80649 focus note Microfinance and Mobile Banking: Blurring the Lines? I n January 2012 a new banking business was about to emerge in the Philippines. After being in the wholesale microfinance lending business for two Before turning to the latest evidence from MFIs using m-banking, it is worth providing a current overview of the m-banking industry. According to the GSMA’s years, BanKO (which is licensed as a savings and thrift 2012 Mobile Money for the Unbanked Global Mobile bank) was ready to jump into retail microfinance by Money Adoption Survey, there are currently 150 live using the mobile phone as its main channel. With mobile money deployments in 72 countries, with years of experience at Bank of the Philippine Islands 41 deployments having launched in 2012 alone.5 (BPI), Chief Executive Officer (CEO) Teresita Tan Eighty-two million customers are registered globally, knew all too well the high cost of branch operations 30 million of which have active accounts.6 These and recognized that leveraging the mobile phone services use 520,000 mobile money agents to carry would be critical to successfully establishing a low- out customer transactions. While 61 percent of the cost business that was scalable. What emerged was 1 volume of mobile money transactions is airtime top- a new microfinance bank that offered customers ups, 82 percent of the value of transactions is person- payment, savings, credit, and insurance products to-person (P2P) transfers. accessible primarily over the mobile phone and at BanKO’s 2,000 partner outlets. As a customer builds a These numbers clearly demonstrate the continued savings history, she qualifies for loans that are directly growth of the mobile money industry, yet there disbursed into her BanKO account without any prior remain key obstacles to its sustained growth and in-person due diligence. to the value it brings to the poor and unbanked. Effective agent network management continues to BanKO represents a new business model that has be difficult to operationalize. Many agents have emerged over the past few years since CGAP first difficulty finding a strong business case in mobile wrote about the intersection of microfinance and money and have unexpected costs around liquidity mobile banking (m-banking). 2,3 However, at this management. Only 63 percent of registered agents point, BanKO is an exception. Most microfinance are considered active. 7 While customers may institutions (MFIs) are still grappling with how best register for the new service, many of them do not to leverage m-banking for their own operations continue transacting or transact only occasionally. based on their own legal and regulatory frameworks As a result, many deployments find themselves with and operational contexts.4 This paper explores the a large, inactive customer base and are at a loss as latest evidence of how m-banking impacts the way to how to incentivize these customers to be more MFIs carry out their core business and serve their active. In fact, only six mobile money providers have customers, as well as the new business models that managed to accumulate more than 1 million active are emerging. customers. No. 88 August 2013 1 Information on BanKO is from an interview with CEO Teresita Tan in December 2012 and subsequent communication through June 2013. 2 In this paper, mobile banking is used in the broadest sense of the term, incorporating mobile payments and mobile money. It is recognized that many services, such as M-PESA in Kenya, are effectively mobile payments. Mobile platforms refer to the specific technology platforms Michel Hanouch used. Furthermore, the scope of this paper is m-banking as opposed to branchless banking, which incorporates other technology channels, and such as cards, point-of-sale devices, and automated teller machines. The paper focuses only on the use of the mobile device for financial Sarah Rotman transactions and not for nonfinancial transactions, such as data collection or repayment reminders. 3 See Kumar, McKay, and Rotman (2010). 4 In this paper, MFIs are broadly defined as any formal financial institution providing at least credit to primarily low-income customers. This ranges from credit-only nongovernment organizations to nonbank financial institutions, microfinance banks, and commercial banks, to the extent they focus on microfinance operations. 5 http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2013/02/MMU_State_of_industry.pdf 6 The GSMA estimate is based on the following definition of active accounts: those that have performed at least one person-to-person transfer, bill payment, bulk payment, airtime top-up, cash-in, or cash-out in the preceding 30-, 60-, or 90-day period. Where providers supplied activity rates for more than one timeframe, GSMA used the broadest timeframe. 7 Over 60 percent of GSMA’s survey participants define an active agent as having done at least one financial transaction in the past 30 days. 2 This paper aims to answer the following questions: The research methodology consisted of interviews with selected MFIs that have experimented • Section 1: What options do MFIs have to leverage with or fully implemented m-banking into their m-banking for microfinance transactions? microfinance operations. Some of these MFIs are • Section 2: What have been the experiences of MFIs the same ones that were studied in CGAP’s last that have served as agents for m-banking systems? paper on the topic with the intent of learning • Section 3: Are there benefits for MFIs and their from their activities over the past several years. customers from m-banking? The other MFIs included in the study are new to • Section 4: Why have some MFIs made the strategic m-banking. In contrast to the last paper, where the decision to hold off on m-banking? number of relevant MFIs was limited, for this paper, • Section 5: How has m-banking created opportunities there were many more MFIs that could have been for new innovative microfinance business models to profiled than space allows. Box 1 summarizes the emerge? main findings of the paper. Box 1. Main Findings • There is no evidence that MFIs or their customers • The extent to which operational costs are reduced are driving the development of m-banking in a for an MFI that uses m-banking depends on market. whether the MFI has already transferred the cost • MFIs that are successfully leveraging m-banking of loan repayments to the borrower. Likewise, tend to be in countries where an m-banking the extent to which savings mobilization through service is already widely used. In such markets, MFI m-banking is effective in lowering the cost of funds customers may even expect or demand their MFI to for an MFI depends, in part, on whether the MFI or offer m-banking as a repayment option. the customer pays the transaction fee. • The benefits of m-banking services to MFIs largely • There is increasing evidence to show that MFI depend on the success of the existing m-banking customers value the time and cost savings of service itself. In markets where m-banking is strong, m-banking for loan repayments and are better MFIs and their customers can more easily benefit. served by having the option to repay through • MFIs are currently using m-banking most often for m-banking. loan repayments. More MFIs are using m-banking for • One of the biggest determinants of the customer savings mobilization than for loan disbursements.a repayment choice is something as simple as agent Typical concerns from MFIs about m-banking, proximity compared to branch proximity. namely how it will affect group dynamics and • Even in a country with a viable m-banking service, repayment rates, how management information there may be institutional or market-specific system reconciliation will occur, and how customers reasons to postpone the integration of m-banking. and staff will adjust to new payment options, have A deteriorating loan portfolio is one example. all proven to be manageable by MFIs. • New MFIs should consider going the m-banking • MFIs are generally not well placed to build their route from the beginning to avoid the costs and own m-banking system and should instead look to challenges of change management and to ensure leverage existing services. that the investment in m-banking replaces other • The evidence to date shows mixed results from costs, rather than adding to the parallel costs of MFIs serving as agents for m-banking systems, cash. primarily due to liquidity management costs and • One of the biggest recent advances in the commission incentive structures. intersection between microfinance and m-banking • There is no real evidence of MFIs reaching has come from new microfinance business models customers in new geographies or lower income that leverage mobile phones and agents for loan segments through m-banking. There is qualitative applications, customer due diligence, and credit evidence of MFIs using m-banking to gain a decision-making. competitive advantage; however, this advantage is likely to diminish as more MFIs begin integrating According to a recent survey by Triple Jump Advisory Services a.  m-banking into their operations. (2013). 