In the past few years, poor people are increasingly gaining access to financial services - to make payments and deposits - through the expansion of branchless banking. As researchers from CGAP, the Gates Foundation and other institutions have noted, partnerships between banks and other village based institutions such as post offices, retail institutions and microfinance organizations have played an important role in increasing the access to services to poor people living in low-density areas.
At Ashoka, we have seen an increase in another important force. Social entrepreneurs from different fields (education, health, etc.) are creating channels through which the poor can save. To achieve their social goals social entrepreneurs are often in constant contact with people in the villages and they develop strong network of trust and credibility - more so than other more traditional organizations such as small business or local government offices. In most cases, these branchless banking solutions are located in remote villages where there are no options for banks to partner with traditional branchless banking agents (for example, large retail chains or franchises or more traditional microfinance institutions) . . . . . .
Viewing all posts with tag: Technology Adoption
Microfinance without the MFI? Zidisha tests the boundaries of microlending methodology
What does a microlending operation look like? Well, it may be a bank or an NGO (and many others in between), it probably has some branches, branch managers, loan officers. The funding of the MFI may come from deposits or from debt, whether from a local or foreign institution, including from online platforms such as Kiva. There may be variations on these themes, but that pretty much describes microlending as we know it. . . .
What if you took all that away – the branches, the loan officers, the institutional funders? Could the lending still work? Well, one model is that of Zidisha, an online lending platform that connects lenders in (mostly) developed countries with borrowers in developing ones. And, unlike Kiva, the connections are real – borrowers create their own online profiles, post their own loan applications, and make their own repayments. They also post their own comments, as do the lenders. There is no local MFI intermediary – it is literally the first true person-to-person (P2P) microfinance lending platform in the world (Disclosure: I am lender on Zidisha, and have been informally advising the organization for several years). . . .
Naturally, getting there has required a lot of innovation and experimentation . . . . . .
Read MoreContrasting Two E-payment Success Stories: PayPal and M-PESA
PayPal and M-PESA are two major successes stories, each an example of new e-payments systems taking root in the last decade. The early development of PayPal is described vividly by an insider in PayPal Wars, and my colleague Dan Radcliffe and I have attempted to categorize the reasons behind M-PESA’s success in a World Bank case study. Their design and contexts are vastly different –developed versus developing countries, banked versus unbanked customer segments, e-commerce versus remittance applications— but they share two major similarities. . . .
The first similarity is that they both had a very specific function and powerfully targeted the proposition. At PayPal’s inception, the main case was thought to be P2P (person to person) payments, with the typical scenario being friends settling the dinner tab with each other (one person puts the meal on their credit card, the others just email him their share of the bill). Then PayPal discovered that its service was being used to pay for goods on online auctions, of which eBay was the market leader. PayPal recognized that eBay had the capacity to drive viral growth, since a few thousand sellers advertising the availability of PayPal payments could promote the service with millions of buyers. PayPal was therefore able to devote all their marketing and product development efforts to make business easier for eBay sellers, a nicely compact set of super-users with defined needs. PayPal positioned itself as the friend of the micro-seller . . . . . .
Read MoreSpecializing Banking Channels to Reach the Poor
Microcredit started with a simple financial product – the idea of group lending. Since then, much work onfinancial inclusion revolved around refining products. The field has made a lot of progress, but there is still much to do: structuring products that address poor people’s real needs, packaging them with rewards they value, reminders they find useful, and constraints that help them maintain discipline. Moreover, these products need to permit transactions that are sized and timed in a way that is consistent with their cash flows. . . .
But better products mean nothing if they can’t be delivered to customers. The biggest challenge is how to offer products in a way that customers find relevant and convenient, reliably. Access costs on the customer side (in the form of trips to distant branches, long queues once there) or channel costs on the provider side (centered on the fixed costs of building, staffing and maintaining branches) often conspire to obliterate the economics of new products and hence dampen product innovation . . . . . .
Read MoreReflections on the Microfinance Conference from Jonathan Morduch and Dean Karlan
We featured the perspectives of some of the conference organizers on Day 1’ s highlights. Here are some additional perspectives on Day 2: . . .
Jonathan Morduch, Financial Access Initiative . . .
1. As Rich Rosenberg pointed out there is good reason to be concerned that over-indebtedness is a real problem. At this point, though, we don’ t have a good definition of how much debt is too much for different clients, much less data. As a result, we're flying blind. I think Rich’ s presentation could be a Nouriel Roubini moment for microfinance. . . .
