Technology Solutions: Testing the Waters

1 l microfinance insights l sept/oct 2008

InterviewC.K. Prahalad on Leapfrogging

CommentaryDigitally Divided?Welcome to the Club

SurveyMaking the Right Connections:Technology and MFIs

Mainstream VoicesIBM, Intel, and Microsoft

Features

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Testing the WatersTechnology Solutions

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5sept/oct 2008 l microfinance insights lwww.microfinanceinsights.com 5

l volume 8 l sept/oCt 2008

Cover StoryAn exclusive interview with renowned business thinker C.K. prahalad on technology for low-income markets and why the “base of the pyramid is not just an opportunity for mar-ket expansion…it is an opportunity for innovation.”

1212

Regular FeaturesNews Board 8

Commentary 10Digitally Divided? Welcome to the ClubJames Dailey

Global viewpoints 16Profiles from Vanuatu, Egypt, Bangladesh, and China survey 28Technology and Microfinance: Making the Right Connections

Resources 48Selected Technology Readings, Recommended Conferences and Workshops

trends 50Indicators on Emerging Market Technologies and Connectivity

Books 52Book Excerpt and Book Review

Branchless Banking Making an Informed Decision: 20Assessing M-Banking SolutionsValerie Rozycki

An Eko Account in 10 Minutes—What’s that you say? 23Lindsay Clinton

outreach Mobile Telephony and the Entrepreneur: 25An African PerspectiveKen Banks

mainstream voices In Focus: IBM and Microfinance 30Interview with Alexander Bloch & Saket Sinha

A Guy on a Bicycle Rides into a Village… 32Practical Applications of New TechnologiesInterview with Aishwarya Ratan

Innovation Increasing Borrower Bandwidth: 34Technology for the Poor through Social BusinessKazi I. Huque

Let’s Make a Deal: Can the Modern Commercial 36Barter Model Work for Microfinance?Peter and Chris Haddawy

Risk Trust on the Line: 38Making the Mobile Channel SecureJohann Bezuidenhoudt

Sifting Out Bad Debtors: Developing Credit Bureaus 41Laurent Lepage

Client Readiness No Customer Left Behind: Financial Education for 43Long-Term Adoption of Branchless Banking Monique Cohen & Julie Lee

events Technology for Financial Inclusion: What Works? 45Ankit Madhogaria

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Leapfrogging the Digital Divide

C.K. prahalad


readers speak

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ERRATA for Microfinance Insights Vol. 7, July 2008 IssueWhile we spend a lot of time trying to ensure the correctness of our publication, an error escaped our attention in the last issue.

In the story, “Calling All Investors!”, we failed to credit the photographer who took the picture alongside the story. The photograph on page 35 was taken by Jamie Rose. Our apologies for the omission.

InterviewJean-Philippe de SchrevelBlueOrchard

SurveyInvestment Perspectives fromMFIs & Investors

CommentaryCommercialization of Microfi nance: Barbarians at the Gate?

Mitigating RiskSubprime Crisis and Microfi nance

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7sept/oct 2008 l microfinance insights lwww.microfinanceinsights.com

Dear Reader,

I’m a traditionalist. I prefer pen and paper to keyboard and screen, dog-eared pages to Kindle machines, hand-written letters to emails, Scrabble to Scrabulous. But, last year I moved to the dark side, and became a BlackBerry® user. Much like becoming a drug user, I couldn’t stop the moment I started. With the shame that accompanies any addiction, I shudder to admit that I can’t live without it. My BlackBerry 8320, a chrome beauty, has Wifi, a camera, BrickBreaker, The New York Times. If I lost her, I would be lost.

And, I know I’m not alone. I’ve seen you, tapping away on your keypad under the table. Answering a phone call during dinner. Checking your email at a meeting. We’re all very close to evolving into creatures with 10-digit touch pads in our palms. If you haven’t started paying bills on your phone and using it for purchases, you will in no time. You’ll buy this week’s groceries, interface with an ATM, and host a bank account—all on a phone that has evolved from a code called Morse.

