mobile banking

In this week’s Time: The forgotten half of microfinance

Leila Seradj — Fri, 04 Sep 2009 17:55:00 -0400

A quick note on an interesting article in this week's Time: Barbara Kiviat writes about the emergence in the field of microfinance for the need for a safe place to save and deposit money, which is something that we at the Global Assets Project have been talking about for a while.

While microcredit was at the root of the microfinance movement's beginnings, what's becoming clear is that those who take out small loans also desire a place to deposit and save their money. Indonesia's Bank Rakyat, she notes, has ten savers for every one borrower, and their borrowers use the loans for household needs about 30% of the time. And they save in the form of assets (such as livestock and jewelry), requiring them to pay a fee to pawn those assets in times of need.

Some solutions? Agent-based banking, where financial services are delivered through pharmacies, newsstands, or other institutions. Mobile banking has likewise taken off in places like Kenya, with 7 million customers registered under M-PESA's mobile-based service for storing and sending money.

While Kiviat notes that some microfinance institutions are hesitant to take deposits- -seeing it as time-consuming, expensive, and not profitable-- other organizations are finding creative and grassroots ways to bring savings to the center.

Oxfam's Savings for Change program, for example, is working at the village level in Mali, Cambodia, Senegal, and El Salvador to create small savings groups. Based on the tanda model in India and tontines in West Africa, members pool savings on a weekly basis and lend out portions of the savings to members in need of loans.

For Africa and Asia, Headway in Branchless Banking

Leila Seradj — Fri, 13 Feb 2009 21:29:00 -0500

They may take their tea with milk and pronounce "tomato" wrong, but here's something on which we can agree with our friends across the pond.

Yesterday, the UK's International Development Secretary Douglas Alexander an no unced DFI D's ₤1.4 million, three-year project: Facilitating Access to Financial Services through Technology (FAST). Working with CGAP and GTZ, FAST's aim is to "lay the foundations for financial services to be ma de available through new and emerging technology across Africa and Asia."

As it stands now, 2 billion people in the developing world lack access to financial services, because of distance or affordability constraints. With that in mind, FAST aims to explore the possibilities and extend the reach of "branchless banking" using new technologies and innovative methods.

Its three-pronged strategy is to:

1) Test pilot projects to extend the reach of technology-based branchless banking in mass markets in countries in Asia and Africa, including government-to-people (G2P) payment services;
2) Carry out research on the use of new technologies (mobile banking, smart cards, biometric banking) in increasing access to financial services, and extending their reach;
3) Work with governments to develop a policy and regulatory framework that embraces the use of new technologies to increase access to financial services in a secure and low-cost manner.

In countries where FAST will be working, like Pakistan-- where only 25 million people have a bank account, but 75 million individuals own a mobile phone-- the potential for increasing access to remittances (fewer than 10% of remittance recipients have bank accounts), wage payments, and government social benefits is enormous. And it's cheap: there's no need to set up costly infrastructure (it uses the existing mobile phone network), and transaction costs are much lower than through traditional banking channels, which could mean over 1 billion extra dollars reaching the poor each year, according to some estimates.

DFID predicts that mobile banking could add a billion banking customers to the system in five years. If this is the case, the ramifications for poverty alleviation are significant, and FAST's work over the next three years should be interesting to follow.

Cash-22: Social Protection Not for the Unbanked?

Jamie Zimmerman — Thu, 06 Nov 2008 20:09:00 -0500

Social policies around the world are shifting to account-based systems. Governments and corporations are using accounts to deliver a wider array of benefits. Between 1980 and 2004, the presence of defined contribution plans with public support increased from 10 to over 50 countries. But account strategies are also growing for the purposes of education, home ownership, health, and benefits directed at children.

Many of these account-based systems, however, are provided by employers and/or assume that persons have relationships with financial institutions, leaving out millions of low- and no-income people. This pattern is repeated in nearly every country.