3 1. What Options Do MFIs Have of investment since the MFI can import the data and to Leverage M-Banking for do manual reconciliation. An MFI can also choose to Microfinance Transactions? invest in “middleware� that automates the process of uploading and reconciling the repayment data from Figure 1 illustrates a traditional microfinance business the m-banking platform into the MFI’s management process. While not intended to capture the intricacies information system (MIS)—middleware could also of all microfinance models, it is useful to identify be used to upload and reconcile loan disbursement where m-banking plays a role in microfinance. To and savings data. According to some technology date, the three main areas where m-banking has providers, this middleware in Kenya costs between impacted MFIs most have been loan repayments, loan US$10,000 and US$20,000, depending on the level disbursements, and savings mobilization. In contrast, of automation and the nature of the MFI’s MIS. new microfinance business models, as discussed in Automation becomes more attractive as the number Section 5, are innovating across the business process. of customers using the m-banking system for MFI transactions increases, as a lack of automation can MFIs tend to pursue one of two distinct strategies in hamper growth. leveraging m-banking systems, each with different implications for the level of investment required The second strategy involves the MFI investing in and functionality offered to customers. (These two technology that links customers’ mobile wallets broad strategies are not exhaustive, but do represent (m-wallets) to their MFI accounts. This allows the most common approaches pursued by MFIs to customers to access their MFI accounts via their date.) The first strategy involves simply using the bill mobile phones and to move money between the pay functionality of the existing m-banking provider account and m-wallet.8 The MFI leverages the agent and its agent network to facilitate loan repayments network of the existing m-banking provider to and/or savings mobilization, or the bulk payments facilitate cash-in and cash-out9 transactions into the functionality to facilitate loan disbursements. In customer’s m-wallet and subsequently into the MFI this arrangement, the MFI uses its own bill pay account. This option may provide the more attractive code just like a water or gas company would use its solution for MFIs trying to mobilize savings than the own code to receive bill payments through mobile first strategy since savings transferred into the MFI money. This strategy is the quickest way for an MFI account are still accessible through the customer’s to leverage m-banking and requires the lowest level m-wallet and at the existing m-banking provider’s Figure 1. A traditional microfinance business process MFIs leveraging existing mobile banking systems 3 2 1 Due diligence Loan re- Loan Savings Loan Loan Porƞolio OriginaƟon & credit issuance or applicaƟon mobilizaƟon disbursement repayments monitoring decision closure 8 This is most often done by an MFI procuring its own USSD (Unstructured Supplementary Service Data) code. That is, a string of digits typically starting with an asterisk and ending with the number sign (e.g., *2427#). USSD is one of the most effective communication channels for mobile payments. It is known to be more secure and user friendly than SMS, but unlike web-based applications it is available on even basic handsets. This option is not exclusive to USSD, and could similarly be applied to an MFI using SMS or the Internet to link their customers’ existing m-wallets to their customers’ MFI accounts. 9 Cash-in transactions facilitate loan repayments and savings mobilization, while cash-out transactions facilitate loan disbursements and access to the savings. 4 agent network.10 In a relatively mature m-payments repayment rates, and whether mobile repayments market like Kenya where several technology would increase efficiency or complicate the lives companies compete to provide these services to the of the loan officers by introducing time-consuming many financial institutions that link to M-PESA, an manual reconciliation processes. After several years of MFI with a robust MIS would need to invest between experience, SMEP DTM reports that despite reducing US$50,000 and US$100,000 to pursue this option, the frequency of group meetings from weekly to according to some technology providers. The cost for monthly, customers have successfully made the the first movers in other markets could be higher, but transition without negatively impacting repayment is likely to decrease over time as the technology and performance. Some group members still pay weekly, integration processes become more standardized. others pay monthly before the meeting, while others A number of MFIs in Kenya have transitioned over pay at the meetings themselves.12 The ability to pay time from pursuing the first strategy to pursuing the whenever it is convenient to do so as well as, in some second, allowing for more functionality between cases, less frequent meetings are both considered customers’ m-wallets and their MFI accounts. significant benefits by customers. It is worth keeping these two strategies in mind To overcome concerns with manual reconciliation, when considering the experiences of MFIs leveraging SMEP DTM invested in a middleware that better existing m-banking systems. integrates its MIS with M-PESA. This has significantly reduced the requirement for manual reconciliation Loan repayments and eased loan officers’ concerns. Loan officers now more fully support the use of M-PESA, which Where there is an existing widely used m-banking has had a positive influence on the willingness of system with an extensive well-functioning agent group members to also adopt this payment option. network, accepting loan repayments is arguably The remuneration of loan officers often depends the quickest win for MFIs. There are three things on the size and quality of their portfolio, so putting that typically concern an MFI’s management about incentives in place to ensure that loan officers can introducing this repayment option: how will it affect benefit from the efficiency that m-banking brings is in group dynamics and repayment discipline; how will MIS both the MFI’s and loan officer’s interest.13 reconciliation occur; and how will customers and staff, specifically loan officers, adjust to new procedures? Faulu Kenya Deposit Taking Micro-Finance Limited introduced m-banking for two main reasons: SMEP DTM Limited is a Kenyan MFI that offers its customer demand and cost savings.14 Before offering 168,000 customers the ability to use M-PESA for loan repayments via M-PESA, group customers went loan repayments, loan disbursements, and savings through a lengthy repayment process that involved mobilization.11 SMEP DTM initially started out in depositing cash into a Faulu account at a commercial 2009 merely using the M-PESA bill pay functionality. bank branch and attaching the deposit slip to the The MFI had all of the common concerns about the repayment form to present at a Faulu branch or group potential impact on group cohesion, and therefore meeting. Now customers can repay loans or make 10 The first strategy can be used to mobilize savings by allowing customers to use the bill pay functionality to transfer funds into the MFI account. However, customers would not be able to leverage the mobile phone or the existing m-banking provider’s agent network to access those funds in the MFI account. 11 Information on SMEP DTM is from a meeting between CGAP consultant Tony Oyier and SMEP DTM in January 2013, as well as subsequent communication through June 2013. 12 Some groups make repayments using a single mobile phone, whereby the group head receives money from the group members into his M-PESA wallet, and then deposits money from his M-PESA wallet into the different member’s SMEP DTM accounts. 13 Interview with George Kinyanjui in November 2012, as well as subsequent communication through June 2013. Kinyanjui has consulted for several MFIs, including SMEP DTM, in their transition to m-banking. 