Archive for: Guest Blogger

This is a guest blog by Salah Goss, Associate Program Officer in the Financial Services for the Poor program at the Bill & Melinda Gates Foundation.

Mobile money often begins with a customer withdrawing cash in a store in his or her community, or sending money directly from their mobile money account to a relative living far away. But what if we began our story when none of these existed? Let’s start in a country where cash is difficult to access, store and move, where it actually takes four hours for a customer to do a four minute bank transaction, where walking out of a money transfer house often means being robbed, where sending money to parts of the country can only happen by boat or requires a half day road journey through a neighboring country. Add to this the devastation of a 7.0 magnitude earthquake and its after- shocks, a national cholera outbreak and on-going political violence.

So what if the story of mobile money began there? In Haiti in the midst of this on-going chaos, two mobile operators, Digicel and Voila, have launched mobile money services offering Haitians the ability to store funds through their mobile accounts, purchase goods electronically and transact safely and rapidly without having to access the limited bank infrastructure. In anticipation of the arrival of mobile money, a team of researchers from UC Irvine went to Haiti in June to get a snapshot of how money is traditionally transferred throughout the country. To understand the full impact that mobile money can have on the lives of Haitians, let’s look at the situation before mobile money.

Below are two stories of the burden of sending and receiving cash in Haiti. The full report on the before picture can be found here and here.

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This is a guest blog by Salah Goss, Associate Program Officer in the Financial Services for the Poor program and Ignacio Mas, Deputy Director in the Financial Services for the Poor program at the Bill & Melinda Gates Foundation.

New technology-enabled models for financial inclusion seek to take transactions outside of bank branches and into retail shops that exist in every community where poor people live and work. Constructing the necessary transactional infrastructures and service propositions requires bringing a broad set of assets and skills, which are likely to emerge from partnerships between various kinds of players.

But who will play orchestrator of such schemes? While much of the debate has so far focused on banks versus telcos, there is in fact a broader cast of characters angling to get in there. Here we evaluate the opportunities for some categories of ‘third party’ players who may someday become principals.

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Till Bruett is the Technical Advisor and Project Manager of the Pacific Financial Inclusion Programme, funded by the Australian Agency for International Development, UN Capital Development Fund, European Union, and the United Nations Development Programme, and operating out of Suva, Fiji. 

In the world of mobile money, larger countries get all the attention. But big things sometimes come in small packages  – and mobile money developments in the tiny Pacific nation of Fiji is an exciting example.
 
Dueling mobile money deployments have already racked up some impressive numbers in the Fiji Islands, a country of 800,000 people and over 300 islands.  After only four months of service, nearly  a quarter of all Fijians now have mobile wallets (m-wallets) allowing them not only to transfer money to each other, but also to  pay water (and soon  electric) bills  as well as top up their mobile phone airtime.  There is already heavy discussion about linking m-wallets to bank accounts.  

Fiji’s recent experience is being closely monitored by other Pacific nations eager to understand the factors that led to such high consumer adoption:  

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This is a guest post from Claire Alexandre, Senior Program Officer at the Bill & Melinda Gates Foundation. She leads the Policy work of the Financial Services for the Poor team.

Few initiatives in microfinance, or for that matter in development, have been as successful as M-PESA: 3 and a half years after launch, over 70% of households in Kenya and more importantly over 50% of the poor, unbanked and rural populations use the service.  I am often struck by how many people fail to be inspired, or even doubt M-PESA. Skepticism is often bred from lack of information.

What about you, how much do you really know about how M-PESA actually works? Here are 10 things you may have thought you knew about M-PESA!

1 – You thought the funds held in M-PESA were held (and used) by Safaricom
The funds are deposited in several commercial banks, which are prudentially regulated in Kenya. In addition, the funds are held by a Trust and are therefore out of reach from Safaricom, which cannot access or use them. In the unfortunate event of Safaricom going bankrupt, the creditors of Safaricom would not have access to the M-PESA funds. This is a requirement from the Central Bank of Kenya which oversees M-PESA. The funds remain at all times the property of M-PESA users.

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Archil Bakuradze is the chairman of the microfinance institution Crystal Fund. Here he discusses the “Reaching Georgia’s Rural Poor through Mobile Remittances” project, which is a joint effort of the Crystal Fund, Mobile Finance Eurasia and the microfinance organization Crystal and is funded by the Financial Facility for Remittances of the International Fund for Agriculture Development.

