Mobile money and microfinance European Microfinance Week Antonique Koning November 2, 2011 7

Branchless Banking: What do we mean? “… delivery of financial services outside conventional bank branches using information and communications technologies and nonbank retail agents.” Bank Credit/Debit Client Account Cash in/out Agent Client Receipt/ Cash Bank-led model, sample withdrawal transaction. MNO Debit /Credit Agent Account 2

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… 3

The case of Kenya: a nonbank-based model Overview M-PESA launched in March 2007 by mobile operator Safaricom, and now has: ~13 million customers 23,000 agents ~$300 million transfers per month avg. 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 4

20 percent of branchless banking implementations reaching scale Top 15 implementations COUNTRY COMPANY TYPE (m) BRAZIL Bradesco Card 32.5 Caixa 29.7 INDIA FINO 25.0 Banco do Brasil 16.6 KENYA Safaricom M-Pesa Mobile 13.1 TANZANIA Vodacom M-PESA 6.4 PHL Smart Money 4.5 S. AFRICA ABSA AllPay 2.5 GHANA MTN Mobile Money 1.8 PAKISTAN UBL Bank Omni 1.6 FNB 1.5 UGANDA Airtel Money 1.2 Equity Bank Globe G-Cash 1.0 100% = 114 implementations

Typology of MFIs in mobile banking MFIs in countries with no existing mobile banking infrastructure MFIs in countries with existing mobile banking infrastructure CONTEXT: Build mobile banking system Use phones for data collection and other non-cash purposes Use m-banking system for loan disbursements/repayments and/or deposits Act as agent on behalf of bank or MNO ROLE OF MFI: Many MFIs are excited by the potential of mobile banking for their operations. They see it as a way to serve existing customers better and reach new customers – all at a lower cost. The options facing MFIs who want to use mobile banking vary widely depending on whether or not they are in a country with an existing mobile banking infrastructure like M-PESA. Most MFIs currently are in countries with no existing m-banking service. One option may be to build their own service. However, this is expensive, time-consuming and complex and we only recommend it for MFIs with significant managerial, technical and financial capacity. There are other ways MFIs in these situations can use mobile phones to provide better customer service, for example for data collection and automatic SMS reminders about repayments. For those MFIs that are located in countries with an existing m-banking service, there are two main options. First, they can use the service to facilitate both loan repayments and deposits. This does not necessarily increase credit risk and can make the transaction process more efficient for both the MFI and the customer. MFIs can also consider working as an agent in an m-banking system. This can be a good way for an MFI to learn more about how m-banking works without high investment costs. 6

Benefits for MFIs and their customers of using m-banking Serve Existing Customers Better: M-banking provides existing customers with flexibility in when and where they make loan payments and deposits, shorten group meetings and decrease cases of theft and fraud. Reduce costs for MFIs and customers: M-banking can reduce operational costs for MFIs and these can be passed on to customers in the form of lower interest rates. However, one commonly assumed benefit – reaching new customer segments – will not be easily realized. This is because microcredit methodology relies heavily on human interactions. 7

Emerging lessons for public funders in branchless banking