learned in the past eight years.

My home country of the Philippines has a very strong culture of migration and nearly 1 in 10 Filipinos lives and works outside the country. As a result, we rely very heavily on international remittances. In fact, the Philippines is one of the top five recipients of remittances globally and receives about $19 billion of remittances a year. When we first started GCASH back in 2004, focusing our offering around international remittances seemed like a no-brainer. We thought this would be the low hanging fruit and the engine that would drive the domestic mobile wallet business and the roll-out of our agent network. We also thought that this product would be a natural one to attract unbanked customers and that it would be easy to get them to receive their remittances through the mobile wallet.

In our first years of operation, we put an enormous amount of time and energy into developing partnerships with almost 100 international remittance partners, enabling people in locations as diverse as Hong Kong, Singapore, United Arab Emirates, Qatar, UK, and the US to send money home via GCASH.

Unfortunately, despite all this potential and the network that we have built around the world, international remittances have not been the engine to drive customer adoption in the Philippines. A few key lessons we have learned are:

1. A strong domestic ecosystem should be in place before launching international remittances – After many trials and error, we have learned that it is essential to first build a critical mass in the user base through the domestic mobile wallet business. According to the new CGAP study, it seems that this is a very common realization around the world. We faced many challenges in developing this product, especially customer education on both receiving and sending ends and building partnerships with money transfer operators around the world. International remittances are just not low-hanging fruit we initially thought and we spent a lot of time and effort trying to build the business that we now feel should have been focused on building a domestic ecosystem. A significant domestic ecosystem will allow users that eventually receive international remittances to conduct many “downstream” activities such as paying bills, domestic transfers and savings. Without this, it was hard to convince customers of the benefits of receiving funds through GCASH. Read the rest of this page »

CGAP and Dalberg Global Development Advisors recently conducted a landscaping study of international remittances through mobile money. Download the report to read details of the industry landscape in 2012, emerging success factors, challenges and innovations as well as seven case studies. This blog post is the first in a five part series examining international remittances and branchless banking. Andria Thomas is Project Manager at Dalberg.

Since remittances to developing countries were estimated at about $351 billion for 2011, capturing even a small share of this market could be a transformational opportunity for mobile money providers – right?

Perhaps, but it’s not as easy as one might think. Building on our landscaping study of international remittances through branchless banking conducted at the end of 2010, we set out to analyze the growing industry of international remittances through mobile money as it continues to evolve today. We paid particular attention to offerings that allow a customer to receive funds from abroad directly into a mobile wallet which can be converted to cash at a large agent network. We wanted to understand whether international remittances are helping build the mobile money business. Can international remittances be a tool to improve the value proposition for agents? Are they a hook for attracting new customers or driving more transactions?  And, fundamentally, do they provide a more efficient path to build the mobile money ecosystem?

In the past 18 months, the total number of deployments with a cash-out option via a mobile wallet increased from 8 to 17. Some innovative approaches are emerging, such as KlickEx’s leveraging of foreign exchange trading to lower transaction costs and BICS HomeSend’s interoperability across players within a corridor.

Still, we found a number of reasons to be skeptical of the short-term value of international remittances to mobile money deployments. Some key lessons which emerged from the study include:

1. It’s not a chicken-and-egg problem; a functioning mobile money ecosystem needs to precede success in international remittances. First movers in international remittances anticipated that this product would drive mobile money usage. However, establishing a functioning agent network and providing complementary “downstream” transactions such as bill payments and domestic transfers are now seen as necessary precursors to success in international remittances.
2. Even success stories such as M-PESA have not made significant traction with international remittances. Safaricom and Vodacom recently rolled out M-PESA-tied international remittances in Kenya and Tanzania respectively, but early usage has been “miniscule.” Attracting users – even those who are already comfortable with a mobile wallet – still requires a heavy marketing and education push on both the sending and receiving ends. In the list of business priorities, the investment in this area is not seen as the best resource allocation.  Read the rest of this page »

One of many Brazilian agents that move people outside of bank branches

I’m blogging from Dakar, Senegal where I had a stark reminder of why innovation in financial services is so necessary. A colleague of mine had a check to cash, so after one of our meetings we made our way to a “to-remain-unnamed” bank in the city center. Good thing I decided not to wait in the car because this relatively simple transaction took well over an hour to complete. First we had to wait about 30 minutes for our number to be called behind all the people waiting ahead of us. But once he was at the teller, it still took my colleague about 45 minutes to finally walk away with his cash.