14 Information on Faulu is from an interview with ICT Manager Kennedy Kipkemboi in August 2012, and subsequent communication through June 2013. 5 deposits using their mobile phone through M-PESA. agents, reducing convenience and increasing the In line with group policy, meetings of the same cost. While Musoni covers the loan disbursement fee frequency and length are still required. To ensure the of US$0.35 charged by Safaricom to credit customers’ ongoing stability of the groups and to manage the accounts, customers are required to pay the US$0.29 quality of the portfolio, Faulu continues to provide fee for each cash-out (Cracknell 2012). Furthermore, financial education programs for its customers. Within splitting the transaction among numerous agents two years of launching this service in December 2010, may not fully solve the problem in areas where MFI almost 54 percent of Faulu’s 300,000 customers had customers are concentrated among only a few agents. registered for m-banking, although only 15,000 of these customers were using the service regularly.15 SMEP DTM also leverages M-PESA to disburse loans; Those that were using the service were very active, on however, its approach is less direct. SMEP DTM average doing more than 10 transactions per month, disburses a loan into a customer’s SMEP DTM account including balance enquiries and mini-statements. from where the customer can use SMEP DTM’s m-banking solution to transfer funds into his or her Loan disbursements M-PESA m-wallet to withdraw at an agent or ATM. Between US$34,700 and US$46,300 is withdrawn While a number of MFIs are leveraging m-banking from SMEP DTM accounts using M-PESA on a daily for loan disbursements, the high average value of basis—double the amount that gets transferred from loan disbursements compared to loan repayments M-PESA to SMEP DTM for loan repayments and can raise two issues. The first is whether agents savings. This suggests that customers value access to can handle these larger transactions, given liquidity their funds outside of SMEP DTM branches through constraints, and the second is whether transaction the SMEP DTM m-banking functionality. limits of m-banking services may be too low for some loans.16 Prior to leveraging M-PESA for loan disbursements, SMEP DTM relied on checks that cost US$0.64 each. Musoni is a Kenyan MFI that claims to be the first MFI While the Safaricom disbursement fee of US$0.35 in the world to have gone completely cashless. By already offers a 45 percent savings, additional savings April 2013, it had about 10,000 customers and had to the MFI come from reduced staff costs. Reconciling disbursed more than US$6.3 million in loans.17,18,19 bank statements from checks required two full-time In addition to all loan repayments being done via accountants, who are no longer required for mobile M-PESA, Musoni also disburses all loans through disbursements. For customers, funds are available M-PESA. However, research conducted with Musoni immediately because they do not need to wait for the customers in 2011 described liquidity constraints at checks to clear. M-banking can, however, still require agents. Many agents found it difficult to pay out more some level of manual intervention typically caused by than US$58–116 per customer, while Musoni’s loan customers changing their mobile numbers or errors products range from US$58 to US$2,316 (Sadana et that occur when entering customer account details. al. 2011).20 As a result, customers wanting to withdraw Even in the case of Musoni, which was specifically the full loan amount had to withdraw from multiple designed to work with the M-PESA system, 7–8 15 http://www.nation.co.ke/business/news/-/1006/1065316/-/5kkxr3z/-/index.html 16 These transaction limits would typically be introduced for regulatory purposes, related to risk management and anti-money laundering and combating the financing of terrorism (AML/CFT). 17 http://www.economist.com/blogs/schumpeter/2013/02/microfinance (accessed 11 April 2013). 18 Information on Musoni is from an interview with Chief Finance Officer James Owino in August 2012, as well as subsequent communication through June 2013. 19 Throughout this paper an exchange rate of 1 US$ 5 Ksh. 86.36 has been used (average exchange rate for year to 18 April 2013). Source: http://www.centralbank.go.ke 20 http://www.musoni.co.ke/index.php/products (accessed 11 April 2013). 6 percent of transactions require manual intervention liquidity challenges. Typical concerns from MFIs about (Cracknell 2012). 21 m-banking, namely how it will affect group dynamics and repayment rates, how MIS reconciliation will Savings mobilization occur, and how customers and staff will adjust to new payment options, have all proven to be manageable Kenya Women Finance Trust (KWFT), a deposit-taking by MFIs. As Box 2 explains, it remains difficult for MFI, has linked its accounts to M-PESA m-wallets MFIs to build their own m-banking systems. as a way to more easily capture deposits. 22 KWFT estimates that in the first seven months of operating 2. What Have Been the under this system, 30 percent of its total deposit base Experiences of MFIs That came from customers transferring funds into their Have Served as Agents for KWFT accounts using M-PESA. SMEP DTM is also M-Banking Systems? successfully leveraging M-PESA to mobilize deposits. In January 2013, between US$17,400 and US$23,200 Evidence to date shows mixed results from MFIs was transferred from M-PESA to SMEP DTM per day. serving as agents for m-banking systems. This is While these amounts include loan repayments, it due to two defining characteristics of MFI branch represents 30–40 percent of total customer deposits networks. First, although many MFIs may have the into savings accounts. largest branch network among any other financial institution in a country, an MFI will have at best a Even outside of Kenya, m-banking is being used for total of 200–300 locations. While an MFI can make a savings mobilization. BRAC, one of the world’s largest significant contribution to an agent network, an agent microfinance lenders, began a pilot in Bangladesh in network needs to number in the thousands before December 2012 among 12 branches offering the mobile it can be considered significant in scale. Second, payments service bKash as a way to make deposits into since commissions are likely to be collected by MFI their BRAC savings account.23,24 Among the registered headquarters, there is a lack of incentive for the monthly account holders in these branches, 28 percent branch teller to push the m-banking product. While were using bKash to make deposits within the first some MFIs have changed the way agent commissions three months of the pilot. Reconciliation with the BRAC are shared throughout their branch network, it is MIS is manual, but has not proven to be laborious usually not as direct as an independent agent that enough to invest in a middleware. BRAC pays the receives commissions directly from transactions and bKash transfer costs on behalf of customers since BRAC is incentivized to invest the time to show customers sees the value in getting more savers into the system how to use the service. and subsequently a lower cost of capital. Kafo Jiginew, one of the largest MFIs in Mali with In summary, there are increasing examples of MFIs 280,000 depositors and 46,000 borrowers,25 has used leveraging m-banking to facilitate loan repayments. 102 of its 169 branches as Orange Money agents since MFIs, most notably in Kenya, are also having success Orange Money launched in 2009.26 The main advantage using m-banking to mobilize additional savings. Fewer for Orange is that this partnership brings over a 100 MFIs use m-banking to facilitate loan disbursements, new agent points into its network through one single and those that do continue to experience agent negotiation with Kafo Jiginew’s management. Orange 21 This figure was from 2012 and was reportedly decreasing at the time. 22 Information on KWFT is from a meeting among Tony Oyier (CGAP consultant), Isabella Nyambura (assistant to the MD), and Christine Mwea (general manager, Liabilities) in January 2013, as well as subsequent communication through June 2013. 23 bKash is an m-banking service that operates as a subsidiary of BRAC Bank and began operations in July 2011. 24 Information on the BRAC savings pilot is from Sazzad Hossain (BRAC) and Greg Chen (CGAP). 25 Mix Market, as of April 2013. 26 Information on Kafo Jiginew and Orange Money come from interviews with Deputy General Director David Dao of Kafo Jiginew and Head of the Distribution and Commercial Division Hawa Diallo Toure of Orange Money Mali in January 2013, and subsequent communication through June 2013. 