Partnership for Financial Inclusion FIRST PEER-TO-PEER MEETING NAIROBI, MAY 2013 Partnership hosts first knowledge sharing event Held in Nairobi in late May 2013, the inaugural peer-to-peer client meeting of the Partnership for Financial Inclusion brought together 25 representatives from 8 client institutions to discuss opportunities in agri-finance, risk management and product development for alternative channels. The meeting was held as part of the partnership’s knowledge sharing agenda, founded on the belief that clients share common challenges and opportunities and that the program has an important role to play in helping to build a community of practice on financial inclusion in Sub-Saharan Africa and beyond. THE PROGRAM Tuesday 21st May 2013 Cocktails and Welcome Dinner at Fairview Hotel Welcome by Jan Schwier, General Manager, IFC Africa Advisory Services Dinner Speaker, Nadeem Hussain, CEO, Tameer Bank Wednesday 22nd May 2013 Session 1: Knowledge and Learning Agenda for the Program Session 2: Agrifinance Session 3: Product Development for Alternative Delivery Channels Thursday 23d May 2013 Session 1: Field Visits Session 2: Extended Debrief and Q&A from field visits Session 3: Fraud and Mobile Financial Services Moderator Momina Aijazuddin Principle Investment Officer, IFC Panel Rahab Kariuki Kilimo Salama and Syngenta Foundation Michael Mbaka Senior Project Manager, FSDK Shadreck Mapfumo Senior Financial Specialist, IFC Esther Muiruri Head of Agricultural Finance, Equity Bank Kenya Joan Penche Agri-finance Program Manager, AccessBank Tanzania “Farmers are a unique customer group” MINUTES: PANEL ON AGRIFINANCE The panel aimed to explore agricultural finance • Syngenta Foundation initially attempted individual retail practices in the region and to facilitate a discussion with sales but now sells insurance bundled with financing practitioners, highlighting some of the approaches and through farmer aggregators. models, successes and failures, and risk mitigation tools available in the market today. The most successful financing interventions include additional value added services, such as extension services, Key themes market access, input access, storage, and financial Farmers and agriculture producers have particular needs education. and circumstances. In addition to traditional issues such as • Equity Bank has staff agronomists who are regularly on lack of collateral and credit history, specific issues include site in client fields and communities, and offer financial seasonal cash flows, lack of formal savings instruments, education to foster client entrepreneurship. limited access to urban areas and storage, and weather • A very hands on approach with engagement throughout risks. the season is the most effective. Microfinance institutions, MFIs, with specialized departments have an Financial service providers have modified products to suit advantage. these particular needs: • Equity Bank in Kenya has employed agency banking Work at the policy level is required in key areas, such as (e.g. at dairy processors), and mobile payment warehouse receipts systems and index insurance. notification to reach farmers. • The World Bank is a co-implementer of GIIF and • Index insurance provided by GIIF partners reduces risk engages at the policy level to develop regulation for financial institutions. Insurance premiums are specific to index insurance. For example, for weather initially subsidized (by donors and input suppliers) until index insurance risks are covariates so a majority of the the market reaches critical mass. premiums need to be re-insured outside of the country, • Access Bank Tanzania has designed loan products contrary to current regulations in some countries. aligned with farmer cash flows. Loan disbursements • Collateral management is an issue in warehouse must come at an appropriate point in crop cycle. receipts and FSD Kenya is working on a draft policy to • In Pakistan, lenders have piloted using household gold support the regulation of the usage of farming jewelry savings as collateral. production and agricultural inventories as collateral. Moderator Mark Flaming IFC and Frontier Ventures Panel Nadeem Hussai CEO, Tameer Bank John Staley CFO, Equity Bank Geoffrey Githinji Group Chief Operation Officer, CBA Stanley Munyao Acting CEO, Musoni Aiaze Mitha CEO, Amarante Consulting “There remains a long way to go.” MINUTES: PANEL ON PRODUCT DEVELOPMENT Alternative delivery channels can be expensive to remittances and then to government-to-person transactions, design, operate and manage. However they can also and is now looking to target business-to-person services. improve client outreach, improve service for existing - Customer adoption is supported by incremental usage. clients and attract new previously unbanked clients. IFC Many start off with payment transaction products, gain has found that in order for these channels to be truly confidence in the channel and move into savings. Insurance transformational, new products need to be designed to products can be easily layered onto credit and savings leverage this new infrastructure. This panel explored accounts. products that have been developed for specific channels, successes and lessons learned. CBA’s partnership with M-Pesa allows CBA to reach a new customer segment and M-Pesa to offer a bank service. M- The panel represented a cross section of financial Shwari is a new CBA product enabling the provision of institutions, each with different strategies for engaging in savings and credit through a mobile platform that is fully mobile financial services. For example, Tameer, CBA, and managed and delivered electronically. It went live in Musoni have gone the partnership route; Banco Av Villas November 2012 and as of May 2013 registration of employs a combination of partnerships and proprietary customers was in excess of 3 million. The product consists agents, while Equity Bank has largely focused on building of a simple