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Microfinance and Technology Building Operational Solutions for Microfinance and SME Projects

Microfinance and Technology Building Operational Solutions for Microfinance and SME Projects May 24, 2010. CGAP Technology Program. 14 projects in 10 countries, 13 policy diagnostics Research, policy, advisory and grant funding Learning and knowledge sharing

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Microfinance and Technology Building Operational Solutions for Microfinance and SME Projects

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  1. Microfinance and Technology Building Operational Solutions for Microfinance and SME Projects May 24, 2010

  2. CGAP Technology Program • 14 projects in 10 countries, 13 policy diagnostics • Research, policy, advisory and grant funding • Learning and knowledge sharing • Co-funded by the Bill & Melinda Gates Foundation, CGAP and the UK Department for International Development • Find us online at http://www.cgap.org/technology • What we do • Demonstrate innovation and scale in branchless banking projects resulting from CGAP’s technical assistance and/or grant funding. • Improve broad industry knowledge and practice in the areas of customers, agents, business models and regulatory frameworks. • Harness existing government payments and remittance flows to provide banking services to large numbers of unbanked people. • Help policymakers develop regulations that support effective use of mobile technologies for financial inclusion.

  3. What are the factors that limit access? Long distances & low pop density High bank costs relative to income Low education & illiteracy Poor product/ channel design Branchless banking may overcome these constraints

  4. Branchless Banking: What do we mean? Cash in/out Bank Client Agent Receipt/ Cash “… delivery of financial services outside conventional bank branches using information and communications technologies and nonbank retail agents.” Credit/Debit Client Account MNO Debit /Credit Agent Account

  5. The logic of branchless banking Use existing deployed technology Use existing retail infrastructure

  6. Out of scope No known deployments 1 known deployment 2 known deployments 3 known deployments More than 3 known deployments Huge potential • 1.7 billion unbanked customers with mobile phones by 2012 • Case of India: 400 million SIMs, 15 million new mobile users added every month, 70% of population has access to mobile telephone networks • Only 55 million bank accounts out of 1.15 billion population CGAP-GSMA Mobile Money Market Sizing Study

  7. The power of using existing infrastructure ~3.5bn Philippines • Approx 1,000 branches • 8,207 ATMs • 25,000 POS terminals in stores • 1.65 million prepaid airtime resellers Panama (2008) • Largest bank has 65 branches • 850 shared ATMs (many in branches!) • 12,000 prepaid airtime resellers ~28m Worldwide points of presence ~1m 665k 500k 250k MobilePhones Western Bank Post ATMs POS Union branches offices

  8. $0 $10,000 $250,000 $50,000 $2,000 $400 No agent (cashless) ATM Traditional branch Branchin store Agent with POS terminal Agent with mobile Options for reducing cost of banking infrastructure

  9. The case of Brazil: bank-based model Overview Brazil has 150,000 Banking Correspondents (BCs). Today, all of Brazil’s municipalities have at least one correspondent (Brazil has 5,564 municipalities!) The main banking agent networks in Brazil processed approximately US$104 billion in 1.5 billion transactions in 2006 (Marques, Sobrinho, 2007). 80 million adults in Brazil still lack access to bank accounts…

  10. The case of Brazil: bank-based model • Agents replaced branches as #1 service point of the banking sector

  11. The case of Kenya: a nonbank-based model Overview • M-PESA launched in March 2007 • by mobile operator Safaricom, and now has: • 9 million customers • 17,000 agents • $310 million transfers in Jan. 2010 • Customer satisfaction: • Users say it is faster (98%), more convenient (97%), and safer (98%) than alternatives • 4 out of 5 say not having it would have a “large negative impact” on their lives • It is the main means of sending money for 50% of Kenyans

  12. Regulating agents: Who is permitted to act as an agent? • Philippines:just about any retailer • Brazil:retailers, post offices, lotteries (as long as being a correspondent is not their primary business) • India:cooperatives, NGOs, post offices

  13. Regulating Agents: Approval needed to work as an agent • India:none required • Bolivia:only notification to Central Bank • Brazil:no approval, just need to fill an online form with the Central Bank

  14. Regulating Agents: Who is liable for the agent? • Kenya:mobile network operator expressly disavows liability for the agent • Brazil: banks legally liable for agents

  15. Regulating Agents: Liability • Client is robbed on or near agent premises • Agent is robbed • Client shares/does not protect PIN Code • Client goes to fraudulent agent • Communication between agent and bank is intercepted and manipulated

  16. MFIs and Mobile Banking Typology of MFIs in mobile banking MFIs in countries with no existing mobile banking infrastructure MFIs in countries with existing mobile banking infrastructure CONTEXT: Use m-banking system for loan disbursements/repayments and/or deposits Act as agent on behalf of bank or MNO Build mobile banking system Use phones for data collection and other non-cash purposes ROLE OF MFI:

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