7 Box 2: Should MFIs Build Their Own M-Banking System? While it may be tempting for an MFI operating in branch decongestion, it has not enabled OIBM or its a market without any viable m-banking service to customers to realize the full potential of the initiative. build its own m-banking system, experience suggests For example, the Banki M’manja system does not that the core capabilities required to successfully facilitate loan repayments or savings mobilization. run an MFI are not well-aligned to the technical OIBM managed to double its deposit accounts requirements needed to develop an m-banking between the end of 2009 and September 2012 to system or the competencies necessary to manage over 500,000, according to MIX Market. But with the associated agent network. Even if funds only 60,000 registered Banki M’manja customers, were available to invest, many MFIs do not have and of these only 20 percent active, it is unlikely that the necessary scale to justify the sizeable upfront m-banking was the driving force behind this gain in investment for m-banking. Many MFIs also lack a deposit accounts. strong core banking IT infrastructure. Furthermore, Almost two-and-a-half years after the launch of Banki an MFI would need to be very clear on the strategic M’manja, Airtel Money relaunched in Malawi with over objective of the m-banking service and be convinced 5,000 agents (1,800–2,000 of these agents are active). that m-banking was the best way to address the OIBM has been quick to link to the system and allow institution’s particular issues. its Banki M’manja customers to do loan repayments Opportunity International Bank in Malawi (OIBM), and savings mobilization through these agents. In featured in Kumar, McKay, and Rotman (2010), this respect, OIBM has transitioned from trying to launched its own m-banking service, Banki M’manja, build its own m-banking system, inclusive of an agent in May 2010.a Despite gaining regulatory approval network, to leveraging an existing m-banking system in November 2011, OIBM has yet to build an for microfinance transactions. agent network.b Banki M’manja simply offers account information services, airtime top-ups, bill Information on OIBM is from an interview with Chief a.  payments, and fund transfer services to other OIBM Transformation Officer Luckwell Ng’ambi in November 2012, customers. While these services do allow OIBM and again in April 2013 with Luckwell Ng’ambi and MIS Manager Lumbani Manda. to lower operational costs associated with these Operating conditions in Malawi have been challenging since b.  transactions, earn some revenue from transaction OIBM launched m-banking, with fuel and foreign currency fees and commissions, and achieve some level of shortages notable examples of the obstacles faced. can therefore bypass the lengthy and laborious one- Societe Generale Banque du Senegal’s Yoban’tel on-one negotiations that are often required with m-wallet. An alliance with a strong bank, such as independent agents. Orange also benefits from the Societe Generale, was reason enough to join the added rural coverage that the Kafo Jiginew branches partnership. But beyond optics, Kafo Jiginew also bring. While MFIs do handle a meaningful volume of saw its work with Orange Money as a way to begin Orange Money transactions, perhaps due to the lack of to diversify its product offering, which the institution direct incentives, MFIs do not represent the most active identified a few years earlier as an important agents within Orange’s network. The most transactional objective. Revenue from commissions on Orange activity comes from an independent super-agent that Money transactions was also an important factor shares commissions with the subagents it manages. for the MFI’s management. In 2011, Kafo Jiginew earned commissions worth US$17,500; in 2012, it There are also costs and benefits for the MFI. earned US$42,300, and during the first five months For Kafo Jiginew, a partnership with the leading of 2013, it earned US$40,000. 27 However, this mobile network operator (MNO) in Mali was an partnership has had its challenges for Kafo Jiginew— important strategic alliance that differentiated it the largest being ongoing liquidity management, from its competition. For similar reasons, the largest which ultimately affects Orange’s ability to maintain MFI in Senegal, CMS, uses its 200 branches for quality customer service at agent points. There is 27 Exchange rate of 1 US$ 5 487.750 FCFA as of 18 June 2013. Source: www.bceao.int 8 also a competitive issue for MFIs to consider. An to retain repayment discipline. Tameer’s default rate MFI acting as an agent may result in customers of for unsecured loans is now less than 0.5 percent, and competitor MFIs using the agent MFI’s branches to there is some apprehension to change this model by make loan repayments. This presents an interesting introducing a new repayment channel. Microfinance opportunity for the agent MFI to attract customers banks in Pakistan tend to shy away from taking any away from its competition. risk with customer repayment processes, as minor delinquencies can severely impact margins.29 As Serving as an agent for an m-banking service does a number of MFIs in Kenya have demonstrated, not necessarily lead the MFI to offer the service however, group dynamics and repayment discipline to its customers for loan repayments. On the one need not be negatively impacted. Tameer is preparing hand, this is logical if the agent network extends to undertake a pilot in select branches in the third only as far as the MFI branch network. This would quarter of 2013 to begin to introduce EasyPaisa into add little value to customers in terms of convenience the loan repayment process. since the closest access point to do cash-in, whether paying in cash or through m-banking, would still be There are other roles that MFIs can play related the MFI branch. On the other hand, in cases where to the agent network besides being the agents agents extend beyond the MFI branch network, it is themselves. bKash in Bangladesh relied on the BRAC surprising that serving as an agent is not used more nongovernment organization (NGO) for early agent as an on-ramp by the MFI to begin offering such a recruitment, identification, and liquidity management. service to its own customers. This was a formal partnership whereby bKash paid BRAC NGO to acquire 5,600 agents and manage its One example is Tameer Microfinance Bank, which has liquidity for the first year of operations. These initial one of the closest relationships with an m-banking agents were chosen from among BRAC’s individual loan service that an MFI could have. A controlling stake borrowers, a customer base with which it had direct and of Tameer was acquired by Telenor, the MNO with close contact. Direct management of the agent network which it launched the m-payment service EasyPaisa. 28 was passed onto bKash after this initial period, enabling Even in the four years since the launch of EasyPaisa bKash to establish an early agent network much faster in 2009, there is little crossover between the use than would have been otherwise possible. of EasyPaisa by Tameer microfinance customers. While Tameer branches are used to sign up new In summary, MFIs and m-banking services should EasyPaisa customers and carry out cash-in and together consider more strategically how MFIs cash-out transactions, EasyPaisa is not used for can best serve as m-banking agents. Perhaps loan repayments or loan disbursements by Tameer MFI branches are better used for new customer customers. Tameer suffered extremely high default registrations and less for cash-in and cash-out to rates—as high as 25 percent—when it first began avoid liquidity management problems. Perhaps some operating as a microfinance bank in 2005 because it MFIs can offer just cash-in transactions, while other took a hands-off approach to customer identification MFIs have the capacity to manage agent points from and monitoring. It quickly learned that the market among their customer base. Overall, it appears that needed clear criteria for customer selection. Once the role of MFIs as agents for m-banking services may on board, the loan customer needed ongoing be less prominent based on the experiences from the management through dedicated relationship officers past few years. 28 Information on Tameer Microfinance Bank comes from conversations with Deputy CEO Tariq Mohar in December 2012, and subsequent communication through June 2013. 