Archive for: Publications

Recently, the CGAP Microfinance Blog hosted a series on the role that public funders can play to promote branchless banking. The series was launched in conjunction with a new CGAP Focus Note that highlights emerging lessons from public funders in this space. Regular readers of this blog are very familiar with the excitement around branchless banking and are probably aware that branchless banking is primarily being driven by the private sector. In fact, private investors have provided about 80% of the estimated $400 million in debt/equity investment in the sector. However, public funders are eager to use their resources to help bring branchless banking to more and more countries. Given the current momentum, is there a meaningful role that public funders can play without crowding out private investment?

The new Focus Note and series attempt to answer this question. We spoke with public funders that have already been active in this space and developed case studies to understand what role they played and why. We found that public funders can play an important and additive role in developing branchless banking services. However, they should ensure that their involvement includes one or more of the following factors:

1. Public funders should extract knowledge and learning that will benefit the entire industry. This can be done at both a macro level (investing in public goods to understand issues such as customer adoption and regulatory obstacles) as well as at a provider level (extracting learning from specific services that can be shared widely).
2. They should seek to influence the industry and specific implementations to develop products and services that are relevant for the low-income and unbanked segment.
3. Public money can kick-start development, especially in smaller or post-conflict countries where providers struggle to obtain the capital and buy-in to make major investments.

To learn more, read the Focus Note. Or, check out the blog series to learn how USAID is working with governments in the Philippines and Colombia to promote branchless banking, how UNCDF is working with the private sector to bring branchless banking to some of the most remote and challenging parts of the world and how the IFC is combining investments with technical assistance to help small companies grow.

- Claudia McKay

As regular readers of this blog will know, we  are excited about the developments that we’re seeing in branchless banking in Pakistan, which have led us to call it a “laboratory” for innovation. Most recently I interviewed Mansoor Hassan Siddiqui, the Director for Banking Policy and Regulations at the State Bank of Pakistan about the recent changes to the Branchless Banking Regulations that, among other things, removed the need to capture biometric information at the time of account opening.

These changes to the regulation seem to have unleashed yet more activity. Easypaisa, the longest-established service in the market launched by Tameer Microfinance Bank and their parent company, mobile network operator Telenor, now claims over half a million mobile accounts following a major campaign. The mobile account will complement their over-the-counter bill payment and domestic money transfer services which together have processed a total of Rs 43 billion (US$500 million).

The other major player in the market is UBL, which launched their Omni service in April last year, only six months after easypaisa’s debut. UBL is supporting a number of government and NGO programs in the distribution of cash transfers to nearly two million beneficiaries through their network of 5,000 agents. Recently, UBL started accepting loan repayments for microfinance institutions (MFIs) and providing cash management facilities for businesses.

Two other players, First Microfinance Bank and MCB have already been granted branchless banking licenses under which they are running pilots. The State Bank of Pakistan last month issued a microfinance bank license to Waseela, a subsidiary of Orascom – who also own Pakistan’s largest mobile operator. The move was seen by many industry analysts as a necessary step towards getting a branchless banking license which will allow Mobilink to launch a service to compete with easypaisa.

There are several other banks that are also considering applying for branchless banking licenses and many non-banks such as the courier firm TCS. Other mobile operators are also looking for suitable banking partners that will allow them to launch their own services.

This CGAP Brief released today summarizes the latest developments and offers a commentary on the biggest challenges facing the branchless banking sector in Pakistan.

- Chris Bold

Summer is now officially over here in Washington and the busy fall season is off to a quick start. If you are just getting back into high gear, maybe this is a good time for us to recap some of the things we’ve been discussing on the blog over the last couple months, some of the latest news that’s caught our attention, and some things to keep your eye on in the coming weeks.

The South African bank FNB has recently launched its latest mobile banking offering Pay2Cell which allows FNB account holders to make payments to other FNB clients using only the recipient’s mobile phone number. This is a different product offering from FNB’s eWallet which allows FNB account holders to send money to anybody with a mobile phone. The recipient does not need a bank account and can withdraw the cash at any FNB ATM.

South Africa is one of the 7 markets that we covered in our recently released branchless banking country notes. The other countries include India, Pakistan, Mexico, Brazil, Ghana, and WAEMU in West Africa. The report for WAEMU is now also available in French – la version en français UEMOA.

An active branchless banking provider in West Africa, Orange has recently launched the Orange African Social Venture Prize. This initiative aims to reward innovative projects using ICT for social and economic development in Africa. In this contest, 3 winners will be selected and will receive financial grants along with 6-months of mentoring support from management and ICT experts. The project should target at least one country where Orange has a footprint and the prizes will be announced during the AfricaCom Awards in Cape Town in November. The deadline for applications is the end of September. Read more about it here.

