> Posted by Peer Stein, Director, IFC Access to Finance Advisory 

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.”

Last week’s seminar on digital finance at the 2014 World Bank Group / IMF Spring Meetings convened innovators, private sector leaders, and government representatives to discuss the potential innovative business models and new technologies have in reaching and empowering the financially excluded poor and small businesses faster and with greater scale, while contributing significantly to the World Bank Group goal of universal access to finance by year 2020. The session highlighted the diversity of business models that use technology to reach the excluded market segment, showcased by innovators from bKash in Bangladesh, Airtel Money-Africa, and Berlin-based Mobisol operating in rural East Africa.

I’d like to share three key points that emerged from the forum.

First, multi-stakeholder collaboration is a must.

None of the featured innovators is a traditional bank or financial institution but each one realizes the importance of partnering with banks and other players in this dynamic space. For example, bKash was born from a fusion of BRAC Bank and Money in Motion, and continues to operate as a subsidiary of BRAC Bank, holding 80 percent of the mobile money market in Bangladesh. With such an adoption success within two and a half years, recording 90,000 digital money agents and 11.6 million registered users, in the words of Kamal Quadir, CEO, “bKash is now a Bengali verb [synonymous with ‘to send money’].” Chidi Okpala, Director of Airtel Money-Africa, a mobile money service with an active base of 5 million customers, reinforced that one of the factors of success in this diverse market is the need to position your mobile money service for stakeholder collaboration rather than competition. The real competitor is cash. Walt Macnee, president of the MasterCard Center for Inclusive Growth, emphasized the company’s connecting and collaborative role focused on ensuring interoperable platforms among a diversity of players.

Second, digital finance is a catalyst for expanding access to a variety of other basic services, including water, health, electricity.

Jin-Yong Cai, IFC Executive Vice President and CEO, stated that “the benefits of digital finance extend well beyond conventional financial services.” Other services where digital finance can be a catalyst include agriculture, transportation, water, health, education, and clean energy. This is clearly reflected in consumers’ increased access to off-grid solar systems facilitated by mobile payments technology. Over 1.2 billion people are still without electricity access worldwide, almost all of whom live in developing countries. Many have to resort to unsafe sources of light, such as kerosene lamps that pose a fire hazard and emanate harmful fumes. Mobile based financing mechanisms that support the purchase of solar energy systems, such as those provided by Mobisol, not only eliminate people’s reliance on fossil fuels but allow them to invest their resources in cheaper, safer energy that can expand their revenue streams (if they use the chargers or lamps in the community, for a small fee). Furthermore, the loan repayment data associated with the purchase of these solar systems can support the development of “scores” for otherwise “thin-file” consumers.

And third… there are important spillover benefits: one of them is the collection and responsible use of alternative data.

These technology-based innovative models are revolutionizing the way customers transact, earn income, manage finances, and purchase necessary goods such as electricity. They also hold great promise to help advance financial inclusion through the buildup of “alternative data.” In this context, digital finance has an important role to play for small business. It not only provides access to financing but also to electronic payment systems, secure financial products, and a chance to build a financial history. Airtel’s financial products, including insurance, payments, loans, remittances, and prepaid electricity credit service, offer a spectrum from which consumers can start building a payments history. Other examples are found in electronic marketplaces. Taobao is Alibaba’s (the Chinese internet commerce giant) proprietary marketplace covering the majority of small business and C2C commerce in China. Alibaba used the large repository of transaction data on the merchants selling products on Taobao to generate a risk assessment, similar to a credit score, which has been used to extend loans to these otherwise poorly served or unserved consumers. Another example showcased at the seminar was Grupo Bimbo, a Mexico-based global baking company which through a partnership with Visa Inc. and Blue Label Telecoms, a leading provider of prepaid airtime in Mexico, will help equip MSMEs with the technology to accept debit and credit card payments. The presence of this technology in small “mom and pop” stores will not only expand the customer base of the stores but generate additional data on consumers and the stores, which can then support alternative credit scoring.

For this fast evolving area of digital finance, appropriate standards and regulations should also keep up with the dynamic pace, including guidelines on how data are collected, stored, and accessed. This would add structure to the marketplace and boost provider confidence in working with alternative data. In turn, it could also spur further innovation and ensure customer protection.

For a webcast of the seminar, please click the image above, or here.

Title credit to Arjuna Costa, Investment Partner at Omidyar Network and participant in the digital finance seminar, who coined this phrase during the event discussion.

For more information on Financial Inclusion 2020, sign up for campaign updates.

Video credit: World Bank 

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The flagship mobile money service M-Pesa launched in India last month. The service, which started in Kenya in 2007 and has since expanded to eight countries and 17 million users, will be conducted in India by way of a partnership between Vodafone, India’s second largest mobile network operator, and ICICI Bank, India’s largest private sector bank. India’s unbanked population towers at roughly 700 million.

M-Pesa will roll-out in India in phases, beginning with a first effort in the eastern areas of the country. Across Kolkata, West Bengal, Bihar, and Jharkhand, this initial phase boasts a network of 8,300 agents. M-Pesa in India will include cash deposits and withdrawals, money transfers to any mobile device in the country, airtime top-ups, bill payment services, and the ability to make purchases at select stores. With an initial agent network in the thousands and an unbanked population making up the better part of a billion, the ambitions and scope of M-Pesa in India are indeed large. But before we start mentally converting chunks of India’s 700 million unbanked individuals to banked, let’s take a closer look at a few factors that will affect the service’s success.

Mobile Phone Penetration. India has the second largest mobile phone base in the world with over 900 million users. Though as the average Indian user has 2.2 SIM cards, the number of individual subscribers is actually about 319 million – a population penetration of about 25 percent, and rising quickly. However, subscriptions to M-Pesa are limited to clients of Vodafone. Although Vodafone is the second largest mobile network operator in India, it holds only 17 percent of the market. In comparison, Vodafone in Kenya services about 70 percent of the country’s mobile subscribers, and that market dominance is thought to be one of the major success factors, because it allows most cell phone users to connect with most other users.

Regulation. Mobile money services in India, unlike in Kenya, need to be linked to formal bank accounts. This creates the additional requirement of mobile money users meeting account-opening and other bank guidelines. In Kenya, any Safaricom mobile user can use M-Pesa.

Competition. Along with preexisting mobile money services, such as Airtel Money, which was launched early last year, M-Pesa in India faces competition from the country’s branchless banking industry. Since their introduction in 2006, business correspondents (BCs) have reached an estimated 100 million individuals. Adding momentum, last year the Reserve Bank of India promoted legislation permitting BCs from any one bank to conduct business for other banks, as well. This helped expand the possibilities for MFIs, NGOs, and telecoms, like Vodafone, to partner with banks and further extend offerings of mobile financial services.

I look forward to watching this and the program’s subsequent roll-out phases in the months to come. Will M-Pesa/India grow like it did in Kenya, where it grew to 2.7 million users in its first 14 months? Or will it look more like M-Pesa in Tanzania, which only signed 280,000 users in its first 14 months (though there are now over 5 million M-Pesa subscribers in Tanzania)? Or, being India, will we see the kind of scale we have never seen before? Anyone want to bet on 27 million users by 2014?

Image credit: The Polis Blog

Have you read?

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