29 Microfinance banks are regulated by the State Bank of Pakistan under a strict credit regime. Default is recognized at 30 days past due (dpd), leading to the suspension of all income on loans. At 60 dpd, the loss provision is taken for 25 percent of the outstanding principal. At 180 dpd, loss against the whole outstanding amount is provisioned and the account is written off from the active ledger. 9 3. Are There Benefits for its technology provider and is in the process of writing MFIs and Their Customers off its earlier investment. From M-Banking? Cost of funds. There is evidence from Kenya to suggest Kumar, McKay, and Rotman (2010) explored three that leveraging an existing, widely used m-banking potential benefits of m-banking for an MFI, each of system can be effective in mobilizing deposits. As which will be revisited in this section: (i) reaching new previously mentioned, KWFT mobilized 30 percent customers; (ii) improving the economics for the MFI; of its total savings from M-PESA-linked deposits from and (iii) serving existing customers better. June through December 2012. Similarly, SMEP DTM receives 30–40 percent of its total savings deposits per Reaching new customers day via M-PESA. The extent to which this is effective in lowering the cost of funds depends on whether the M-banking could help MFIs grow their customer customer or the MFI pays the US$0.35 transaction base in three main ways: MFIs could reach new fee charged by M-PESA and the percentage of the geographies; early-adopting MFIs could improve average deposit that this transaction fee represents. It the customer value proposition and attract new also depends on how long the deposits remain in the customers from the current target market ; and/or 30 MFI accounts and the interest rate differential between MFIs could reach new, lower-income segments by what the MFI pays for wholesale funding versus what providing more affordable services. its pays on deposits. SMEP DTM is convinced that deposits received from customers through M-PESA There is no clear evidence that MFIs have been able are a cheaper source of funding.31 to leverage m-banking to reach a significant number of new customers in new geographies or from lower- Operational costs. M-banking can have a significant income segments. Reaching lower-income segments impact on the human resource costs of an MFI, would depend in part on a meaningful reduction in especially in the medium-to-long term. Automation can the operational costs of the institution, which is itself reduce the need for data capturers at the head office a complicated picture as the next section indicates. and can free up loan officers to grow their portfolios, as If there has been any increase in customer growth, was the case with SMEP DTM. SMEP DTM loan officers Faulu believes it has come from satisfied customers also benefited from the reduced group meeting marketing their services to peers who are either not yet schedule. However, MFIs that choose to leave their microfinance customers or customers of another MFI. meeting length and frequency unchanged will not fully realize this cost reduction. M-banking can also bring Improving the economics for the MFI its own set of costs. Operational costs have increased for KWFT due to the fees associated with access to a There are both costs and benefits associated with the USSD channel, as well as the need to open a 24-hour use of m-banking by MFIs. call center to respond to customer inquiries about the new m-banking service. For those MFIs, such as Faulu, Technology investment. Any MFI looking to offer that choose to subsidize the transaction fees charged a customized m-banking solution to its customers, by the existing m-banking provider, this could also be whether leveraging an existing m-banking solution a significant increase in operational costs. or not, will need to invest in appropriate technology. Given the complexities in choosing a technology The extent to which operational costs are reduced provider and implementing a solution, unforeseen also depends on whether the MFI has already costs are likely to emerge. OIBM is currently changing transferred the cost of the loan repayment to the 30 New customers could either be new microfinance customers or customers from the competition. 31 In the case of SMEP DTM, the customer bears the M-PESA transaction fee, whereas KWFT bears this cost on behalf of its customers. 10 borrower. Due to security, fraud, administrative enough to customers to continue using a bKash error, and ultimately cost, many MFIs already require agent instead of a BRAC branch. borrowers to independently make loan repayments, moving this burden away from the loan officer. In Second, those that continued to use bKash, either these instances, the time and cost reduction would exclusively or alternating with the branch system, had accrue to the customer rather than to the MFI. more knowledge of the service offerings of bKash. They knew that bKash could be used for more than just Operational revenues. M-banking can also generate loan repayments, such as for transfers, bill payments, transaction fees and commission revenue for MFIs and airtime top-up, although only a minority availed that invest in m-banking technology that allows themselves of these additional services. customers to access their MFI accounts through the mobile channel. Faulu charges for mini statements, Third, a certain comfort level with the m-banking balance enquiries, transfers from a Faulu account system was important. Some customers who stopped into an M-PESA wallet, and transfers to other Faulu using bKash said it was because they did not know accounts. However, there is no strong evidence to how to operate transactions over their mobile suggest that these revenue streams are significant phones, and most of these said that they relied on at this stage, with KWFT merely noting that they are the agents to help them carry out transactions. “net positive.� This pilot provides evidence from only one MFI in one Serving existing customers better country; nonetheless it provides a useful benchmark on how m-banking can serve existing customers In countries where m-banking is already well- better. It also highlights the need for deeper customer established, customer demand may drive MFIs to engagement on this topic in a variety of contexts to introduce m-banking. In Kenya, a number of MFIs cited develop the microfinance industry’s understanding customer demand as a driving factor for investing in of the potential of m-banking as a tool to serve m-banking. According to SMEP DTM, m-banking is now customers better. seen as a basic service that is expected from customers. Not providing this service would have led to a loss To summarize these three sections on benefits, there of customers and reputation. As m-banking becomes is no real evidence of MFIs reaching customers in more pervasive in other countries, this pressure from new geographies or lower-income segments through customers is likely to become more common. m-banking. There is qualitative evidence of MFIs using m-banking to gain a competitive advantage; however, While there is no evidence of MFIs driving the this advantage is likely to diminish as more MFIs begin development of the m-banking industry in a country, integrating m-banking into their operations. The a recent BRAC pilot using bKash for loan repayments calculation of MFI economics is complex and depends shows that even customers in a country without a on a number of decisions each MFI takes along the way. pervasive m-banking system can come to value the While there is evidence of specific cost savings, such as benefits of m-banking for microfinance transactions time savings for MFI loan officers, more detailed and (see Box 3 for further details on the pilot). Follow-up holistic work on how the institutional business case research with pilot customers provides insight into plays out is required. In fact, most MFIs would be well- what influences customer uptake of m-banking served to track the costs and revenues associated with for microfinance transactions. First, the biggest m-banking more carefully. As demonstrated by the determination of the choices customers made among BRAC–bKash pilot, there is increasing evidence to show their repayment options seemed to be as simple as that MFI customers value the time and cost savings of agent proximity compared to the branch. Saving m-banking for loan repayments and are better served 15 minutes each way in travel time was convincing by having the option to repay through m-banking. 