Tanzania is one of the fastest growing mobile money markets in the world. Today mobile telephone penetration is 49% according to Wireless Intelligence as of Q3 2011. There are four active mobile money businesses, the largest of which is Vodacom’s M-PESA which has over 2 million active users.
A visit to community-based women’s savings groups in Arusha provided an opportunity to find out how people are using financial services. Savings groups are expanding rapidly in Tanzania as well as other countries in Africa. Group members save weekly, take loans as needed, and distribute profits and return share capital at the end of a year (what the experts call “time bound distributing accumulating savings and credit associations”). The groups we met had accumulated $6,000-7,000 in capital and were capable of approving loans to members that went from $100 to as high as $1,000, usually requiring repayment in three months. They had been together for almost two years and clearly knew their business well.
Twenty five percent of the more than 50 women we met with have bank accounts, and groups keep some of their accumulated capital in banks. The women live on the edge of a major city and some have salaried jobs in addition to their side businesses. Salaries might be paid into a bank account and a few individuals have personal bank accounts to accumulate larger amounts of savings than what they keep in the savings group. But what is interesting is that they do not use these bank accounts to transact any of their day-to-day business nor do they try to get loans from banks, for all the well known reasons.
The surprise came when we found out that all but one of these fifty women owns her own mobile handset and SIM connection. What was even more interesting was that two thirds have a mobile money account and many of the rest of the women want to get one. Given the fact that they are members of good, active savings groups, have access to banks if they so desire, and can even get services from MFIs if they so choose (none have so far), what exactly do they use their mobile money account for? It turns out that they use these accounts to send money to children studying or living in other towns, receive money from relatives living far away (to help them make their group payments amongst other things), load airtime for themselves and other family members, and in some cases receive payments from customers who make telephone orders for goods or services. These women took to using mobile money on their own and see it as a natural, useful addition to the value they derive from their savings groups.
This is the fourth post in our series on G2P, branchless banking and financial inclusion. Our first post on Pakistan can be found here, our second post on the Philippines can be found here, and our third post on Colombia can be found here. Our guest blogger for this post is John Ratichek from Bankable Frontier Associates. John leads the development of BFA’s work in social transfer payments. He has done work on the use of technology in mobile phone banking and has written and supervised case studies on the development of financial services in rural Africa.
Mama Cash and her husband at their shop in Turkwell, Turkana district
Forty kilometers east of Lodwar, through the sand and river beds of arid Turkana district in northern Kenya, is the settlement of Turkwell. In the middle of this unforgiving landscape that can hardly support a few goats, “Mama Cash” and her husband run a thriving shop.
Her success is primarily a result of her participation in the Kenyan government’s pilot cash transfer program known as the Hunger Safety Nets Programme (HSNP). But she’s not a beneficiary. Rather, she is one of the two agents in Turkwell who pay cash to the programme’s 250 local recipients. For that service, she receives a commission from Equity Bank who is the administrator of the payment service; and she gleans some additional business from the beneficiaries who often buy goods from her store. Plus, the community has bestowed on her the title she now proudly posts on her storefront.
Mama Cash is one of 120 merchant agents who are being hired and trained by Equity Bank to distribute the HSNP funds. The pilot programme has now been underway for 24 months.
Bindu Ananth is the President of IFMR Trust, which has a mission of ensuring that every individual and every enterprise in India has access to complete financial services. In pursuit of this, IFMR has made four key investments – IFMR Rural Finance (full service financial institutions for remote rural India), IFMR Capital (guarantee company for high-quality MFIs), IFMR Mezzanine (subordinated debt provider for emerging MFIs) and IFMR Ventures (debt access for rural enterprises). Through these investments as well as other initiatives , IFMR Trust is advocating for an inclusive financial system in India. Recently I interviewed Bindu about how the financial system in India might be configured to deliver complete financial service access.
What is the approach IFMR advocates for that is different from all the other models being used in India, such as scaling up microfinance institutions (MFIs), reforming the cooperatives, promoting the self help group/bank linkage model, or the current favorite of policymakers, the business correspondent model linked to the use of technology?
Our vision for the Indian financial system has three parts:
An adequate number of local, high-quality financial providers that provide complete access to financial services. (We have borrowed heavily from Prof. Jonathan Morduch in defining complete access to be: reliability + continuity + convenience + flexibility + increasing financial well-being.)
Orderly ways for systematic risk to be transferred from these local providers to risk aggregators. This would be done through mechanisms like reinsurance and securitization, among others.
The presence of well-regulated and well-capitalized aggregators like commercial banks, mutual funds, and insurance companies.
Several of the initiatives you mention as models are in line with our vision that I just described. For example, a local microfinance institution that securitizes part of its portfolio to a mutual fund transfers systematic risk now to the mutual fund. This is a perfect partnership because the MFI is very good at customer origination and monitoring and the mutual fund has the ability to provide vast amounts of liquidity for the growing demand because of its size, capitalization, and diversification. Similarly, the banking correspondent (banking agent) that is providing savings services on behalf of a well capitalized bank would be consistent with our approach.