For people like my mother, who lives on a farm and doesn’t know what SMS stands for (short message service, for those of you wondering), this is perhaps not a welcome change. But, for people at the bottom of the pyramid, life could get easier. On a field visit for this issue, our team saw a pilot that is testing out mobile transactions in a community where the average resident brings in an income of US$150 a month. The program, run by a mobile software firm, enables a mobile user to open a bank account on her/his phone, and make transactions in seconds. Financial inclusion just became a lot more inclusive!

Technology will not only make the lives of people at the base of the pyramid simpler, it could also be the great leveller. Just think of farmers who are already using their cell phones to compete with each other and the middleman on vegetable pricing. Technology could counter generations of economic and social disadvantage with the press of a but-ton. It creates market efficiencies where there was no market. Access where there were no roads. Communication where there was no common language. If poor people are going to successfully compete in a free market economy, they will need to take advantage of technology. They must embrace it, otherwise we are teaching them to fish with spears rather than rods and reels.

Mobile banking is just one of the technologies being tinkered with in order to extend the world of microfinance. In this issue, you’ll find several stories about m-banking because it is the most ubiquitous technology in use, and is the one that holds, in my mind, the most promise for innovative inclusiveness. You’ll also find pieces on open source platforms; credit bureaus; mobile ATMs; IBM; Microsoft and Intel’s forays into the sector; and last but not least, an exclusive interview with C.K. Prahalad, the amazing business mind who believes that technology is going to change the way we learn, not to mention the way we live, trade and communicate.

In an example of life imitating art, our team has also decided to push our limits, and jump into the deep end of wireless everything. We have just entered a partnership with NGPay, a mobile vendor that enables users to subscribe through a mobile phone. By the time you read this, we should have a listing on Amazon.com. And, we are launching a new website: check it out at www.microfinanceinsights.com. These constant improve-ments should serve as a sign that although we practice an old world trade based on pen, paper and printing press, we are trying our best to push the envelope, and stay ahead of the curve or at least be in line with it. We hope you’ll agree.

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Thanks, as always, for reading. We hope you like the issue, the first in our new bi-monthly schedule—we’ll now produce 6 a year instead of 4. We’ll see you in 2 months!

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Technology Solutions for Microfinance


NeWs BOardDollar a Day Poverty Line Revised to US$1.25 a Day August 20, 2008 - A recent World Bank study, Dollar a Day Revisited, has proposed a new International Poverty Line and re-vised it to US$1.25 from the current US$1. The US$1 a day poverty line was proposed in 1990 for measuring absolute poverty by the standards of the world’s poorest coun-tries. The new poverty line was proposed after comparing the mean poverty lines in the 15 poorest countries in terms of per capita consumption. Meanwhile, the Asian Development Bank (ADB) announced its poverty metric, stating that those living on less than US$1.35 qualify as poor.

Muhammad Yunus Asks for 20% of Grameenphone IPO Shares for Grameen Bank BorrowersAugust 19, 2008 – Md. Yunus advised to-day that 20 percent of the Grameenphone shares, in the IPO of Bangladesh’s biggest mobile phone operator, should be reserved for borrowers of Grameen Bank. In July, Grameenphone announced plans to raise US$300m through the IPO. Grameen-phone is a joint venture between Grameen Telecom (38 percent), owned by the bank, and Norwegian telcom company Telenor (62 percent). Yunus suggested the allot-ment be made to a trust to be formed by the borrowers, who had the financial capability to buy the shares.

Study Reveals Majority of Hispan-ics in the United States are Un-banked or Under-bankedAugust 18, 2008 – The latest Americanos Poll®, a collaboration between market re-search firm Encuesta, Inc. and ACCION USA, throws light on the financial attitude and behavior of low-to-moderate income individuals in the US, with special focus on the habits of Hispanics. The study shows that nearly one-third of low-to-moderate income Americans are either un-banked (holding no basic bank account) or under-banked (having a basic bank account and yet relying on less sophisticated methods for everyday transactions such as check-cashing). This problem is particularly acute for low-to-moderate income Hispanics, 53 percent of whom are either unbanked or

underbanked. Only 23 percent of non-Hispanics fall into this category. The survey also finds that only 36 percent of Hispan-ics are “very” familiar with how to build or manage credit, compared to 46 percent of non-Hispanics.