Take, for example, the obviously frustrated account of Cape Town, South Africa resident who is desperately seeking to do right by her injured employee by helping him receive his unemployment benefits payments (from today's Cape Times, via Charles Klingman's awesome "unbanked listserv"):

"Siphendule Ndudane is our gardener. For five years we have contributed to unemployment insurance believing that he could access funds in the event of illness. Not so.In June, Siphendule was knocked off his bike, spent a month in hospital, and was put off work until November. We were told that unemployment benefits could be paid into my bank account because he does not have one. But for the past week, I have gone from one official to another who all sing the same song - without a valid bank account the UIF will not pay out. Siphendule cannot read or write, he lives in a community of RDP houses, there are no utility bills available and his ID book has been stolen. To open a bank account, we will have to get another ID document, which will take 10 weeks. He has just spent another week in hospital and is unable to work. If I pay him, it will disqualify him from getting benefits and if I don't he will starve. It is inconceivable that the UIF does not recognise that 50% of South Africans use cash only because their circumstances make opening and using a bank account a formidable task and one which offers little benefit to them. So if you are making UIF payments and your employees do not have bank accounts, you might just as well flush the money down the toilet."

And this in a country that has made great advances in financial access through its advent of the no-frills Msanzi account, innovations in branchless banking through Wizzit, and a financial sector charter aimed to encourage if not mandate financial inclusion.

In fact, the Center for Financial Services Innovation (CSFI) took a delegation of financial services experts (including out own Ellen Seidman) on an "innovation exchange" mission to South Africa just last year. By and large, the trip shored up a lot of excitement for banking products like the Msanzi account and shown a spotlight on the need to figure out Know Your Customer regulations that makes, for some, opening a bank account a quite tedious process. Yet, even with all the innovation, the relative cost of being banked in South Africa (high fees to open, use and maintain an account as well as lack of access) is high. Coupled that fact with the historic distrust of or exclusion from banks among the poor and what results is large swath of the population (about 40%) without any relationship with a bank. Many have no financial identity at all.

Siphundule's story, and the millions of others like it around the world, reveals to me that, increasingly, the lack of a financial identity (a bank account) will result is even deeper social and economic exclusion. The institutions put in place to provide economic opportunity and social protection shouldn't be leaving behind those who need both so desperately.

Savings and Asset Building at CGI Part I: Poverty Alleviation Working Group Commitment Lunch

Jamie Zimmerman — Wed, 24 Sep 2008 18:43:00 -0400

When I walked around yesterday's CGI exchange, getting a convention-style glimpse into the organizations and corporations making commitments to poverty alleviation this year, I was particularly excited to see not only institutions focused on financial services for the poor, but particular, savings and asset-building. Yes, the actual word - asset-building - at the CGI. Considered by some as an inaccessible term to describe wealth creation opportunities for the poor, I am thrilled to see it permeate the global microfinance field (as I assumed it would). Oweesta, the CDFI running IDA and other asset intervention work in native American communities in the USA, seems the only organization focused on empowerment of native communities, and if carrying the AB message in all of their materials. And Oxfam, who have been running a Gates-funded Savings for Change program (informal rotating savings groups mobilizing deposits for those still completely untouched by formal microfinance) for a few years around the world, have added the term asset building to the September version of the program's one pager.

Asset-building is catching on, and in the microfinance field, savings is the catalyst. For example, in the first working group session on poverty alleviation (just wrapped up at 1), three of the biggest names in microfinance (Christopher Crane of Opportunity International, Elizabeth Littlefield of CGAP and Maria Otero of Accion International) discussed their experience with their organizations commitments to the poor. For two of of these microfinance leaders, savings took center stage.

For Christopher Crane, CEO of Opportunity International made a commitment in 2005 to scale to 50 million people into financial services and 5oo million dollars in the field within 5 years Just three years, later, OI has already mobilized 600 million dollars, and amazingly half of that (300 million dollars) comes from the savings of clients in Africa. Obviously, this is an indication of a tremendous demand for savings. And itÕs also a sign of things to come. Crane foresees the MicroFinance field consolidating; bigger, stable, formal institutions will be best able to use new technology to digitize transaction (smart cards, mobile banking, etc), and they also will have greater access to capital not only through their ability access the capital markets, but also through their ability to mobilize savings)

Elizabeth Littlefield of CGAP spoke of their 2005 commitment to figure out how to get mobile banking to poor people in developing countries. Technology reduces the transaction costs that are largely the main obstacle to banking services for the poor, though it often needs to be used in conjunction with a cash point (i.e., banking agent). The lessons CGAP has learned from its 10 pilots are both good and bad. The good news is that it works and its popular (20 telecom operators experimenting with mobile banking and demand is huge (3 million subscribers in 18 months in Kenya)). In her view, though the bad new is that mobile banking has not figured out savings. In the next two years, CGAP is committing to understanding the needs of the poor in order to tweak the system, create better policy environment, do more experiments, and in the end, create good products that will reach 25 million people with effective mobile banking services.