Staying in West Africa, Nigeria continues to buzz with branchless banking activity. The Central Bank of Nigeria recently issued operating licenses to 11 mobile money firms. As this article explains:

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This is the fifth and final piece in the five-part series launching CGAP’s Agent Network Management Toolkit (available to download and highlights are on CGAP’s website). The toolkit is based on more than a year of research that yielded data on more than 16,000 agents in Brazil, India, and Kenya. In-depth interviews were conducted with 466 agents, agent network managers and providers, including mobile network operators, banks, MFIs and technology companies.

The previous four blogs in this series have focused on the agent and the critical role he/she plays in registering customers and helping them transact. However, agents are only one of a number of links in the branchless banking supply chain. Each link plays a critical and coordinated role to deliver services to the customer. Typically, MNOs, banks, technology companies, agents and agent network managers all play some role.  At the end of the day, everyone in the supply chain has to make money somehow.  In the M-PESA implementation, Kenyan customers made enough transactions and paid enough fees for money transfers to generate enough revenue for every company in the supply chain.  Unfortunately, early evidence demonstrates that this business model has been the exception to what has happened in most implementations in the world.  Most implementations are still trying to figure out how to generate sufficient revenue to sustain everyone in the supply chain.  Most importantly, in many cases the end customers themselves will not provide adequate revenue for the entire chain.

The Agent Network Management toolkit comes with a financial model to help providers project the revenues generated in a branchless banking implementation for each member of the supply chain.  The financial model is based on user-defined assumptions about the number of active account holders and the average number and type of transactions they conduct in a month. The financial model outputs a set of tables and graphs that demonstrate the basic business model of each company, showing revenue sources according to the transaction volume in the entire system.  The model can be used to analyze the financial flows at current levels and tariff structures, and all of the variables can be changed to assess alternative scenarios.

In testing the model on different implementations around the world, we learned a great deal about the wide range of business models in play.  Successful implementations will increase revenues through some combination of increasing the transaction volume and by the supply chain companies increasing their own core business benefits.  In Brazil, for example, bank’s cost savings and increased foot traffic in agent stores drive the business model.  In many implementations, MNOs may well find that they generate enough revenue from lower commissions and increases in airtime sales to justify distributing most of the revenue from their mobile money implementation to other members of the supply chain.  And in all implementations, third parties such as governments, utility companies, merchants and employers may be willing to pay significant fees to use the channel to make or receive payments.

The branchless banking industry is still early stage but gaining momentum.  We think that the Agent Network Financial Model will help providers gain a clearer picture about how to combine different business models into a supply chain, and that this will facilitate innovative partnerships between the players.

Branchless banking is in a state of creative chaos. The impressive growth of a few pioneers like M-PESA in Kenya has demonstrated the potential, yet most providers are still pushing to achieve success in their own market.

We suspect a big part of the problem is located in the supply chain: by this, we mean agents. At its core, branchless banking is about having cash when and where customers want it: agents are the crucial link for cash conversion. Agents also verify client identity and protect against fraud. Agents are also literally the face of the service when clients have a problem that needs resolution.

CGAP’s Agent Management Toolkit aims to demystify the process of building a viable agent network. The toolkit is based on more than a year of research that yielded data on more than 16,000 agents with institutions in Brazil (Banco do Brasil and Banco Postal), India (EKO and FINO), and Kenya (M-PESA). CGAP conducted in-depth, in-person interviews with 466 agents, agent network managers and providers.

Here are a few highlights:

• Even the most successful branchless banking services have not yet proven the long-term business case for agents. In Kenya, smaller stores that comprise the bulk of M-PESA’s 21,000 agents saw their profits go down from more than US$ 5/day to less than US$ 4/day, largely due to growth in the number of agents outstripping growth in the number of transactions processed in the system. The ratio of transactions to agents is one of the 9 drivers of agent profitability discussed in the toolkit.
• Agent network managers (ANMs) are an oft-overlooked link in the supply chain. CGAP talked to a dozen to understand their business case. Increasingly, ANMs like EKO and FINO – and not banks or MNOs – are at the center of conceptualizing a branchless banking service and driving it to success.
• The branchless banking service must generate sufficient revenue to support all of the companies in the supply chain: the majority of services do not meet this test (yet). The toolkit includes a detailed analysis of the financials of M-PESA (Kenya) and an excel financial model readers can use to test their own business case.
• Too many providers leap straight to the operational nuts and bolts. Only after pinning down the supply chain economics should a provider dive into identifying, selecting and managing agents. Part 2 tackles these topics and the annexes include examples of contracts, commission structures, and other useful documents.