CGAP Releases Technical Guide on Money TransfersAugust 15, 2008 - CGAP has released a technical guide on money transfers that will help financial service providers determine the strategy, products, and institutional structure needed to support a successful money transfer operation. The guide offers a practical, hands-on approach to money transfers and a basic overview of the topic, including the risks involved. It seeks to help senior managers and directors launch new money transfer services or improve exist-ing ones. It also discusses opportunities in the money transfer market, business mod-els for money transfers and evaluates MFI preparedness for money transfer business.

Kenya, Uganda Barred from Par-ticipating in IPO of National Mi-crofinance BankAugust 13, 2008 - National Microfinance Bank (NMB) is offering 21 percent of its shares to public. However, the sale of shares will be restricted to Tanzanian individu-als and companies. The sale is set to end on September 8, 2008. Investors from the three countries were the original members of the East African Community. Reluctance by Tanzania to open up its capital markets to foreigners seems to arise from fears that trading would destabilize the country’s for-eign exchange position. The rules appear to be in direct conflict with the East African Customs Management Act, which requires residents of the three countries be treated as locals when it comes to investment.

38% of Kenyans Have No Access to Financial ServicesAugust 9, 2008 - According to the Central Bank of Kenya’s 2007 Banking Supervision Department report, 38 percent of Kenyans have no access to financial services. A ma-jority of Kenyans lives in rural areas and for them financial services are either costly or rigid. Only 19 percent of Kenyans have

access to formal financial services through commercial banks, building societies and postal banks. The report adds that financial institutions seeking to work in rural areas face numerous constraints, such as poor infrastructure and low education levels. Products of many MFIs are also not well suited to seasonal or longer-term agricul-tural activities. Look out for more data and status updates on microfinance in Kenya and other African countries in Microfi-nance Insights’ upcoming issue focused on Africa.

Hyperinflation Affects Zimba-bwean MFIs Adversely August 5, 2008 – Viability concerns have hit the Zimbabwean MFIs hard and have seen many of them closing shop. Accord-ing to the 2008 half-year monetary policy statement, out of 309 registered institu-tions, only 150 were still operational. Re-serve Bank of Zimbabwe Governor, Dr. Gideon Gono, said a significant number of these institutions had since ceased op-erations and surrendered their licenses. The official added that they had also been affected by rising bad debts as borrowers were increasingly finding it difficult to re-pay. Many more institutions are expected to fold following the unveiling of new minimum capital requirements. MFIs are expected to hold a minimum capital of US$5,000 by August 31.

First Microfinance Bank Opens in LiberiaAugust 1, 2008 - IFC will be a founding shareholder in AccessBank Liberia that will provide financing to the bank’s mi-cro, small, and mid-size customers, many


NeWs BOardof whom do not have access to financial services. This will give a crucial boost to the local economy. The investment will be among IFC’s first in Liberia since the country emerged from a civil war.

MIX Releases Benchmark Tables for Latin America and the Carib-bean ReportAugust 2008 - The Microfinance Infor-mation eXchange (MIX) has released the 2007 benchmark tables for Latin America and Caribbean. These compare perfor-mance indicators for 283 MFIs across 15 countries. The benchmarks are available in English, Spanish, and Portuguese.

European Microfinance Platform (e-MFP) Launches Microfinance Award 2008July 30, 2008 - The European Microfi-nance Award 2008 aims to highlight and stimulate initiatives that represent break-throughs in promoting Social Responsi-bility in Microfinance. The winner will be announced in November 2008 during the European Microfinance Week. An award of EUR100,000 will be given by the Luxembourg Ministry of Foreign Af-fairs - Development Cooperation. MFIs from the South are invited to apply for the award but they need a letter of recom-mendation from an e-MFP member. Joint applications of MFIs from the South with European partners will be accepted.