My intention is by no means to bash banks…the computer system seemed to be running slowly and the check was for a couple thousand dollars, so he was sent to another desk for some sort of extra authorization. But it was a good, and admittedly frustrating, reminder of the potential of branchless banking, technology and innovative business models to transform the way people, especially the unbanked, access financial services…outside of bank branches.

This experience aside, the Senegalese market is full of exciting initiatives and inspiring energy from banks, MFIs, mobile network operators, technology companies, various government institutions and the central bank. In perusing my Google feed of news on branchless and mobile banking, there are plenty of things around the world to get excited about. Here are just a few that caught my eye:

One of the banks that has a regional presence in the West African Economic and Monetary Union (WAEMU – of which Senegal is a part) is Morroccan-based Attijariwafa Bank. Wafacash, a specialized subsidiary of Attijariwafa and leader in international money transfers, announced the launch of a new mobile money transfer corridor in partnership with Belgacom subsidiary BICS between Belgium and Morocco.

A new study reports on the first randomized evaluation of a cash transfer program delivered via the mobile phone – Zain’s Zap service in Niger (now Airtel’s Airtel Money). The report highlights several benefits of this new delivery mechanism and we’ll be profiling this experience in more depth on our blog in the coming weeks.

Also related to cash transfers, a new report by UNCDF examines Fiji’s experience in leveraging government-to-person (G2P) payments as a mechanism to enhance financial inclusion and provide savings to government and social welfare recipients via a savings-linked electronic payment system.

In Bangladesh, the Bangladesh Bank has just published new guidelines on mobile financial services and the Financial Express reports that nearly a dozen banks are preparing to introduce such services, in addition to those services that are already in the market.

In Pakistan, the largest mobile network operator Mobilink, a subsidiary of Orascom Telecom, was recently granted a license by the State Bank of Pakistan to initiate microfinance activities, seen as their foray into branchless banking.

But I admit that what excited me the most when I looked through my Google feed was the fact that I read more than 20 headlines before finding a story that mentioned M-PESA. The rest of the world is catching up!

- Sarah Rotman

We’ve been profiling the state of play of the branchless banking industry in various countries over the last few weeks. Today we look at a region of the world that is in many ways in a class by itself. The West African Economic and Monetary Union (WAEMU), or UEMOA in French, is a customs and monetary union of the republics of Benin, Burkina Faso, Côte d’Ivoire, Guinea Bissau, Mali, Niger, Senegal, and Togo. The Central Bank of West African States (BCEAO) is the common central bank of the eight member states. Here is our summary note on the branchless banking industry in WAEMU. Et voici la version en français.*

The other country notes we’ve released are for countries that are already considered middle-income or are very near to reaching this status (Brazil, Mexico, Pakistan, India, Ghana, South Africa). I would argue that WAEMU is the most challenging of the countries/regions from this list for the development of branchless banking. The 8 countries in WAEMU have a total population of 95 million and include many of the poorest countries in the world. 74% of the region’s population lives on less than $2 per day, and all countries in the region rank in the bottom 12% of countries in the human development index.

Access to finance in WAEMU is very low, even by comparison to other regions of Africa.  The rate of bancarization announced by the BCEAO in December 2010 was 9.5% and 12.7% of the population had an account with an MFI.

Yet the WAEMU region has recently seen a significant amount of private sector activity in branchless banking (see a summary chart of activities). The single overarching regulatory framework in the BCEAO enables private actors to leverage regional investments at lower costs. This regional diversity also provides the opportunity to understand the impact that market aspects have on branchless banking in an environment where the regulation is constant. For these reasons, WAEMU is a unique place to push branchless banking and a region where the need for increased access to financial services is one of the greatest in the world.

Opportunities for branchless banking in WAEMU:

• Regulation allows for nonbank e-money issuers leading to different and unique business models. The BCEAO was one of the first regulators globally to pass regulation expressly permitting nonbank e-money issuers in 2006, and it remains one of a few central banks that allow this role by nonbanks. Interestingly, none of the MNOs have opted for this license, while MNOs in other parts of the world long to have this option. Three nonbank institutions have received the e-money issuer licenses from the BCEAO. This regulation expands the realm of possibility in terms of the actors that can get involved in branchless banking and the types of services that can be offered. Read the rest of this page »

In previous blogs Mark Pickens has lamented the lack of innovation by branchless banking providers in products that go beyond payments. But there are some green-shoots of innovation. In this blog we take a look at some examples of early experiments that we have seen involving in micro-insurance.

