Since launching microfinance activities in 1974, BRAC has grown to become one of the world’s largest financial services providers to the poor. BRAC’s microfinance operations, which include loans and savings, serve more than 5 million clients in eight countries. In 2012, BRAC started a financial education and client protection project that aims to help clients adopt financial behaviors that facilitate their well-being. Shameran Abed, Director of the BRAC Microfinance program, recently spoke with me to discuss BRAC’s work. Prior to joining BRAC, Abed served as an editorial writer at one of Bangladesh’s main English-language daily newspapers where he wrote primarily on politics. He also serves on the Board of Directors of bKash, a mobile financial services platform in Bangladesh.   

Eric: Can you talk about BRAC’s client protection work and what you learned from your project pilots in 2012 and 2013?

Shameran: We wanted to make sure that any clients coming into the BRAC microfinance program could be very well catered to. They should understand what our products are, what our terms are, what our rates are, and they should make an educated decision on whether they want to take our products. And if they do become our members then they should be treated well, treated with respect, and have access to information. I’m not saying that BRAC didn’t have all these things before two or three years ago, but we really wanted to double-down our efforts on these fronts. So that’s why we decided to do more work around client protection, client customer service, and financial education.

Eric: What do you think are the biggest risks facing microfinance clients?

Shameran: From a financial point of view, there are two or three risks that we’re particularly concerned about. One, of course, is something that’s been talked about a lot, the risk of overindebtedness. Bangladesh, although quite a mature microfinance market, is, in terms of overindebtedness, thankfully still quite low. But still I think overindebtedness is something that you always guard against because there is a lot of demand for credit and if microfinance institutions are not careful they can always have issues around overindebtedness of borrowers.

There are a lot of financial institutions nowadays that are kind of fly-by-night institutions that set up shop… Institutions that are typically unregulated. They come in, they offer products, they lure in clients, and then they disappear. I think around these issues the clients need more awareness, and these are some of the things our financial education components try to address.

Eric: How do you think clients’ needs are evolving – in terms of different kinds of services or the ways in which services are offered?

Shameran: From our experience in Bangladesh, for example, the country is unique in that it’s had microfinance for a long time now. What we’re seeing is that the second or third generation of microfinance clients is not happy with just the one or two basic savings and credit products that most MFIs tend to offer. They’re thinking about other types of services, and the MFIs are thinking about what other kinds of financial products our clients need. So, within the last two years, we are starting to think about a broader range of products that we can offer the poor. The rich can have access to insurance, pensions, and all of that. And the poor should also have access to a lot of those products.

Around that a lot of work has been done and a lot of work needs to be done. We still don’t have a large amount of insurance products for the poor. Contributory pension services are in demand because even poor people are surviving much longer. Life expectancies have increased quite a bit in low income countries. And we need those types of products that combat vulnerability in old age, vulnerability in the long run.

Eric: How does BRAC balance its focus between credit and savings? Have you found that one service leads to the uptake of another?

Shameran: Yes, I would say that the uptake of one does lead to the other. The BRAC microfinance program actually started off with a savings side and a credit side. From the very beginning of offering financial services to the poor, BRAC had decided that savings was just as important as credit.

The bankers that we had in Bangladesh, the regulators and the government, allowed microfinance institutions to also collect deposits, and we always found the poor to be very interested in saving, because poor people have very few options or choices in savings at financial institutions. In Bangladesh we always put a lot of effort into developing our savings portfolio. We have a lot, almost $300 million, in client savings. And yes you are right, what we’ve found is each affects the uptake of the other. So those who save also borrow. I think on both sides the one compliments the other.

Eric: Last November, CGAP featured some findings from BRAC’s pilot program with bKash on mobile financial platforms. Have there been any developments or lessons learned since then?

Shameran: We’re actually about to start several pilots on the integration of mobile financial services within microfinance. The report that you saw from CGAP was about a pilot that we wrapped a couple of years ago when bKash was still a fairly new organization. We have to wait and see how the innovations and the pilots shape up. They’re still in the very early days. But my hunch is that we will see some different results now because over the last two or three years people in Bangladesh have become far more used to mobile financial services for many things, not just money transfers, which have become quite widespread, but also using mobile financial services to be billed, to pay for bus tickets, to pay for train tickets. Some of the early problems we had around people not being used to it, not being used to the technology, not being happy with just an electronic confirmation but wanting a hard copy paper slip… All these things I think are going to go away as time goes by, and people are going to feel much more confident and comfortable using mobile financial services.

Eric: To close off, as you know, there’s been a paradigm shift over the past few years from microcredit to broader financial inclusion, with many more players coming into the space to offer a wider array of services. How do you view this evolution and the future of microfinance?

Shameran: I think the shift is very positive for the sector and also for people who use financial services. I think microcredit or microfinance is probably just a way to think about providing financial services to the poor. But the longer we work with poor people and the more we are aware of their needs we realize that there is a lot more that needs to be done in terms of products – savings products, insurance products, possibly pension products – and also in terms of delivery channels. So I think there are going to be different and newer players coming into the space, financial services providers and others, and I think this only bodes well for the client because it’s going to increase choice, potentially make financial services cheaper and more convenient for them, and that can only be a good thing.

Image credit: BRAC

Have you read?

The Holy Grail of Microfinance Research

Microfinance in Bangladesh: It’s Not What You Thought

To End Extreme Poverty? Focus on Integrated Services

> 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 

Have you read?