Application forms and detailed informa-tion about this year’s award is available on the website, www.microfinance-platform.eu or from the Secretariat at: [email protected].

Yunus Slams For-Profit Microfi-nance at the Asia-Pacific Regional Microcredit SummitJuly 28, 2008 - “Poor people should not be considered an opportunity to make yourself rich,” Yunus proclaimed at the Microcredit Summit in Indone-sia. The pro-market faction argues that civic-mindedness alone will never draw enough capital to serve the estimated billion people who want but do not have rudimentary banking services. They also

say that to be sustainable, institutions must be profitable.

MicroFinance Transparency to Publicize MFI Interest Rates & FeesJuly 28, 2008 - Chuck Waterfield, a pro-fessor at Columbia University and Md. Yunus launched Microfinance Transpar-ency, a new self-monitoring organization, at the Asia-Pacific Regional Microcredit Summit 2008, in Indonesia. The initiative will collect information from all micro-credit lenders and store it in a database on its website mftransparency.org. Soon after the new initiative was announced, more than 50 sizable microcredit orga-nizations had signed statements endors-ing it.

Gradatim Launches India’s First Microinsurance Technology Plat-formJuly 24, 2008 - Gradatim IT Ventures recently announced the launch of MF-Insure, an on-demand microinsurance technology platform for India. It com-bines IT Infrastructure and back office services, and is delivered as a Business Process Utility (BPU) on a ‘Pay-Per-Use’ pricing model. MF-Insure can handle products for all lines of insurance busi-ness including life, health, non-life and pension. MF-Insure platform caters to insurance companies, agents, insur-ance brokers, MFIs, banks and other institutions offering microinsurance. It guarantees standardization of processes, transaction, collaborative infrastructure and reduced cost due to multi-tenant operations.

India’s Central Bank Advises Banks to Halt Mobile Payment ServicesJuly 22, 2008 - The Reserve Bank of India (RBI) called on the country’s financial in-stitutions to halt mobile payment services until it has issued operative guidelines. In a notification to banks, the RBI says it is currently compiling and evaluating comments on m-payments following the posting of draft operative guidelines on its website in June. RBI has advised

banks to dissociate themselves from any mobile-based money transfer service, which has not received explicit approv-al of RBI or not covered by any of the guidelines issued. The RBI’s draft guide-lines require mobile payments to follow regular money-laundering and know-your-customer (KYC) rules and adopt the message formats developed by the Mobile Payments Forum of India (MPFI) to ensure interoperability.

MFI, Postal Corporation Part-nership Makes Financial Services More Accessible in Rural KenyaJuly 11, 2008 - Customers of Kenyan MFI Faulu can now access and repay their loans through 330 Postal Corporation of Kenya outlets across the country at no cost. They can also receive and send the money in real time through the corpora-tion’s electronic funds transfer, PostaPay. The service is a result of an agency agree-ment between Faulu Kenya and Posta and increases the MFI’s network by over 370 per cent from its current 70 outlets. The next issue of Microfinance Insights will report on more such innovative partner-ships from the African subcontinent.

Beer Company Launches “Brew-ing the American Dream Micro-Loan Fund”July 1, 2008 - The Boston Beer Compa-ny announced Samuel Adams Brewing the American Dream, a program that aims to partner with low and moder-ate income microentrepreneurs in the food and beverage industry and provide the tools they need to help them grow and succeed. In creating this program, Boston Beer formed a partnership with ACCION USA to pilot the program in New England. Boston Beer has made an initial US$250,000 commitment to es-tablish the Samuel Adams Brewing the American Dream Micro-Loan Fund at ACCION USA that will provide much needed capital to lower and moderate income microentrepreneurs whose busi-nesses would not be approved for a bank loan. n


cOmmeNtary

Digitally

Have we Made Progress?When I started working in the microfi-

nance sector in 2001, I was surprised to learn that there was no “gold standard” for back of-fice software. If microfinance was a simple and easily replicable process of giving a loan and getting it back, why wasn’t there one leading microfinance software provider? Indeed, there were many organizations that claimed to have solved back office and front end issues, but upon closer inspection I found that more often than not, initiatives started with good intentions but fell short of the hype.

