Microfinance and Technology Frankfurt School of Finance and Management July 2013 Julia Abakaeva
CGAP s Contribution to Evolving Field 1995 Microcredit Proof of concept for microcredit Sustainability in providing financial services to poor Early 2000s Microfinance Professionalization of microfinance sector(e.g., Mix) Recognition of broader financial service needs of poor Late 2000s Access to finance Branchless banking/ new business models to reach more people at lower costs Meaningful responsible finance agenda for traditional MFI sector Early 2010s Financial inclusion Refocus on client-centric solutions Inclusive financial provider ecosystems Global and local shift of policy agenda aimed at protecting clients while advancing inclusion 12
CGAP Technology and Business Model Innovation Program The Technology and Business Model Innovation Program at CGAP works with banks, microfinance institutions, mobile network operators and retail stores to deliver financial services through new technologies, such as mobile phone, magnetic stripe or chip cards, and biometric applications. We Build Knowledge on issues such as customer needs, agent networks, and business models We Strengthen Markets so that promising branchless banking services can thrive We Promote Policies and Regulations that allow branchless banking to expand and reach unbanked populations
Financial inclusion requires scale and presence Traditional banks have scale, but lack presence in the places where poor people live. MFIs have a presence in poor communities, but lack the scale. 4
Achieving scale and presence with technology 6.2 bn Reducing Channel Cost of Banking Infrastructure $250k Traditional branch $50k In-store branch $10k ATM $2k Agent with POS terminal $400 Agent with mobile 1.7 billion people worldwide have a mobile phone but no bank account. $0k No agent (cashless) 5
However, majority of registered customers are not actively transacting Most branchless banking providers struggle with high rates of inactive customers 140 120 120 100 80 60 40 20 1 in 6 21 1 in 11 11 While 120 branchless banking implementations have been launched since 2007 only 11 of those have reached 200k active users 0 Implementations launched after 2007 Implementations with >1 million registered "Confirmed" implementations with >200k active users Source: CGAP and Coffey International, data as of Q1 2012. 6
MFIs and Mobile Banking Case Study: M-Kopa
The microfinance value chain
What options do MFIs have to leverage m-banking? Where there is a viable m-banking system MFIs have two main options: 1. Requires limited investment 2. Requires additional investment
Are MFIs and their customers realizing the potential benefits of m-banking? 1. Reaching new customers: No real evidence of MFIs reaching customers in new geographies or lower income segments. 2. Improving the economics for the MFI: While there is increased evidence of specific cost savings (e.g. time savings for MFI loan officers), more detailed and holistic work on how the institutional business case plays out is required. 3. Serving existing customers better: Increasingly evidence to show that MFI customers do value the time and cost savings of m-banking for loan repayments.
New evidence on MFIs & m-banking Should MFIs build their own m-banking system? MFIs are typically not well placed to build their own m-banking system and should rather look to leverage existing platforms. Why have some MFIs made the strategic decision not to get involved in m- banking? This mostly relates to timing, either due to more pertinent sustainability concerns, easier alternatives like OTC payments, or a lack of an m-banking system to leverage. What have been the experiences of MFIs that have served as agents for m- banking schemes? The role for MFIs as agents is not as prominent as previously thought, with the opportunity being specific to certain types of MFIs playing certain roles.
Two broad take-aways 1. Importance of having an already viable, widely used m-banking system with a well-functioning agent network in the market. 2. Importance of timing. We have not seen any MFI play a driving role in the adoption of m-banking, despite Tameer jointly launching EasyPaisa with Telenor and Faulu s initial involvement in the M-PESA pilot.
New microfinance value chain Scope: Entities that are offering at least credit and possibly other types of financial services to the poor
New business models Financial institution that uses m-banking to do origination, loan application, and due diligence. It signs up new customers to an account bundling savings, insurance and eventually credit. On day one, a customer receives the savings account and life insurance product. If she has $50 in savings, she can borrow $50 as a loan. After building up a good repayment record over several months, customers can begin to borrow at 50% of their savings and so forth. Account opening takes place at agent locations. MFI that implemented m-banking from the start. Unlike BanKO and mbank, the group loan applications, due diligence and the credit decisions still take place in person. But once approved, disbursements happen within 72 hours through M-PESA. Repayments also happen through the pay bill functionality of M-PESA. Interest bearing mobile savings and loan product launched by Safaricom and Commercial Bank of Africa (CBA) in Kenya in November 2012. All transactions are done through the mobile phone and registration happens instantly through the M-PESA menu regardless of whether the customer is an existing CBA account holder. Safaricom customer data is used to generate a credit score for customers.
M-Shwari: What it is M-Shwari is a new mobile interest bearing savings and loan product Key Attributes All transactions via mobile, no need to go into bank Instant registration via menu push on mobile (e-contracting) Interest rate on savings (2-5%), with no limits on how much is saved Instant small capital loans to be repaid in 1 month (7%) Unique credit scoring algorithm that uses Safaricom customer data 15 Watch your money grow, borrow when you need more
Mobile Money Digital Finance Plus Agriculture Transportation Health Energy Water Insurance Microfinance MOBILE MONEY Source: CGAP Teams
Advancing financial inclusion to improve the lives of the poor www.cgap.org