Innocent Ephraim: On Mobile Money Innovation to Catalyze Innovation

Helping Consumers Understand Their Digital Data

The Synergy Potential of Financial and Energy Inclusion

Kate McKee moderating the panel “Why Financial Inclusion is More Important Than We Ever Knew,” alongside panelist Bill Gajda

In this panel, which began with an emphasis on behavioral economics opened by Sendhil Mullainathan, co-author of the recently-published book Scarcity (reviewed on this blog by CFI’s Sonja Kelly here), who focused on how the reality of scarcity translates into a “bandwidth tax” on people who constantly live in poverty. Research by Sendhil and others has documented how the constant worry and distraction of living with too little – what Sendhil and his co-author Eldar Shafir refer to as “tunneling,” with its intense focus on making ends meet day-to-day – ultimately, affects poor people’s ability to make good decisions. Basically, this growing body of research shows that when people are in a situation of scarcity, they are not as smart, not as able to resist temptation, and are less likely to be able to make and stick to a plan, as compared to themselves in a time of less scarcity.

This scarcity framework and evidence has potentially powerful consequences for financial inclusion. The panel that followed focused on how scarcity, the bandwidth tax, and tunneling affect the relevance, uptake, and usage of financial services by lower-income people. Tine Wollebekk (Vice President of Telenor Financial Services and Board Chair of Tameer Microfinance Bank, the sponsor of Easypaisa in Pakistan) and Kamal Quadir (Managing Director of bKash in Bangladesh) reflected on the experience of these two fast-growing mobile money service deployments, including insights about customers’ underlying demands and how the mobile wallets and other services are designed to meet them, how to make the offerings intuitive and simple, and how to earn trust from customers new to formal finance. Bill Gajda (Global Head of Strategic Partnerships, Visa) rounded out the panel by bringing in findings from deep consumer research that Visa has supported in additional developing countries, as well as experience with different business models and customer interfaces including cards.

Entry products need to be ‘in the tunnel’

One of the key insights was that the entry product needs to meet a really immediate need. It needs to be ‘in the tunnel’ of what the customer is focused on to meet their day-to-day needs. Obviously mobile telephony is firmly in the tunnel virtually everywhere in the developing world. Person-to-person money transfer has also passed the “tunnel test” of rapid uptake in an increasing number of markets – Kamal noted that he felt the company had reached an important tipping point when “bKash” had become a verb commonly used across Bangladesh. Tine made the point of needing excellent execution and recruiting the right kind of agents that customers will trust, in order for customers not to have extraneous worries that would prevent them from really being able to make decisions.

Meeting customers’ needs and tailoring additional financial services

We debated the extent to which the services currently on offer are well designed to meet customers’ immediate needs, be intuitive, and not take too much “bandwidth” to understand and use, since bandwidth is at such a premium for most customers targeted by these new deployments. Money transfer seems to be in this category in a growing number of markets. What other kinds of services will meet these tests? And what can we do to “broaden the tunnel” so those living in scarcity will be open to using a wider range of financial services that might meet longer-term needs and aspirations?

Sendhil had earlier made the point that no-hassle emergency loans – even in very small amounts if they are fast and responsive to typical in-the-tunnel needs – could be really helpful and would definitely be a hit “in the tunnel.” He now contrasted such money transfer and loan products with the cases of agricultural insurance and long-term savings. Each of these financial services is highly relevant and very important to the types of households we’re focused on – someone in their less scarce mind would commit to doing what is needed to secure them. But there are challenges – for all of us but especially for people living in chronic scarcity – to the long-term behavior change that would be required, including sustained focus, discipline, and resistance of temptation.

Mobile money and customers: a gender perspective

Men and women might have different concerns in the decision to take up and use new services such as mobile wallets. For example, in some countries women have been reticent to give their personal details to male agents due to concerns about sexual harassment. In addition, obviously men and women have different money management roles, meaning they fit differently in the household scarcity picture, so that would be important to explore further too. So that’s another key point about getting mobile financial services ‘into the tunnel.’

From scale and uptake to more active usage

This comes up in the mobile money context, if we’re thinking about a customer sticking to over-the-counter transactions (OTC) versus really actively using a mobile wallet and over time being receptive to a wider range of financial services beyond money transfer or payments. At the moment, the usage issue is quite challenging for many of the deployments that have reached some scale. This is a problem from a business profitability perspective and it’s also a problem from a customer value proposition perspective and our long-term vision for full financial inclusion. While acknowledging the challenge, each of the panelists was actually quite optimistic in terms of the examples they were engaged with, where they are seeing positive trends in activity and expect customers to adopt more value-add services over time. They pointed out that inevitably there is a learning curve (for both customers and operators) and that it should not be surprising that those in the tunnel might not necessarily be the early adopters and most active users until they gain trust and confidence (a point also made by Monique Cohen in a comment from the floor).

Panel prediction market

The panel wrapped up with a “prediction market” where each person on the stage was invited to make a bold prediction about the future of financial inclusion. Here they are:

Tine Wollebekk: The 90 percent uptake that we see for mobile telephony will translate over three to four years into a 90 percent uptake of mobile financial services.

Kamal Quadir: We’ll see many more robust partnerships between banks and telecoms – we see this in Bangladesh, where the regulation favors delivery of mobile financial services by banks, given their advantages, but it is important to have a close partnership with the telcos to ensure viable connectivity.

Bill Gajda: Very soon Canada and Bangladesh will look very similar in terms of mobile money adoption . . . and cards will remain relevant in the market!

Sendhil Mullainathan: Just as there were microcredit crises, there will be some kind of a crisis in mobile money such as a run on stored funds. This “scandal!” answer resonated with the audience in the final voting, perhaps suggesting that it is timely for all of us in the innovative finance space to be proactive in identifying potential risks with the new models and finding cost-effective ways to mitigate them.