Over the next 2 weeks, CGAP’s Technology Program Blog will host a series of 4 blog posts detailing each of these points. Check back often, and in the meantime download the toolkit in its entirety, the financial model or browse the first sections of the toolkit whose highlights are on the website: 1) Overview of Branchless Banking Agents and 2) the Agent Business Case.

Last week, my colleague Claudia McKay continued our blog series on our new CGAP Focus Note which tries to answer the question: “Is the hype around branchless banking justified?”  To dig into some answers, we gathered data on more than 16,000 clients of branchless banking institutions in 10 countries. Today, I’ll discuss the third and final finding from the study.

How do we meet demand for products that go beyond payments?

Most branchless banking services help clients move money over distance : a money transfer to a family member in the countryside, a bill payment to the utility company, a social benefit from the government. Clients also want products that move money over time  – i.e. savings and insurance paid out today to use in the future, credit to be used today and repaid in the future.

We know the poor are very active money managers. Financial diaries used by Collins, Morduch, Rutherford, and Ruthven show low-income families in Bangladesh, India, and South Africa used an average of eight different financial instruments primarily to move money over time, and quite intensively: the average household moved more than US$1,000 through the instruments over the course of a year.

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Last week, my colleague Mark Pickens started a blog series on the 3 main findings in our new CGAP Focus Note, which looks at several aspects of branchless banking across 18 branchless banking providers with more than 50 million customers in 10 countries.  You can read a full web feature about the paper on the CGAP website.  In this post, we’ll look at the second question we asked in the Focus Note:

Is branchless banking cheaper than traditional banking, and by how much?

To answer this question, we compared the prices charged by 16 branchless banking providers across 10 countries and by 10 traditional banks in five countries across 8 use cases.  We first released the results of our analysis on this blog in May.  Here are the highlights:

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After several years of very high profile attention on mobile money and other branchless banking schemes, we think it’s time to test the hype. Or more accurately, we’ve wanted to for awhile. But acquiring good data is really, really hard. We’ve been unable to say in anything but a fragmented, mostly anecdotal way whether the unbanked really use branchless banking, what they use it for, if it saves them any money, and what more they might want (but aren’t getting yet). Just because we are excited about branchless banking doesn’t mean it is living up to the promises we make on its behalf.

Over the past year, my colleague Claudia McKay and I have pulled together data on 16,708 branchless banking customers in 18 branchless banking providers with more than 50 million customers in 10 countries. Some of the data we had to go and generate ourselves in new field work; we gained access to other people’s research; and some, particularly prices, are public and just needed to be aggregated (somewhat laboriously). We are pretty certain this is the first analysis of branchless banking with a multi-country perspective. What we found is released in a new CGAP Focus Note.  Over the next week, we will look at each of the 3 main findings.

Today: Is branchless banking really reaching the base of the pyramid?

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The CGAP Technology Blog will be hosting a virtual conference on Microfinance and Mobile Banking next week on September 8 and 9.  Kabir Kumar, Sarah Rotman and I recently published a Focus Note on this topic describing how microfinance organizations around the world are responding to the potential and challenges of mobile banking.  We studied 15 microfinance organizations that are pioneers in the mobile banking space in different ways.

For the virtual conference, we’ll be joined by several of these industry experts who will discuss their experiences and lead conversations on four themes.

Day One: Wednesday, September 8, 2010

• What benefits can MFIs expect to gain by using m-banking? - Moderated by Sarah Rotman, co-author of paper [6am ET / 10am GMT]

• Should an MFI in a country without any existing m-banking infrastructure create its own m-banking system? - Moderated by Aleksandr-Alain Kalanda, CEO of Opportunity Bank Malawi [9am ET / 1pm GMT]

Day Two: Thursday, September 9, 2010

• When should an MFI consider being an agent in an m-banking system? - Moderated by David Kleiman, Managing Director, WING Money, with participation by Veasna Chumsam, Business Initiative Manager, VisionFund Cambodia [6am ET / 10am GMT]

• Can mobile banking be used to collect loan repayments and deposits? -  Moderated by Kenyan MFI [9am ET / 1pm GMT]

No advance registration is required – simply come to the CGAP Technology Blog next Wednesday morning at 10am GMT to join the conversation by submitting comments under each conversation. This is your chance to interact with microfinance practitioners who are daily experiencing the opportunities and the challenges associated with mobile banking.

- Claudia McKay

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