> Posted by Camilla Nestor, Vice President of Microfinance Programs at Grameen Foundation
This post is part of the Center for Financial Inclusion’s Expert Exchange: Building A Movement Toward Financial Inclusion by 2020, cultivating conversation around the goal of reaching full financial inclusion by 2020. For questions about this series, write to Sonja E. Kelly, Fellow, Center for Financial Inclusion at ACCION International.
In five years, how will the poor be accessing financial services? If we could step back in time to 2006 with the microfinance sector scaling rapidly across the globe, it would have been hard to imagine that today mobile money users would outstrip all banked individuals in some countries, or that in other countries commercial banks would have overtaken microfinance institution (MFI) outreach to the poor in just a few years.
CGAP reports that 2.7 billion people globally remain unbanked around the world, a gap that requires a depth and breadth of financial services to truly address. We’ve learned that scale alone is not the answer; it must be accompanied by approaches that keep client well-being at the center. However, we still have not found an approach that meets this challenge in a way that addresses both scale and client needs at the same time. There are a number of intriguing scenarios for how the poor could be accessing appropriate financial products and services in the future, all of which draw on players beyond the traditional microfinance space. Here are three potential scenarios:
1) Mobile money makes the leap to mobile financial services. Mobile money (payments and transfers) is scaling in a handful of countries, but we have yet to see a truly scalable link between mobile money and mobile financial services (credit, savings, or insurance products delivered via the phone). To do so requires resolution of two major hurdles: 1) The interoperability challenge needs to be addressed, since few mobile network operators have the dominant market share that, for example, Safaricom did in Kenya when it launched M-Pesa; and 2) The business model conundrum must be solved: creating a viable business model for all parties in a joint bank-mobile network operator approach has emerged as one of the key hurdles.
2) Agile fringe providers – such as pawnshops in the Philippines – are able to innovate with client-centered products much faster and more nimbly than banks, MFIs or mobile network operators. These fringe providers start to incorporate mobile phone technology in a way that allows cost-effective outreach to rural and remote populations. From the client perspective, many prefer the flexibility and accessibility of these offerings, although a potential drawback is that with many small, nimble providers, it is more difficult to ensure client protection.
3) Microfinance institutions reinvent themselves as banking correspondents, or other similar “servicer” intermediaries. Such an approach, in partnership with commercial banks, allows outreach to the poor in an efficient way. The value the MFIs bring to the table in this scenario is knowledge of how to reach and relate to the poor, how to design products and services that meet the needs of different client segments, and the efficiencies that come from streamlined field force management. The banks bring economies of scale, back-end systems, and capital. We are seeing MFIs such as Cashpor in India embrace a banking correspondent approach, at the same time leveraging the mobile phone for efficiencies and scale. Nevertheless, it remains to be seen if this is a model that will flourish in other regulatory environments.
These are but three approaches that have potential to address both the supply-demand gap and client needs. There are surely many more innovative models that will be in play five years from now, but I expect most will reflect the common themes across these three approaches above: 1) the role of a digitized device like the mobile phone to drive outreach and scale; 2) shift from a one-size-fits-all approach to regionally-tailored models, and 3) engagement of a variety of actors and channels who we haven’t traditionally thought of as being part of microfinance.
Camilla Nestor joined Grameen Foundation in August 2005 and previously served as Growth Guarantees Manager and Director of the Capital Management and Advisory Center. She was appointed Vice President for Microfinance in April 2009. She has 14 years of experience in microfinance and commercial banking. Before joining Grameen Foundation, she worked in Citigroup‘s Structured Corporate Finance Department where she executed credit-enhanced debt financings for emerging markets firms in Africa, the Middle East and Eastern Europe. Prior to joining Citi, she spent five years on the ground in Southeast Asia, the Balkans, and Africa working with microfinance institutions on start-up, new product development, and capital raising. Camilla holds an MBA and a masters degree in International Affairs from Columbia University and a bachelor’s degree in Political Science and International Relations from Colorado College. She speaks Bahasa Indonesia and is conversant in French.