International remittances play an important role in the lives of people across the world, but in Georgia they are of major economic importance, accounting for 9% of the country’s GDP. According to various studies, about half of international remittances in Georgia go to rural areas.

Although it constitutes half of the country’s workforce, the rural population of Georgia generates only a small share of the country’s GDP and is poor and largely unbanked, despite the good overall progress of Georgia’s economy and the financial sector.. The aim of our project is to reduce the transaction costs of sending remittances to Georgia, especially to the country’s rural communities, thus enabling them to spend more money on productive activities.  

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What range of financial products are being delivered?

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, Director of Global Business Strategy at Vodafone Group, Senior Manager Intel Capital, and visiting professor of International Business at the Graduate School of Business at the University of Chicago. He is the author of many articles on branchless banking, which are available here. 

Branchless banking is best conceived of as the construction of a network utility. In the third of three blog posts we’ve featured this week, Ignacio emphasizes the applications of this utility for poorer customers.

Priority #4: Delivering a range of financial services

The fourth priority, and from the point of view of the Bill & Melinda Gates Foundation the ultimate proof point, is the successful delivery of a range of financial services to currently unbanked poor people over these transactional platforms. Priorities #1-3 are about building efficient, ubiquitous transactional rails, which can shore up the business case for the widespread distribution of financial products on a mass scale. But still those financial products need to be appropriately designed, branded, marketed and loaded onto the rails.

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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, Director of Global Business Strategy at Vodafone Group, Senior Manager Intel Capital, and visiting professor of International Business at the Graduate School of Business at the University of Chicago. He is the author of many articles on branchless banking, which are available here.

In order for branchless banking to prove to be transformational, it needs to demonstrate not only that it can be scalable (priority #1), but also that it can work for a range of providers and for a range of customer segments – including the poor. These are the two next priorities for branchless banking.

Priority #2: Proving a range of partnership models
Going beyond the number of deployments, the second priority is to demonstrate a variety of models, and in particular a variety of scheme structures and partnership arrangements between banks, telcos and retail networks. The Kenyan M-PESA success is tempered by the 85% market share enjoyed by Safaricom in the mobile voice market. That circumstance is simply not there in most countries, and even where it is, it is by no means desirable to leave the market of financial services for the poor in the hands of a single player. There needs to be a level playing field where multiple players can reasonably contest the market, and where success is not premised on a single operator exerting its dominant position in the adjacent telco market to the exclusion of others.

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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, Director of Global Business Strategy at Vodafone Group, Senior Manager Intel Capital, and visiting professor of International Business at the Graduate School of Business at the University of Chicago. He is the author of many articles on branchless banking, which are available here.

It is easy to foresee that in the future normal neighborhood stores will be used by poor people everywhere to conduct basic financial transactions, that technology based on real-time communications will be used to make those transactions reliable and secure, and further that providers will increasingly rely on people’s own mobile phones rather than on deploying cards and dedicated point of sale terminals.

But it takes a considerably bolder person to predict how exactly it will happen and by when. Rather than speculate on that, perhaps it is more useful at this point in time to lay out what are the milestones –let’s call it priorities— that those of us who support the development of branchless banking would like to see happen. I’m talking here about outcomes –what kind of offers we’d like to see in the marketplace—rather than constituent elements of the puzzle (such as regulation, agent network management or technology bits).

Here’s my take on what I’d like to see happen in developing countries. Read the rest of this page »

Welcome to the last session of our 2-day virtual conference!  The conference is taking place right here on the blog, no registration is required. Just post your comments using the “Leave a reply” option at the bottom of each thread.

This conversation is moderated by George Kinyanjui.  George is a consultant and supported SMEP (Small and Micro Enterprise Programme), an MFI in Kenya, as they linked to M-PESA for loan repayments.

In the course of the last two days, we’ve heard from a variety of practitioners discussing opportunities and challenges of using m-banking services in different ways.  For our last session, we’ll discuss one of the most obvious uses of m-banking – allowing clients to make repayments via an m-banking service.