2. There are a lot of puzzling things about the behavior of borrowers and how their businesses do or don’t grow . . . . . .
Read MoreM-PESA Marches On
New data shows M-PESA is now reaching most of the poor, unbanked, and rural populations in Kenya – and measurably improving their lives. . . .
M-PESA is a mobile-phone based electronic payment and store of value system which in just over three years has managed to acquire 57% of the Kenyan adult population as customers, and who between them do more money transfers domestically than Western Union does globally. Though money transfer services and savings accounts are nothing new, M-PESA’s real innovation is that customers can deposit and withdraw cash at any of 20,000 stores – that’s 20 times the number of bank branches in the country! . . .
Many in the field of financial inclusion believe M-PESA has potential as a development tool because it significantly lowers transactions costs for intra-family remittances, commerce, utility bill payments and government welfare transfers and because it has the same functionality as a basic bank account, giving it great potential to expand financial inclusion . . . . . .
Read MoreRole of consumer education and technology in microinsurance
When CARE India field officers delivered emergency relief services to the coastal regions ravaged by the 2004 tsunami, they were struck by the communities’ vulnerability to shocks and lack of access to appropriate risk protection tools, and assessed that microinsurance could be an effective product for these communities. Out of this determination, the CARE Insure Lives and Livelihoods (ILAL) microinsurance program was born. In introducing this new program, CARE set out to improve communities’ risk management capacities by improving their understanding of insurance. . . .
A new case study from FAI takes an in-depth look at the key challenges—such as sustainability and performance measurement of the education programme—and how CARE tried to overcome them . . . . . .
Read MoreNew ways to strengthen old ways: M-PESA and informal finance
When organised financial services reach people who have for generations used informal mechanisms to manage their money, one of the most important features they bring is reliability - ensuring, for example, that loans and savings withdrawals are disbursed in full and on the promised day, or that deposits and repayments are collected and recorded accurately. It matters because informal devices and services, despite their many virtues, are not always reliable. The problem with moneylenders, most poor people will tell you, is not so much that they charge high interest rates as that you can't depend on them to give you a loan in the first place. Savings clubs of one sort or another are a boon when they work well, but they don't always work well. Storing money with a neighbour keeps it out of the greedy hands of your husband, but when you need to get it back in an emergency the neighbour may not have the cash ready at that moment. Unfortunately, this is sometimes the case with MFIs as well. Nothing irritates me more than to hear MFI staff telling their clients, "sorry, can you come back next week?" When that happens, their services are no better than those that poor people can find for themselves in the informal sector. . . .
But it’s an oversimplification to think that organised services are better than informal ones . . . . . .
Read MoreM-KESHO in Kenya: A new step for M-PESA and mobile banking
M-PESA, a successful mobile payments service in Kenya, is already demonstrating how m-payments can successfully expand the range of financial options available to poor households. Earlier this month, the Gates Foundation took several microfinance experts to Kenya, including Bob Cull; FAI’s Dean Karlan and Jonathan Morduch; David Roodman; Stuart Rutherford and Dean Yang, to learn about M-PESA first hand. . . .
And while we were there, M-PESA announced some big news: finally, M-PESA is connecting with banks in Kenya. And with a big bang too, as two big players in the financial inclusion scene in Kenya are joining forces: Safaricom (the mobile operator behind M-PESA) and Equity Bank are launching M-KESHO, a co-branded suite of financial products that will ride on the M-PESA transactional ‘rails.’ Three years ago, there were 2.5 million bank accounts in Kenya, out of a population of 39 million. Today, there are close to 8 million bank accounts (of which 4.5 million are with Equity Bank) plus a further 9.5 million M-PESA accounts. One third of M-PESA accounts are held by people that are otherwise unbanked, and this is the segment that the new product is targeting. Equity’s aggressive objective is to acquire 3 million M-KESHO customers by the end of this year. . . .
In late April, the Central Bank of Kenya issued new agent banking regulations which for the first time allowed banks to engage a wide range of retail outlets for transaction handling (cash in & out) and product promotion (receiving account applications, though applications must be approved by a bank staff). This paved the way for banks to begin utilizing the M-PESA platform and associated network of M-PESA outlets as a channel. . . .
Read MoreKenya’s M-PESA: Is mobile banking really all it’s cracked up to be?