In my last post, I introduced the town of Autazes in the Amazon basin and shared how agents (termed banking correspondents in Brazil) helped transform Autazes from a backwater to a banking hub. I visited Autazes in December 2009 as part of an agent research project conducted with the Center for Microfinance Studies at FGV (Fundação Getulio Vargas) and Planet Finance. The merchants and leaders of Autazes are thrilled with the new business and higher tax revenues that resulted indirectly from agents, but what about the rest of the community? How has the arrival of agents impacted the lives of average, low-income people living and working in Autazes?
One might think that a small town in the heart of the Amazon basin would be the last place to need banking services.Yet during a visit to one such town, Autazes, I encountered a community that credits banking services (via agents, termed banking correspondents in Brazil) with not only making life more convenient for its inhabitants but for sparking an economic boom.I was there in December 2009 as part of a research of agent networks (introduced in a previous blog post) which CGAP conducted along with the Center for Microfinance Studies at FGV (Fundação Getulio Vargas) and Planet Finance.
It’s hard to think of a tougher environment in which to test the potential of mobile banking than Afghanistan. With a population of 30 million people, 36% of whom live below the government defined poverty line and 74% of whom are illiterate; Afghanistan is the poorest country in the world outside Africa. But bringing banking services to Afghanistan is exactly the challenge that Roshan, an MNO majority owned by the Aga Khan Fund for Economic Development, is taking on. We met with Zahir Khoja, Roshan’s Executive Director for M-Paisa, on a recent visit to Afghanistan to discuss the roll-out.
How do you get mobile banking – and branchless banking – to grow? Merchants in the Philippines are finding they have the capacity and the interest to offer financial services to consumers as a new line of business. However, in order for these new ventures to succeed, a network of providers will need to be selected, and issues such as cash management, investment levels, large loan disbursement capability, profitability, and agent network management will need to be addressed. That’s the subject of a new web feature at http://www.cgap.org/technology.
We’ve been running an occasional podcastseries with some of the voices we’re listening to this year as part of the CGAP/DFID Branchless Banking in 2020 scenarios work. The process is based on one driving question: How can government and private sector most affect the uptake and usage of branchless banking among the unserved majority by 2020? You can participate directly through this blog or posting discussions through our Mobile Banking and Microfinance LinkedIn Group. –Jim
Ignacio Mas is Deputy Director in the Financial Services for the Poor program at the Bill & Melinda Gates Foundation. Ignacio has been a Senior Adviser in the Technology Program at CGAP, Vice President of Marketing and Account Management at interTouch, Director of Global Business Strategy at Vodafone Group, and Senior Manager responsible for telecoms investments in Europe at Intel Capital. Ignacio has been a Visiting Professor of International Business at the Graduate School of Business at the University of Chicago. He holds undergraduate degrees in mathematics and economics from MIT and a PhD in economics from Harvard University.
Ignacio was among the workshop participants at our event in Capetown earlier this year. Though the nascent growth of branchless banking in places such as Kenya and the Philippines is truly exciting, Ignacio explained why the Bill & Melinda Gates Foundation is focusing on savings as a way to ameliorate poverty, and how technologies such as card networks and mobile phones might help.
India’s new government has promised big moves on poverty reduction. At the center is a plan to provide a new biometric ID card to every one of India’s one-billion plus citizens. To lead it, the government has tapped Nandan Nilekani, cofounder of Infosys, one of India’s biggest computer-services companies.
Part of the concept’s appeal is slashing widespread “leakage” (fraud, corruption, theft) in the government’s already prodigious subsidies intended for the poor. One in ten Rupees spent by the government are aimed at poor households – for example, India’s National Rural Employment Guarantee Scheme paid workfare wages to more than 35 million un-employed people last year.
People working on social protection policy and financial inclusion don’t always find a lot of common ground. In fact, some would say they put out competing views of poverty alleviation: direct payments from the government to raise incomes, or increasing poor people’s access to financial services to help weather shocks and increase incomes. Of course, this is an over-simplification, and somewhat artificial. Both want the same end (poverty alleviation) and neither casts itself as the magic bullet. There’s a good 20+ years of thinking on how social protection and financial inclusion are mutually reinforcing, including somewhat famously the idea of Individual Development Accounts (IDAs) as created by Michael Sherraden.
There’s a new surge of interest, this time looking at how the impact of conditional cash transfers (CCTs) can be magnified by providing recipients with basic financial services.
I recently participated in a panel on the topic organized by The New America Foundation’s Jamie Zimmerman, who along with Yves Moury, have authored a paper on the topic. Here’s the video.
My take? If linking the poor to financial services helps them, why stop at CCTs? Let’s look at a wider world of government-to-person (G2P) payments, including other types of social welfare payments as well as wages and pensions. By CGAP’s estimate, more than 155 million of the world’s poor receive a regular payment from their government. But far less than 1/4 land in an account.
Those of us working on the financial inclusion need to line up the evidence to convince social policymakers that bolting on basic bank accounts for recipients will have benefits. And crucially, we need to boost the business case for banks to provide basic banking to poor G2P recipients on a profitable basis. One key will be deploying on more cost-effective delivery channels — such as point of sale terminals at existing merchants in the community rather than expensive bank branches.