Have you read?
It’s Time to Expand the Circle
From the Roundtable: Reflections on Improving Microfinance
Expert Exchange: Building a Movement toward Financial Inclusion by 2020
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May 31, 2012 at 4:28 am
Ashok Kumar Meda
Very interesting knowledge / experience sharing here by Camilla. There is never an end in product development while resolving on solutions for Financial Inclusion, answering the needy across the world. Awareness campaigns are the needs of the day, particularly in remote pockets of African continent. Successful efforts are yet to be replicated….like the mobile advent in Kenya / Tanzania are yet to penetrate in Nigeria or Ghana of West Africa.
Camilla may please her experiences in African countries, having been exposed to a variety of models evolved In various environments of Asia / Africa and Americas.
Let me know of her other contributions.
Ashok Meda, Senior Banking Adviser, Institutional & Govt Advisory, ING Bank…..presently on depution to Nigeria
June 4, 2012 at 7:27 am
John Gitau
Camilla, this is good simplification of a complex matter. The three approaches are workable. The only thing is that we have to allow one phase to grow to the next without undue rush. Trying to do so many things at the same time to arrive at financial inclusion as a time based end, is a bit difficult. If a person learning how to ride a bicycle was to focus on how not to fall at the same time focusing on how not to hit pedestrians, the learning becomes hard. First, the focus needs to be on balancing the bike. Then controlling bike in motion and finally enjoying the ride while not hitting pedestrians. To apply the parallel, let us be happy that so many people have already adopted mobile money for transfers and payments in certain countries and the wave is spreading. Let us not flood the new system so soon with the next stage offerings of mobile financial services. We need to allow critical mass level of comfort and consolidation. Let us not get over excited and confuse the users, most of who are not only academically illiterate but also financially illiterate, especially in developing countriesl. Within no time, and with innovative and easy to understand and use products, consumers will adopt. In Kenya, ‘Mbao pension schemes’ is a reality, as a financial service. Mbao means Ksh 20. The selling point is that the consumer can save as little as ksh 20 daily toward pension. That amount and concept resonates well with consumers at all financial levels. It reads easy and accessible. Through the phone, a consumer can check balances of his or her pension savings. Insurance is being sold in the same vein. A consumer can now get daily insurance cover by paying ksh 20. That also makes sense and it is equally easy to understand. Before long, many products can be introduced and inclusion will then become a daily affair as opposed to a destination goal post.
Fringe providers, are key given their innovativeness, customer understanding and access as as you have rightly said Camilla. The only challenge is that they may not be good custodians of consumer protection. I suppose they don’t need to and we shouldn’t be worried much about that. We should have financial literacy educators taking up that role. That is good division of labour. It is not fair to fail to empower fridge providers just because in their creativity they will reap off consumers with their products.
Finally, microfinance institutions as correspondence is a brilliant idea especially coming from a vastly experienced mind like Camilla’s. It is a great middle ground. MFIs can be good custodians of agency banking on behalf of banks as they have what banks don’t have. Therefore, if agency banking can be structured in a franchise model to be run by microfinance, that will represent tripple benefits to banks, microfinance institutions and customers. Branchless banking has been demonstrated as cost effective. In Kenya, Equity Bank proved it by having almost a quarter of its revenue in the year 2010 coming from agency banking. I am yet to see a model that can beat agency banking as business model with so many wins. Financial services in Kenya are now at the remotest areas in the country through agency banking.
Thanks Camilla for sharing these insights with us. It is upto product developers to design products that are easy to understand, affordable and non overwhelming to consumers. If each does their part well, we shall finally wake up to realize how far we are in inclusion. It is a journey and not a destination, with due respect to time targets. Let each party to inclusion agenda play the roles they are good at. No protection will ever be better than financial literacy. No one will ever have a better grasp of consumers and outreach than the fringe provider. And no one will ever have the financial muscle to create products than banks. Finally, no one can reach scale better than microfinance institutions who never shy away from mingling with the consumers wherever they are, rural or urban.