The Bill & Melinda Gates Foundation certainly thinks so. I’m going to be seeing for myself this week, when I join a foundation-sponsored visit to M-PESA, a rapidly-growing mobile payments service in Kenya. As Ignacio Mas and Daniel Radcliffe wrote as guest bloggers for us last week, at Gates they believe that M-PESA “is already demonstrating how m-payments can successfully expand the range of financial options available to poor households.” By all accounts, M-PESA has become a remarkably effective way to transfer money, but can it really deliver as a platform for full-service banking? . . .
The potential for mobile phones to solve the problem of infrastructure for expanding financial access in poor and remote areas is tremendous. As Ignacio and Dan point out, mobile phone penetration in Africa, which was a mere 3 percent in 2002, is expected to reach 72 percent by 2014 – this on a continent where roughly 20 percent of the population has a bank account (see our recent global count). That part’s clear – and exciting . . . . . .
Read MoreMobile banking in Kenya: Gates taking microfinance experts for a firsthand look
At the Bill & Melinda Gates Foundation, we have long been believers in the power of mobile financial services to piggyback off of the telecommunication networks that are rapidly being built in developing countries. Mobile penetration in Africa has increased from 3 percent in 2002 to 48 percent today, and is expected to reach 72 percent by 2014. That is a powerful wave we must ride. . . .
In recent years, banks, payment system providers, and mobile operators have begun experimenting with “branchless banking” models which reduce costs by taking small-value transactions out of banking halls and into local retail shops, where “agents,” such as airtime vendors, gas stations, and shopkeepers, register new accounts, accept client deposits, process transfers, and issue withdrawals. One form of branchless banking, called “mobile banking,” uses a client’s mobile phone to communicate transaction information back to the telecommunication provider or bank. This enables clients to send and receive electronic money wherever they have cell coverage. They need to visit a retail agent only for transactions that involve depositing or withdrawing cash. . . .
M-PESA, a successful mobile payments service in Kenya, is already demonstrating how m-payments can successfully expand the range of financial options available to poor households. . . .
Read MoreStuart Rutherford reacts to the Sa-Dhan National Microfinance Conference
Stuart Rutherford is the author of The Poor and Their Money, and founder of SafeSave, a microfinance institution in Bangladesh. . . .
I’ve just finished up an engagement at the Sa-Dhan National Microfinance Conference 2010 on 'Financial Inclusion and Responsible Microfinance', organized in collaboration with the Federation of Indian Chambers of Commerce and Industry (FICCI). Beyond my own panel (with economist Reetika Khera and Vijay Mahajan of BASIX), I had some time to take in some of the others.
I noted some good presentations on m-banking and the ‘business correspondence’ model for banks, including some very forward thinking by people in various parts of the government. My takeaway was that the banks may, at long last, be back in the game of providing basic services to the poor and very poor, and may even be pushing the MFIs onto the back foot. If the government/RBI tweak the regulations a bit more to make the business correspondence model more profitable (and it seems they may do that) we could see banks very quickly signing up clients through mobile phones or portable biometric point-of-service devices in the hands of village agents, and offering a service that really is "close at hand, frequent, flexible-but-disciplined, and above all reliable". I saw some of that at work in rural Uttar Pradesh, and was impressed. I noticed that some of the language used by several of the speakers was very close to lessons we put forth in Portfolios of the Poor, so directly or indirectly I think our views are becoming more and more mainstream in India. . . .
Although the big MFIs in India are still stuck with a credit-only model (because most of them are not legally entitled to take deposits), much of the conference was about savings and payment systems – a big contrast to the situation a few years ago. . . . . .
Read MoreWhen low-tech is highly successful
It is a difficult and not particularly fruitful debate when different sectors important to economic development are pitted against one another in the quest for donor attention. Lasting development progress usually encompasses many areas, and debates that fail to recognize this are often just distracting. Some of the more interesting (and no less heated) debates are waged once a specific sector of focus or growth constraint has been identified. . . .
For example, once we have decided that education is crucial, how do we act upon this decision? . . .
Read MoreMobile Banking
Fast, convenient and easy: the holy trinity of marketing adjectives. Any product or service that can legitimately claim to be all three should sell itself, or at least catch on fast. This blend of attractive features underlies the enthusiasm around mobile banking. Plus it just seems cool—who doesn’t like a story of technological leapfrogging? . . .
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