SMEP’S EXPERIENCE WITH M-PESA
Since 2007, I have been working with SMEP on the introduction of a mobile repayments system.  SMEP was the first MFI to link into M-PESA for group loan repayments in 2009. We found that although in some ways m-banking is about new technology, the time and effort we invested in technology was only about 30% of the whole project. The biggest challenge was how to take our customers from their early experimentation with the service to a point where they truly can understand the value it can bring them and feel comfortable operating it.

We knew that allowing groups to repay via M-PESA would impact the group cohesion and we worked carefully to ensure this impact was positive. Although clients repay using M-PESA prior to the group meeting, the meetings themselves are still mandatory.  The meetings are much shorter than they used to be since the emphasis is not on collecting cash.  Instead, loan officers can focus immediately on any repayment issues or business problems the clients wish to discuss.  The officers can now accommodate more groups in one day. Clients are happy since they can make repayments whenever they want, group meetings are shorter and there is more security.

The result for SMEP has been very positive – repayment rates have actually improved since clients started repaying with M-PESA!  Today, about 70% of loans are being repaid with M-PESA.  SMEP will with time pass on the benefits of reduced expenses and increased efficiency to the clients in the form of cheaper loans.

PRODUCT
For those MFIs who do offer individual loans and deposits, it’s probably easier to start with these products.  Since the key relationship is between the individual and the institution, there is no risk that using an m-banking service will negatively impact repayments.  SMEP started offering individual loans and is currently transforming into a deposit-taking institution and it will integrate m-banking repayments into these products.

CHALLENGES
There are challenges to loan repayments using an m-banking service.  Clients sometimes complain that agents run out of e-float when they are ready to deposit cash.  Loan disbursement would be challenging for this reason – the amounts are larger and agents frequently run out of cash.  Also, Safaricom does charge for the service (similar to bill pay tariffs) and, in most cases, both the institution and the client pay a small fee that they previously did not have to pay.

I’m happy to answer any questions you may have in the next few hours.  I’d also be interested in hearing thoughts from those MFIs who have tried this or are considering it regarding the following questions:

1.    Have you made any adjustments to your methodology or product design to adapt to this different channel?
2.    How have factors like attendance at group meetings and repayment rate of group loans changed since the introduction of the m-banking repayment channel?
3.    How did you first introduce this to your customers?  Is the m-banking repayment channel mandatory or offered as an additional option?  What has been the reaction of customers and staff?
4.    What other challenges have institutions encountered?  Have you had any technical difficulties?

The conference is taking place right here on the blog, no registration is required. Just post your comments using the “Leave a reply” option at the bottom of each thread.

This conversation is moderated by Aleksandr-Alain Kalanda, Chief Executive Officer of Opportunity Bank of Malawi.  Daryl Skoog, Chief Technology Officer of the Opportunity International Network, will also be participating.

When my team at Opportunity Bank first started considering m-banking back in 2007, there was no other m-banking system in the country.  Some banks were considering it, but in a very limited way where current customers could just check balances over their mobile phones.  We were very excited about a much bigger vision – a vision to bring our services and products to unbanked people (especially in rural areas) via their phones.  We decided to create our own system that was successfully launched in May of this year.  We are happy with our system but it took longer and was more expensive and complicated to implement than we had expected.

I’ve spoken with many of my colleagues in microfinance around the world about this topic and many find themselves in the same position I was in a few years ago. They are very excited about the potential of m-banking but there is currently no service in their country that they can easily link into.  Based on my experience, I would recommend that MFIs make sure they have substantial financial, technical and human resources before going down this path.  Specifically, some of the pre-requisites should be:

•    Proven track record to implement complex technology-based projects
•    A strong core banking IT infrastructure that is able to handle large volumes of data flow
•    Substantial financial resources to pay not only for the technological solution but also for the human resources, the agent network and a significant marketing campaign.

In order to start the discussion, here are some questions I’m interested in hearing your thoughts on:

1.    For all those MFIs like us who are in countries without an existing m-banking service, what approaches are you considering?

2.    Have any other MFIs started building an m-banking service on their own?  What have your experiences been?

3.    The paper discussed some alternatives to MFIs building a service on their own, especially the option of working as a group with other MFIs to combine financial and technical resources to launch a service.  Is anyone interested in pursuing this approach?

4.    For those MFIs who have decided not to build an m-banking service on their own, are you considering other ways of using phones to improve customer service (e.g., for clients to receive information, loan officers to track info, etc.)?