11 Box 3: BRAC Pilot with bKash Beginning in November 2011, BRAC started a pilot only 0.7 kilometers closer than a branch, translating into to test loan repayments for small business borrowers a time savings of seven minutes each way. Customers using bKash. This was rolled out in five urban branches indicated that they spent only US$0.12–US$0.25c on among roughly 3,000 individual loan borrowers. All transportation costs to arrive at the branch and that borrowers were required to make loan repayments they would often go to the area where the branch over a bKash mobile account, but were not charged was located for other reasons, thus eliminating the any fees.a After eight months of required bKash use, slight distance advantage of agents. In contrast to customers were given the choice of repaying with those customers who chose to continue using bKash, bKash or switching back to the traditional branch 62  percent of customers were not aware that bKash option. In the subsequent three months, 42 percent could be used for anything other than making a BRAC of customers alternated between using bKash and loan repayment. Almost all of the customers (85 the branch, 21 percent used bKash exclusively, and percent) said that the main change that would influence 37 percent used the branch exclusively. them to use bKash again would be to receive a paper receipt, as opposed to just the SMS confirmation. Why did customers make these payment choices?b Customers who alternated between repaying with Customers who continued repaying with bKash. bKash and at a branch. The reasons for alternating Eighty-two percent of customers in this group said that varied. Seventeen percent had a problem with they continued to use bKash because either the agent the agent; 33 percent used the branch when they was closer than the BRAC branch or because it meant happened to be nearby; and 28 percent simply liked less time away from home or work. An agent was, on the flexibility of having both options. But the main average, 1.7 kilometers closer than a branch, translating reason why customers continued to use bKash was into a time savings of 15 minutes each way. Use of bKash that either the agent was closer than the branch or it for other purposes did not seem to be a major driving meant less time away from home or work. factor. Sixty-five percent did not use bKash for anything beyond their BRAC loan repayment even though a. At the time the pilot began, bKash had been operational for 82 percent knew of other uses. Customers were happy only four months. All of its agents were still new to m-banking and using bKash for loan repayments, but indicated that they almost none of the customers had previously done any m-banking would reconsider using bKash if fees were introduced. transactions. This pilot replaced the traditional repayment process that required customers to visit BRAC branches once a month. Customers who stopped repaying with bKash. Thirty- b. To answer this question, a BRAC research team, with analytical eight percent of customers in this group switched support from CGAP, conducted qualitative and quantitative back to paying at the branch because they did not feel interviews with 65 customers with loan values between US$1,875 comfortable with the bKash technology and another and US$8,750. 38 percent because they had problems with the agents. c. Exchange rate of 1 US$ 5 77.76 BDT as of 19 June 2013. On average, these customers used agents that were Source: www.bangladesh-bank.org 4. Why Have Some MFIs M-banking is not the answer for MFIs that have Made the Strategic Decision problems with portfolio quality. These MFIs are to Hold Off on M-Banking? much better off fixing their portfolio issues first and focusing on the sustainability of the organization Despite the fact that a well-functioning m-banking before embarking on m-banking. In 2011 the system has the potential to positively impact the Moroccan MFI Al Amana had an ambitious m-banking business processes of an MFI’s operations, this does project in the pipeline.32 The current CEO, recently not necessarily mean that every MFI should pursue appointed at that stage, decided to stop the project m-banking. Even in a country with a viable m-banking while it was still in its design phase. The quality of service, there may be institutional or market-specific the MFI’s portfolio was deteriorating for a number reasons to postpone the integration of m-banking. of reasons,33 and Al Amana decided to defer the 32 Information on Al Amana is from an interview with the Executive Director Youssef Bencheqroun in November 2012 and subsequent communication through June 2013. 33 Reasons included the Arab Spring. See Chehade and Negre (2013). 12 potential efficiency gains from m-banking until after until there are better incentives for customers to use resolving portfolio quality issues. the wallet over the OTC option. Al Amana’s decision was similar to that of Tameer’s Kashf Foundation, an NGO MFI serving over 300,000 in Pakistan mentioned earlier, which chose to wait on customers in Pakistan, began using United Bank m-banking to secure the quality of its loan portfolio. Limited’s (UBL) Omni agents in January 2011 as an But other MFIs in Pakistan, specifically those option for its individual customers, representing regulated as NGOs, have begun using m-banking about 65 percent of its customer base, to make loan for loan repayments.34 While Pakistan is one of the repayments.36 Currently, 40 percent of loan repayments leading countries in m-banking activity, the majority from individual customers are made through 1,800 Omni of transactions are still done over-the-counter (OTC). agents, processing on average 75,000 transactions That is, transactions are done at an agent rather than worth US$1.85 million every month.37 Customers on the customer’s own m-wallet. In line with the value the reduced travel time and costs to reach an broader m-banking environment, even those NGO Omni agent instead of one of Kashf’s 160 branches, MFIs that have piloted the use of m-wallets for loan saving US$0.41–US$1.02 on transportation. Kashf repayments tend to instead leverage agents for OTC has so far absorbed the transaction fee charged by loan repayments. UBL. Customers have the choice of which repayment method to use, usually deciding based on whether the Asasah, a NGO MFI with 12,000 customers and 19 agent or the branch is closer. Kashf has noticed that branches in Pakistan, piloted EasyPaisa’s m-wallet 30 percent of repayments now happen after work hours for loan repayments, but has since shifted to OTC and on the weekends. The OTC system of repaying is transactions at EasyPaisa agents. 35 There were many working so well that Kashf is not in a hurry to transition challenges that customers faced with using the to m-wallets for repayments. Kashf benefits from less m-wallet. Group leaders were responsible for making congested branches, lower levels of cash at branches, a cash-in deposit at an EasyPaisa agent for the amount and reduced insurance costs. Most importantly from to be repaid, followed by transferring the appropriate Kashf’s perspective, customers now have a choice in amount from her m-wallet to Asasah. But group how they repay their loans. leaders had a difficult time managing the mobile phone number, account number, and personal identification The Pakistan experience highlights an important point number necessary to complete the transaction. By about the link between m-banking and microfinance. using OTC, all of these steps are done by the EasyPaisa MFI customers tend to follow the trend of their local agent on behalf of the Asasah customer. m-banking market where, in the case of Pakistan, MFI customers prefer OTC transactions to wallet- Given the vastly superior EasyPaisa agent network of based transactions similar to m-banking customers in 20,000 points over Asasah’s own branch network, the Pakistan overall. shift to OTC still provides Asasah customers with the convenience and lower travel costs that they valued In summary, the decision to hold off on m-banking from using the m-wallet. Like Al Amana, Asasah still relates mostly to timing, either due to more pertinent believes that the m-wallet provides useful functionality sustainability concerns, “easier� alternatives such as OTC and is an option for the future. However, it will wait payments, or a lack of an m-banking system to leverage. 34 NGO MFIs are regulated more lightly than microfinance banks in Pakistan, including the implications of a deteriorating loan portfolio. 35 Information on Asasah is from an interview with CEO Tabinda Jaffery and her staff in July 2012, and subsequent communication through June 2013. 36 Information on Kashf Foundation is from an interview with Managing Director Roshaneh Zafar, Head of IT Faisal Saeed Malik, and Chief Financial Officer Shahzad Iqbal in July 2012, and subsequent communication through June 2013. 