Over several years, I looked at dozens of infor-mation systems, and fielded calls from technol-ogy providers from all corners of the globe with new platforms. Over time, I saw many exam-ples of poorly designed systems, but the main problems came in two categories unrelated to technology: one, seemingly effective sales and service models designed on a global scale and localized for dozens of languages; and two, plat-forms customized to the organization’s unique operational methodologies. The third issue per-tained to infrastructure: technologies designed for office buildings in developed countries can rarely be applied to connectivity-challenged, en-ergy-starved, dusty, hot, miles-from-any-techni-cal-person-locations where most MFIs operate. The technology providers were not even close to approximating the needs of the sector.

Today, the market is changing. We see a number of new efforts underway, from Mercy Corps starting afresh with new software via a US$19m grant from the Bill and Melinda Gates Foundation to Crane Software selling Banker’s Realm across East Africa; from open source programs like Mifos and Octopus to several

mainstream companies launching software as a service model on a global, regional or coun-try-wide basis, e.g., IBM and Salesforce. Fern Software and Southern Horizon, who each had a small but meaningful part of the market, recently combined their product lines.

As an MFI manager, what would I make of these developments? What should we, as a sec-tor, make of this? Are we making progress?

Technology is a ToolThe chief question I am asked by microfinance leaders is not, “Should I use technology?”, but rather, “What is the best technology to use?” Or, “Why is my technology project stuck?” Often, by the time I meet with an MFI, the question has become, “How can I replace this drag on my organization’s efficiency?”

It may sound cynical, but my response is of-ten, “Welcome to the club.” It is not merely in microfinance that we find general unhappiness with information technology, for there are many studies that show that technology projects have, on average, quite a poor record of perceived suc-cess. As a technologist, I admit that we have our-selves to blame, at least in part, for over-hyping the technology and under-emphasizing change-management issues.

My advice to MFI managers is to treat infor-mation systems as a strategic strength, or in the absence of one, as a threat. If you don’t have at least a workable system, you have a problem; the earlier you recognize this, the better. If you intend to grow, you will need to provide more and more data to funding agencies and generally become more capable of identifying operational and market risks than you were in the past. This requires “all hands on deck,” as well as solid man-

agement thinking, and cannot be assigned to the guys that fix your PC hardware.

Unfortunately, even when they do all the right planning and analysis, MFIs often realize that either they cannot afford a system or that the systems available won’t meet their requirements. This shouldn’t be surprising. This fundamental problem relates to a typical tension in software systems design: using “enterprise systems” ver-sus commercial off-the-shelf systems (COTS). Enterprise system design, which is a more ex-pensive and tailored approach, requires a close alignment of system logic to the existing pro-cedures of the MFI, while off-the-shelf systems generalize products and workflow, and utilize variable parameters.

Most of the systems available for microfinance try to split the difference, often resulting in costly complexity and unhappy users. Put another way, users are generally happy with software that does what it claims to do—a spreadsheet program—and generally unhappy with code that attempts to match all areas of functionality.

While a few MFIs have managed to build their own systems internally, the history of informa-tion technology is against them, and eventually market pressures will push them out of the busi-ness of building their own.

On the Horizon Mifos, the open-source project I helped dream up with input from several MFIs, attempted to solve several of these dynamics by giving some amount of flexibility to the MFI, while retain-ing a set of core operational and transactional aspects for a common platform. Unfortunately, for many reasons, the Mifos value proposition has failed to materialize (as of yet) as a driving

technology can be an instrumental tool in the scalability of a microfinance institution. most organizations realize early on that they need a strong management information system (mIs), but many struggle to find one that can be properly implemented and operated by staff in challenging work environments. James Dailey, creator of the open-source microfinance technology mifos, looks at where we have been, and asks where we are headed.