It could be argued that micro-insurance is the ideal financial product to be offered via branchless banking. Insurance requires a large base of customers: the larger the base, the more diversified the risk for the insurer, and the cheaper the insurer is able to offer the product. And branchless banking, we have long argued, is a business built on high volumes and low margins.

It seems that several others share this view. Here’s a quick summary of three of the most exciting examples that we have come across around the world that pair micro-insurance with branchless banking channels:

Read the rest of this page »

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

A mother receives her family’s CCT cash grant from a GCASH REMIT representative in Burdeos, Quezon

Globe Telecom is a leading telecommunications company in the Philippines that runs the GCASH mobile money service. We asked Paolo Baltao, the newly appointed President of G-Xchange, Globe’s wholly-owned subsidiary running its m-commerce business, to tell us about Globe’s recent efforts to support the Philippine government’s poverty alleviation programs using the GCASH REMIT platform.

1. Can you explain a little about how the pilot works?

The Conditional Cash Transfer (CCT) Program, also known as Pantawid Pamilyang Pilipino Program (4Ps), is a vital component of the Philippine government’s poverty alleviation agenda. It aims to help the country’s poorest families through cash assistance in order to enable family members to pay for health care, nutrition and education, provided they comply with certain conditions such as keeping children in school, attending regular health check-ups, and vaccinating their children. Grants are currently delivered by the LandBank of the Philippines as over-the-counter payments via cash cards that can be used at ATMs or through off-site payments.

Previously, the Department of Social Welfare and Development (DSWD) and LandBank had to hire helicopters to physically bring the cash to participating beneficiaries in especially remote areas. This was of course very costly. The program organizers looked for means to bring down the cost of grant distribution.

GCASH REMIT, the domestic cash pick-up remittance service of GXI was initially tapped to distribute CCT grants to 10,000 beneficiries in 3 areas. GCASH REMIT partner outlets are already part of the community and these partner outlets need only a mobile phone to process and validate the disbursements. DSWD and LandBank in turn can monitor all these disbursements online and in real-time through the GCASH platform.

2. How did you get involved in the pilot?

Read the rest of this page »

In our last post for 2010, let’s recap what we’ve been discussing and share some headlines from around the globe.

I blogged about the launch of Orange Money’s service in Kenya.  This has been the subject of many articles and blog posts online, and Mobile Money Africa linked to an interesting take on the launch:

The future of money transfer is here. So runs the latest prime time TV advert “introducing Orange Money”. To the casual Kenyan TV viewer, this sounds just like another fancy advertisement pushing just another new product from a local firm or consortium. But to those more informed about the cutting edge and the next level of both modern banking and computing, this advert could herald the future not only of money transfer in Kenya, but of the economy as a whole.

The Central Bank of Nigeria has been busy lately, issuing licenses to several mobile money service providers, including Paga, eTranzact and United Bank for Africa:

According to the EFInA Access to Financial Services in Nigeria 2010 Survey, Nigeria lags behind South Africa, Botswana, and Kenya in terms of the percentage of the population who are financially served. The growth in financially served population in many of these markets is mainly attributable to their mobile money offerings.

Chris Bold blogged about international remittances over the mobile channel, and Axis Bank in India announced a domestic “remittance pilot” with IDEA Cellular.

While everyone may know M-PESA quite well, Claire Alexandre guest blogged about things we might not have known about the service, while Mark Pickens shared some of the new innovations happening in Kenya.  Maha Khan from the MMU at GSMA wrote an interesting blog about the use of mobile money in post-conflict enviornments, such as Afghanistan:

There is a lot of optimism about the use of mobiles in the peace-building sector and in particular mobile money bringing financial services to the poor.  While there is widespread reach of mobile phones in post-conflict countries—Afghanistan has 13 million mobile phone subscribers—is mobile money the silver bullet? 

And speaking of challenging environments, an op-ed by Nicholas Kristof discussed some of the benefits that mobile money could bring to Haiti.  But more on Haiti in the New Year.