savings product with an option for credit starting out its own agent network. from just $1 based on credit scoring informed by transaction patterns. The experience Tameer entered into agent banking and set up Easypaisa to Musoni is a greenfield microfinance institution that transacts improve financial inclusion by leveraging Telenor’s agent with customers only through mobile channels by partnering network. Savings and credit products are transacted through with a number of MNO agent networks. Musoni was formed the agent network. Easily accessible savings products to deliver MFI services to rural and unbanked Kenyans; increase the deposit base, providing lower cost funding to areas that conventional MFIs generally do not reach due to a the institution while revenue is earned on each transaction. lack of infrastructure. However, relying on the M-Pesa The partnership with a telco also brought a larger advertising platform is expensive. To make a loan repayment of 100 budget supporting national brand recognition. shillings, customers get charged 22 shillings. This indicates - Easypaisa was initially created to support payments for that the market is far from fully efficient. existing customers. It first expanded to include domestic Banco Av Villas is a mid-size bank that came to the realization that the key to growth was in the mid to low income market segments. Through multiple partnerships with Grupo Exito, a supermarket chain, and MNOs, the bank built an agent network they manage in part directly and in part through a third party agent network manager. The bank understands that its core business isn’t the payment part but rather growing its customer base, mobilizing float and mass deposits to lower cost of funds, and growing its loan portfolio. Equity Bank has found that the poor have many financial needs, but aren’t banked because the right products haven’t been designed or are not accessible in a cost effective way. In the 2 years since Equity introduced agent banking it has done more business using this medium than traditional bank branches and ATMs, enabling an additional $75m in float. “Poor people are doing 80-100 very small transactions a month using a range of informal and formal products. Yet only two of these are mobile transactions, so …there remains a long way to go in banking the poor in Kenya,” said CFO John Staley. Lessons learned • Cross Selling: Tameer’s access to Telenor’s 20m customers provides a new market segment for cross selling. • CBA leverages M-pesa’s established network by replicating the interactive methodology that the customer has at the branch, building it into the handset menu. • Data mining is used to assess the transaction behavior of individuals, which informs credit scoring and allows banks to attach acceptable levels of credit risk to Geoffrey Githinji, CBA, and Stanley Munyao, Musoni individuals who may not have been direct clients. • Offering overdraft facilities to agents helps manage liquidity and creates a new cadre of clients. The numbers “Creating sound partnerships with service Agents generally need 1,500 cash in / cash out transactions per month which equates to one or two per customer in providers who you can leverage from is a big order for the business model to make sense. advantage.” What does it take? Moving from bricks and mortar to mobile agent banking requires an institution to build capacity in many areas John Staley, Equity Bank including products, systems, infrastructure, agent network management, marketing & communications, risk management and audit. This often takes between 3-4 years and cost between $5m - $6m for a microfinance institution (though this cost will vary from institution to institution and “The additional resources required are in the market to market). The degree of partnering can influence the costs, but internal capacity building, including at the area of technology, oversight of agents, risk management level, is critical. management, compliance and back office.” Nadeem Hussain, Tameer Bank Moderator Joseck Mudiri, IFC Panel Jennifer Barassa CEO Top Image Patrick Makatiani CEO Brital Shine David Ndome Head Agency Banking KCB Group “Fraud in one company threatens all” MINUTES: PANEL ON FRAUD AND RISK MANAGEMENT Fraud is a serious threat to the mobile financial services employees stole directly from the company and that industry, as with any financial services operations. It customer accounts were not affected, but whatever the case can damage the reputation of businesses and affect the the incident potentially points to weak controls in the credibility of the entire industry. The panel brought business leading to the loss of a substantial amount of together leading practitioners in the mobile financial money. The MTN case is currently pending in court. services space to share their experiences and thoughts on how best to manage the risk posed by fraud. Lessons learned A mobile financial services operator should ensure that there The experience are adequate processes in place to identify fraud before it The most common types of fraud seen currently are escalates and to make sure safeguards are sufficient. counterfeit currency, unauthorized PIN access by Systems should be well developed and tested, and customers, and phishing/spoofing (which is when fraudsters continuously monitored to limit fraud. Best practice in PIN send an sms to customers scamming them into sending and password management should be implemented. It is money). Fraudsters are known to mix counterfeit currency important that customers are aware they must never share with real currency when transacting at agent outlets. their PIN number, and it is equally important for agents not Customers may also access other customers’ PINs by PIN to share their phone with anyone. theft, or when PINs are shared. There is also a type of fraud in which fraudsters manage to lodge their own phone At KCB every transaction has to have a minimum of two number on agents’ phones thereby directing transactions to authentications to limit risk. The bank also limits the amount the fraudster’s account. If not controlled, fraud threatens of cash that can be handled by agents, and assists clients the integrity of the industry, degrading consumer faith in the with online statements to ensure transparency. safety and security of alternative delivery channels. Jennifer Barassa, who has worked extensively with M-Pesa, said she Mobile financial services operators should also conduct has come across numerous cases of fraud affecting both training for agents on counterfeit currency by showing them customers and agents. examples of fake currency common to a particular market. Fake currency is usually more prevalent in larger Fraud may also be performed by employees of operators. denominations; therefore emphasis should be put on larger According to press reports, MTN in Uganda recently lost bank notes during training. Fake currency also tends to look several million US dollars when money was allegedly taken new, and agents should be extra vigilant when handling new by employees from a suspense account used to store cash currency notes. Agents who do transactions of large from incorrect transactions. The operator claims that the volumes may also be encouraged to buy a UV light to be able to check notes. KCB conducts quarterly training on “In every business there are risks. All that new trends in the use of fake currency, and sometimes communicates to agents through bulk sms to help agents one needs to do is keep good records, track identify fake currency. The bank’s 24 hour contact center has also proven useful when dealing with issues of fake transactions and be in constant currency. communication with your agents.” Conclusions When fraud affects one company it affects the credibility of Patrick Makatiani, Brital Shine the entire industry. Stakeholders should share information on fraud and other areas of risk, and work together to develop industry standards that govern training, products, controls, platform development and management. Such standards will ensure that all actors are at least “Experience shows that when fraud is caused implementing minimum processes to limit fraud. A transparent communication system will ensure that by an employee of the company, clients tend stakeholders are notified of the newest trends in fraud. to forgive. However, if the issue is system For an organization to prosper in agency banking, the following should be employed: related, then you lose your reputation and 1. Training on fraud trends and fake currency 2. Rigorous and regular online monitoring nobody will ever trust you with their money.” 3. Vetting of the agents, business and employees 4. Incentives and rewards for agents Jennifer Barassa, Top Image Sylvie Njike, Advans Cameroon Momina Aijazuddin, IFC Kyle Morrison, UOB Rwanda, visiting an M-Pesa agent on the outskirts of Nairobi. “It’s green everywhere!” NOTES: FIELD VISIT, AGENT BANKING The success of M-Pesa has revolutionized mobile Key observations financial services globally and established Kenya as the world leader in the industry. M-Pesa has proven that Branding: Kenya is covered in the green color of M-pesa institutions can effectively and efficiently leverage third and Safaricom. The branding is everywhere, both in urban party distribution structures for the provision of and rural areas. Generally, telcos have a more visible brand financial services to the community. The field visit presence than banks. brought participants into direct contact with agents, master agents and providers within the Nairobi city Market Saturation: The popularity of M-Pesa has led to a areas and suburbs. saturation of M-Pesa and other agents in the market, with some agents making decreasing revenues from commission. “The field trip was a particularly enlightening activity. We set out to a rural area and visited the agents of a variety of Aggregators: Agent aggregators play an important role in MNO’s and financial institutions. A wide array of businesses the network, managing float and business development over were serving as agents: an agricultural supply shop, a time. Aggregators also play an important role in mitigating grocery store, a cellphone retailer and even a real estate fraud. business. The agents were happy to answer our questions and mostly affirmed their appreciation of the agency Connectivity: There are frequent problems with network business as both an enhancement of their existing connectivity. Some agents claimed that the mobile network operations and a lucrative activity in its own right. is down 5 days per month on average. Some MFI agents make far more transactions using point-of-sale, POS, than Our visits drove home several points. First, agent visibility is with mobile phones. essential to the success of the network. Second, as can be expected, the agents that devoted floor space, employees, Development Impact: The system creates a lot of business and steady working capital to the business tended to activity, revenues and jobs. Some agents run their mobile generate higher transaction volumes. Third, the mobile financial services business in conjunction with other money systems (MNO- or financial institution-led) that were businesses, but there are also agents who only provide more popular generally had much more motivated and mobile financial services. Employment generation is mostly cooperative agents and took care to visit them frequently for female. quality checks and updates. The latter two points were mutually reinforcing.” Kyle Morrison, UOB Rwanda “I can say the MicroCred team has learned a lot. It is not very often that we have a chance to meet so many interesting people. In the two days spent in Kenya, we have progressed very much in our understanding of alternative channel challenges and success factors.” Denis Moniotte, Head of Alternative Delivery Channels, MicroCred The Partnership for Financial Inclusion