All this on savings and asset building, and we haven't even started the working group session on financial services for the poor... Stay tuned...

The Cellphone as Asset Builder? Maybe One Day

Jamie Zimmerman — Wed, 07 May 2008 17:05:00 -0400

I consider my cell phone an asset. With all those hi-tech capabilities packed into a little handset, it keeps me simultaneously connected, productive, on-time, en route, entertained and informed. And I'm not alone - more than 3 billion people around the world (almost half of the global population) have a cell phone. But what if this gadget that seems capable of reaching almost anybody and doing almost anything could also provide a mechanism for savings and asset building for individuals around the world? Despite seemingly limitless potential and enthusiasm for such an innovation, it will unfortunately be some time before this is a reality.

I've been following developments in mobile banking for some time. For years, excitement has been brewing about its potential to bank the unbanked, reach the unreachable. I've been to the events, the conferences, read the blogs and become a believer that this technology will one day help every person on the planet have a bank account, a financial identity, and an opportunity for wealth creation through access to low-cost, simple financial services. Sound hopelessly optimistic? Just check out the April 13 New York Times article "Can the Cellphone Help End Global Poverty?" or the CGAP announcement of its most recent focus note "Mobile Banking to Transform Microfinance." Pretty exciting stuff.

But after reading the CGAP report "the Early Experience with Branchless Banking," I see that the hype doesn't exactly match reality. Some disheartening observations discussed in this excellent report show that mobile banking is:

Mainly used for payments, not savings or credit;
Not actually used by or targeted to the poor, the unbanked, or those lacking access (geographic or otherwise) to the extent expected or hoped (less than 10% of all branchless banking customers);
Offered to Bottom of the Pyramid (BOP) markets primarily as a result of competition among mobile operators, not by initiatives led by banks or governments;
For regulatory, cost or other reasons, largely exclusive of MFIs (which are most capable of reaching the poorest of the poor), and;
Because of strict Know Your Customer regulations (which require specific documentation for opening accounts), is unlikely to reach the poorest and most remote customers in the developing world, particularly those without any proof of identity.

Given all the promise and excitement around mobile banking, imagine my disappointment to read that it has "yet to demonstrate pro-poor, pro-growth impacts for households, communities and national economies."

Nonetheless, my enthusiasm for the potential of asset building via mobile phone is not tempered by these new findings. By most accounts, the capabilities are there, and so is the interest of financial institutions, governments and the development community. And the potential (and the need, and in some cases the demand) outweighs the obstacles. Eighty percent of the global population falls within range of a cell phone network and 68% of cell phone subscribers are in the developing world, but just a fraction of either of those populations have any sort of effective access to banking services. And the industry is slowly but surely finding creative ways to overcome certain obstacles. The CGAP report highlights numerous interesting examples of this, such as how South Africa's Exemption 17 from the Know Your Customer (KYC) requirements resulted in a gangbusters expansion of their mobile-banking poster child, Wizzit. And to be fair, in many cases, outcomes of mobile banking launches have largely surpassed expectations. According to the NYT article, for example, Kenya's m-pesa mobile banking program "aimed to add 200,000 new customers in the first year, but got them within one month." Now, m-pesa has over 2 million customers.

So I realize there is a ways to go before the cell phone can be used to effectively achieve financial inclusion of the poor and excluded, particularly in the developing world, much less facilitate simple, low-cost opportunities for savings and asset building. But my sense is still a hopeful one of not if but when. I encourage the asset-building field to seize upon the opportunities created by momentum around mobile banking to think deeper and more creatively about how to innovate within this space.