37 Average exchange rate of 1 US$ 5 98.06 PKR for March 2013. Source: www.sbp.org.pk 13 5. How Has M-Banking bundles savings, insurance, mobile payments, and Created Opportunities for eventually credit. On day one, a customer receives New Innovative Microfinance the savings account and life insurance product. If Business Models to Emerge? she has US$50 in savings, she can borrow US$50 as a loan.38 After building up a good repayment record Up to this point, this paper has examined the ways over several months, customers can begin to borrow m-banking has enabled MFIs to innovate on a few at double their savings and so forth. Account opening links within the microfinance business process, namely takes place at agent locations where customers are on loan repayments, loan disbursements, and savings able to leave with a fully activated account and an mobilization. There are several new institutions that ATM card after a 10–15 minute registration process. have begun to leverage m-banking at many more BanKO spent considerable time at the start of its points along the process as shown in Figure 2. retail operations establishing an agent network. At first, the plan was to rely primarily on GCASH agents, To make useful comparisons to traditional since BanKO is a three-way partnership among BPI microfinance business models, this section focuses (40 percent), Globe Telecom (40 percent), and Ayala on institutions that offer at least credit and possibly Corporation (20 percent). But they soon realized other types of financial services to poor people, that GCASH agents would not be able to handle all leveraging m-banking. Using these criteria, there are the liquidity needs of BanKO customers. So BanKO several exciting institutions that are emerging. began to sign up its own agents as partner outlets. GCASH does, however, play an important role in BanKO in the Philippines is one such example in BanKO’s business since the GCASH wallet serves as the way it uses m-banking to do origination, loan the route to the BanKO account when transacting application, and due diligence. When BanKO started at an agent. GCASH customers also benefit from its retail business, it used loan officers along the lines the BanKO agent network, which they can use for of what traditional MFIs use. But this proved to be transactions. too labor intensive and too costly, so BanKO began to innovate in how it processed loan applications and The recently launched mBank, also in the Philippines, carried out due diligence. It knew that its business has a similar approach to BanKO, but in cooperation model wouldn’t allow for house visits for due with the other main MNO in the Philippines, SMART diligence. Instead, BanKO relies initially on savings Communications.39 mBank customers start with an and subsequently on loan repayment and savings m-wallet account for transactions, followed by a patterns. It signs up new customers to an account that savings account. Based on the customer’s transaction Figure 2: A new microfinance business process MFIs leveraging exisƟng mobile banking systems Due diligence Loan re- Loan Savings Loan Loan Porƞolio OriginaƟon & credit issuance or applicaƟon mobilizaƟon disbursement repayments monitoring decision closure New micro�nance business models: BanKO, mBank & M-Shwari 38 Exchange rate of 1 US$ 5 41.2 PHP as of 18 April 2013. Source: www.bsp.gov.ph 39 Information on mBank is from a meeting with CEO Arnaud de Lavalette in December 2012, as well as subsequent communication through June 2013. 14 history in the m-wallet and credit scoring tied to financial provider, all of which are difficult to offer SMART airtime use patterns, the bank offers a loan through traditional microfinance models. Potentially product that works like an overdraft account. After a exciting innovation happens when elements of both new customer requests to open an account by text, worlds are merged. Yet new challenges also emerge. an mBank staff member goes to the customer to fill Since BanKO and mBank can be used only with the out the application form. mBank staff at headquarters SIM cards of Globe and SMART, respectively, their simultaneously enter customer data into their MIS growth may be somewhat limited to the market share after receiving a photograph of the registration form of each partner MNO.40 from the field staff’s mobile phone. As previously mentioned, Musoni is another example So what is different about these two particular of a new type of MFI doing credit differently by business models from what has been traditionally having implemented m-banking from the start for loan seen? First, they use m-banking along various disbursements and repayments. Unlike BanKO and aspects of the microfinance business process. Both mBank, the group loan applications, due diligence, use m-banking to facilitate different degrees of and the credit decisions still take place in person. But remote customer registration. They use transaction once approved, disbursements happen within 72 hours histories as a key tool for carrying out due diligence through M-PESA. Repayments also happen through and underwriting loans, and, in the case of mBank, the pay bill functionality of M-PESA. Musoni is unique have begun using mobile usage data for credit because it began operations by using only M-PESA scoring purposes. Their business model is based not as the bulk disbursement and repayment mechanism. just on loan balances but also on transaction volumes Many of the MFIs studied for this paper have gone and savings. Ultimately, the main differentiation through lengthy, costly, and often disruptive transition should come from the cost effectiveness of their periods to introduce m-payments as an option to operations. BanKO relies on just over 200 employees their customers. Musoni avoided all of these growing for 300,000 customers. Their retail loans are provided pains by using M-PESA from the start and requiring at 2.5  percent per month on a declining balance. customers to use this method. Its experience shows This rate is slightly below market for microloans, that new MFIs in markets with existing m-banking particularly among the nonbank MFIs, but it is still infrastructure should strongly consider going the too early to tell how much cost savings will come m-banking route from the beginning to avoid the costs from their mobile-based business model. and challenges of change management, and to ensure that, as much as possible, the investment in m-banking Second, BanKO and mBank are taking elements of replaces other costs, such as cash management, rather both the microfinance and the m-banking worlds. than being parallel costs. Unlike the GCASH wallet, the BanKO account is deliberately not prepaid. It was clear to BanKO In summary, new business models are emerging that poor customers want to earn interest on their that leverage m-banking more intensely across the savings, to borrow, to establish a credit history, and microfinance business process. Time will tell how to access insurance. These products are more difficult sustainable these models are and how customers to offer through a pure prepaid m-wallet service, respond to new service providers and their products. in part due to regulation. At the same time, poor It is clear, however, that these innovations would customers at times want easy access to their savings, not be possible without the m-banking infrastructure quicker access to credit based on their borrowing that has developed in many markets over the past capabilities, and a light-touch relationship with their few years. 40 As of Q1 2013, SMART has 67 percent market share and Globe has 33 percent market share (source: www.gsmaintelligence.com). 