Technology for Development: The Microfinance Industry Adapts
Claudia McKay
11 May 2016
2
For several years following the explosion of mobile money, MFIs struggled to adapt…
…but the story is changing
Mobile banking
Link between a mobile money wallet and account at an institution
3
$ $
Mobile money account
MFI or bank account
Advantages: • Relatively easy to set up • Leverages telco infrastructure • Convenient for customers
Disadvantages: • Expensive for clients
Agent banking
4
Agents conduct transactions on behalf of MFI directly
MFI or bank account
Agent
Agent
Agent Agent
Agent Agent
Agent
Agent Agent
Agent
Agent
Agent
Agent
Agent
Agent
Agent banking: Hub and spoke
5
Small Branch
Small Branch
Small Branch
Main Branch
0.00
5.00
10.00
15.00
20.00
2008 2009 2010 2011 2012 2013 2014 2015
Finca Tanzania’s progression towards DFS
Tanzania active mm customers, in millions
6
2013: Mobile banking through Vodacom M-Pesa
2014: Agency Banking pilot
2015: Mobile banking via aggregator with all MNOs
Until 2012: Only branch
Source: CGAP estimate
Motivations
7
20%
2%
12%
1 - 3%
Traditional Agent channel
Finca Tanzania Microcred
Expected decrease in cost of funds from both institutions
Motivation: Lower Cost of Funds
8
90%
Average cost of funds
Motivation: Lower Cost of Infrastructure
9
Sample Projection Distribution cost vs. asset growth
0
40
80
120
160
200
240
0%
1%
2%
3%
4%
5%
6%
2014 2015 2016 2017 2018 2019
CFA
Fra
ncs,
in b
illio
ns
Cos
t as
a pe
rcen
tage
of a
sset
s
Branch costs Agent costs Mini branch costs Total assets
Assets increase
4x
While distribution
costs decline by 2
percentage points
Motivation for agent banking: Own the Customer Experience
10
Control the customer experience and branding
Many MFIs have specific brand attributes and want to control how this permeates to digital channel.
$
Control the pricing strategy
Most MFIs want cheap deposits – not transaction revenue – so want cash-in and cash-out to be free.
“We’ve seen different players try to use the mobile channel and it’s never worked. We wanted control over the customer experience.”
Finca DRC attributes
30% of their customers to the agent channel
Motivation: Grow Customer Base
11
Most MFIs are just starting to build out hub-and-spoke models with agents close to branches so significant customer growth through agents has not happened in most cases.
Of customers who signed up via an agent, 50% were active and performed an average of 4 cash-in or cash-out transactions / month
50%
One year after launching mobile banking, 20% of all transactions were going via mobile channel
Early evidence is positive
12
20%
An account active on mobile banking has 3X the balance vs. a normal active account $
$
$
Within 9 months, 35% of all cash transactions were being done on agent channel 35%
Equity Bank: Majority of cash transactions have been shifted to the agent channel
13 Source: Equity Bank Investor Briefing Q3 2015
0
10
20
30
40
3Q 2011 3Q 2012 3Q 2013 3Q 2014 3Q 2015
Number of transactions, in millions
ATM Branch Agency
Agency 51%
ATM 27%
Branch 22%
Percentage of transactions by type
(2015)
MFIs adapting to DFS in different ways globally
14
Latin America Agent banking has helped MFIs reach rural markets quickly and decongest branches, offering better service.
Asia Good human resources at low cost combined with high population density means better viability for current branch structure.
In Bangladesh BRAC does not use bKash (same owner) while in Tanzania BRAC does leverage M-PESA as cheaper alternative
Africa Very high cost of materials and human resources combined with low population density means DFS brings high incremental gain.
What about the impact on loans?
15
DFS has had limited impact on loan methodology • Underwriting process is still
in person • Many MFIs are using DFS
for loan repayments • Loan officers in some
institutions, worried about their own redundancy or declining group cohesion, actively discourage clients from paying digitally.
Andrée Simon, Finca • Kabeer Naqvi, Ubank • Grégoire Danel-Fédou, Advans
Technology for Development: The Microfinance Industry Adapts
Andrée Simon Finca Microfinance Holding Company
Photo: Joyce-Mandevu, Malawi, Africa, Finca Client
Kabeer Naqvi UBank, Pakistan
Photo: UBank Customer
Grégoire Danel-Fédou Advans, Côte d'Ivoire
Photo: Advans Côte d'Ivoire customer
Andrée Simon, Finca • Kabeer Naqvi, Ubank • Grégoire Danel-Fédou, Advans
Technology for Development: The Microfinance Industry Adapts
Advancing financial inclusion to improve the lives of the poor
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