15 Box 4. The Case of M-Shwari M-Shwari is an interest-bearing mobile savings and loan right can be the hardest part of making a new product launched by Safaricom and Commercial Bank of business or product line work. One feature that Africa (CBA) in Kenya in November 2012. This product makes M-Shwari unique is the early appearance of builds off of M-PESA’s 17 million customer base and is a strong business partnership between Safaricom innovative for many reasons, not least because it brings and CBA. Safaricom manages all the marketing together two unlikely players that traditionally do not and distribution, and provides customer voice, offer small-value loans to the mass market. data, and M-PESA usage data to CBA. CBA leads the backend operations of reconciliation of cash All transactions in the M-Shwari accounts are done and e-float, holds the funds, manages the credit through mobile phones, and registration happens scoring, carries the default risk, and provides the instantly through the M-PESA menu regardless of bank license. This partnership works in no small whether the customer is an existing CBA account holder. part because Safaricom found a bank that is not a Safaricom customer data are used to generate a credit competitor in the low-end of the market. score for customers, and once registered, customers can access their credit limit using their mobile phone. The Interestingly, there have been a fair share of previous account offers interest on savings between 2 percent experiments offering M-Shwari-type products over the and 5 percent with no limits on how much is saved. mobile channel in Kenya that have failed to scale for Customers have access to instant small capital loans of various reasons. M-Kesho, the partnership between US$1–240 at 7.5 percent to be repaid in one month. Safaricom and Equity Bank, suffered from many things, including a lack of promotion by each partner The product clearly satisfied unmet demand as 1 million and a poor registration experience whereby only customers signed up for the account within one month a limited number of M-PESA agents could register of launching, accumulating over US$11.5 million in new customers and account activation took 48 hours. savings and almost US$1.2 million in loans. This rapid The lack of promotion can be partly explained by the adoption highlights the potential of these new business competitive tension between Safaricom and Equity models to rapidly scale in a way that more traditional Bank, with both players competing on its own to MFIs have been unable to do. Customers value the provide financial services to the mass market. convenient service of the loan product and the alternative to the typical community-based sources of credit. Early adopters include typical MFI customers such as traders Source: Research from the Grameen Foundation AppLab who use on-demand loans to grow their businesses. Money team; MicroSave Briefing Note #139: “M-Shwari: Market Reactions and Potential Improvements,� February 2013. As the mainstream m-banking industry has shown http://www.ignaciomas.com/announcements/safaricomsm over the past several years, getting partnerships -shwarimobileyesbuthowcool 6. Conclusion MFIs that have been successful in using m-banking for their operations are located in mature m-banking “MFIs don’t ask the question, but see mobile banking markets where customers are already aware that the as the answer. They need to know what it is trying to mobile phone can be used for payments, and where solve. It isn’t just an IT and marketing issue. It changes a viable m-banking service with a well-functioning the whole operations.� This quote from the former agent network is available to be leveraged by MFIs. CEO of an MFI in Africa sums up the current situation Experience suggests that this m-banking infrastructure well. MFIs need to further develop their “theory of and mass scale behavior change needs to be created change� about how m-banking can be used to improve before MFIs and their customers can reap the benefits microfinance operations and what the likely costs and of m-banking. As the Director of BRAC Microfinance, benefits will be for the institution and its customers. Shameran Abed, put it, “The [bKash] pilot test was an operational success, and we see the potential Our research has confirmed that MFIs and their convenience value for our clients, but we will only roll customers can benefit from m-banking. However, it out more widely once the agent network is more there is no evidence of an MFI playing a driving mature and awareness of mobile financial services role in the adoption of m-banking. To date, those among the population is more widespread.� 16 Arguably the biggest advance in the intersection Cracknell, David. 2012. “Policy Innovations to between microfinance and m-banking has come Improve Access to Financial Services in Developing from new, emerging microfinance business models. Countries: Learning from Case Studies in Kenya. M-banking has facilitated a new approach to Washington, D.C.: Center for Global Development. microfinance by using the mobile phone, customer http://www.cgdev.org/doc/LRS_case_studies/ usage data and agents for loan applications, Cracknell_Kenya.pdf customer due diligence, and credit decision-making. The microfinance culture has begun to merge with Insight. 2009. “Accelerating Financial Inclusion through the m-payments culture to provide much more than Innovative Channels: 10 Obstacles for MFIs Launching what microfinance services or m-payment services Alternative Channels—And What Can Be Done can offer alone. M-banking is also facilitating new about Them.� Boston: Insight Accion International, partnerships between unlikely players that each December. http://centerforfinancialinclusionblog. brings areas of expertise that have the potential to files.wordpress.com/2011/09/accelerating-financial- deliver innovative financial services to the unbanked. inclusion-through-innovative-channels.pdf This story is still in its infancy—the leading m-banking Karlan, Dean, Melanie Morten, and Jonathan Zinman. deployment in the world has existed for only a little 2012. “A Personal Touch: Text Messaging for Loan more than six years. Questions remain. What is the Repayment.� Cambridge, Mass.: National Bureau of optimal blend of m-banking and microfinance? Will Economic Research, March. http://www.nber.org/ a relationship-based, yet cashless, model enable the papers/w17952.pdf?new_window=1 scale that is required? Will the ever more technology- dependent approaches be able to remotely offer the Kumar, Kabir, Claudia McKay, and Sarah Rotman. quality of financial services that is required and with 2010. “Microfinance and Mobile Banking: The Story suitably low customer default rates? As more m-banking So Far.� Focus Note 62. Washington, D.C.: CGAP, providers reach scale, will the opportunity for MFIs July. http://www.cgap.org/sites/default/files/CGAP- to leverage this technology outweigh the increased Focus-Note-Microfinance-and-Mobile-Banking-The- competition that new microfinance business models Story-So-Far-Jul-2010.pdf bring? MFIs are operating during exciting times and, more importantly, MFI customers have the potential Mas, Ignacio, Akhand J. Tiwari, Alphina Jos, to benefit greatly from the innovations that abound. Denny George, Krishna U. M. Thacker, Nitin Garg, Raunak Kapoor, V. 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Opportunities. 2013. “Mobile Banking Study: com/images/stories/downloads/phb%20brief%202_ Experiences and Perspectives of Microfinance march%202012_mmoney%20models%20for%20 Institutions.� Amsterdam: Triple Jump Advisory mfis_final.pdf Services and Microfinance Opportunities, January. http://www.triplejump.eu/upload/media/Triple_Jump_ Yousif, Fatima, with Elizabeth Berthe, Jacinta Maiyo, Mobile_Banking_Survey_Public_Version_final.pdf and Olga Morawczynski. 2012. “Best Practice in Mobile Microfinance.� Grameen Foundation and Institute for Ventura, Arnaud, Thierno Seck, Greg Rung, and Money, Technology & Financial Inclusion, July. http:// Prakriti Singh. 2011. “Beyond Payments: Next www.grameenfoundation.org/sites/default/files/Best_ Generation Mobile Banking for the Masses.� Practice_in_Mobile_Microfinance.pdf No. 88 August 2013 Please share this Focus Note with your colleagues or request extra copies of this paper or others in this series. CGAP welcomes your comments on this paper. All CGAP publications are available on the CGAP Web site at www.cgap.org. CGAP 1818 H Street, NW MSN P3-300 Washington, DC 20433 USA Tel: 202-473-9594 Fax: 202-522-3744 Email: cgap@worldbank.org © CGAP, 2013 The authors of this Focus Note are Michel Hanouch and Sarah Rotman of CGAP. In addition to the many people from each of the organizations profiled here who participated in interviews, the authors would like to thank Leesa Shrader for her very useful insights, as well as CGAP colleagues Greg Chen, Minh Huy Lai, Claudia McKay, Kate McKee, Steve Rasmussen and Michael Tarazi. The authors would also like to thank BRAC and bKash for their collaboration on the customer research and specifically Md. Golam Saklyen of BRAC who led this research. The Technology and Business Model Innovation Program at CGAP is co-funded by the Bill & Melinda Gates Foundation, CGAP, The MasterCard Foundation, and the UK Department for International Development (DFID). The suggested citation for this Focus Note is as follows: Hanouch, Michel, and Sarah Rotman. 2013. “Microfinance and Mobile Banking: Blurring the Lines?� Focus Note 88. Washington, D.C.: CGAP, July Print: ISBN 978-1-62696-020-6 epub: ISBN 978-62696-022-0 pdf: ISBN 978-1-62696-021-3 mobi: ISBN 978-62696-023-7 UKa from the British people