Welcome to the ClubDivided?


cOmmeNtary

force for locally-driven software evolution. Until a significant number of global vendors profitably leverage a solid, open Mifos core that provides a highly scalable system to MFIs, the critical mass necessary for an open source model cannot be developed. It may be that such a model is not possible given the competitive nature of MFIs and vendors, but to date this has not been prov-en either way. Perhaps Grameen Foundation is right to consider privatizing the ongoing devel-opment in a for-profit model, but without more MFI participation in this process, I fear that the industry will lose an opportunity to explore a public-good approach to what is certainly a basic infrastructure need for microfinance operations: transaction tracking.

Filed under the category of “Didn’t Expect to See That” is the news that MFIs are looking more seriously at big ticket banking software, and most significantly, banking software providers are looking back. As MFIs grow and become more aligned with banking standards, and banking software providers look for new markets, there is more convergence in features available and relative affordability. This is good news for those players large enough to pay US$1m (or more) for

a system, although much less useful for many of the small and medium sized MFIs out there.

Shared Platforms, a type of “outsourcing,” has received attention lately, and takes a more streamlined approach, essentially providing a lower cost way for MFIs to handle a set of op-erations in a typical fashion, but without the in-depth level of business logic customization found in an enterprise solution. These shared platforms, whether at a regional or country lev-el, require stable online access and thus, at this time, fail the general filter for MFI managers, who see “always on” connectivity as unrealistic in their head offices, let alone the branch offic-es. There are hybrid approaches with a certain amount of offline capabilities, but fundamen-tally computing moves off site. Salesforce has an “on-demand” model that allows users to pay only for the number of users needed, and has a microfinance edition with some basic features for microfinance on top of their solid platform. Microbanx tried this model several years ago and it didn’t take off in a big way—but timing is everything, and perhaps now connectivity has reached an important inflection point.

This brings us to mobile networks and the

ubiquitous data connections they provide. As we enter an age where the mobile phone is used by more than any other information commu-nication technology that has come before, we should contemplate just how remarkable it is to see finance for the masses converge with ICT (Information and Communications Technol-ogy). While we have seen plenty of hype around this as well, we are also seeing a growing set of players who are building single-purpose transac-tion models on the mobile phone. These include a surprising market for ringtone purchases, top-off value transfers, and remittances. These are models that actually work and earn good returns for investors today.

Can microfinance for the masses be executed on a largely impersonal basis via phone or is the loan officer an essential element? Can MFIs forgo the branch model entirely? Will we see a few large global MFIs serving most of the BOP with banking systems paired with mobile tech-nologies? Or a plethora of small players creating endless new models in new markets with new services?

Technology enables us to ask these questions. These are exciting times. n

James Dailey worked at Grameen Foundation from 2001 – 2007 and founded the Mifos Initiative. Since then he has launched Micro Energy Credits (www.microenergycredits.com), and worked as a consultant to microfinance organizations in a variety of countries. He has nearly twenty years of experience in information technology, starting with an undergraduate degree in information systems from the University of Notre Dame. He began his career as a Peace Corps volunteer in West Africa, and has traveled extensively.

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Professor C.K. Prahalad shares anecdotes and predictions about technology innovation for microfinance

Microfinance Insights (Insights): What is it in your background that has compelled you to

think about new solutions for the bottom of the pyramid (BOP) when most other people are think-ing about the top? C.K. Prahalad (Prahalad): It is two things, very sim-ply. One, you cannot be a global citizen and not be concerned about four billion people who live below US$2.50 a day. Number two, you find that if we can somehow convert four billion people into micropro-ducers and microconsumers, a whole new world of opportunity for global growth becomes obvious.

Amul [the largest milk cooperative in India] is a simple example of microproduction: village-based origination, and world class processing and market-ing allow 2.2 million farmers to create the world’s largest milk processing system, producing 6.4 billion kilograms of milk per day. This has transformed vil-lagers into microproducers without removing them from their villages.

The other side of it is creating microconsumers. Whether it is microconsumers for loans or microcon-sumers for fast moving consumer goods (FMCG), the market opportunity is huge. Since you’re in India, just imagine if every family received an INR 5000 credit (US$113). Suddenly, you have 200 million families with INR 5000 each. That is a huge number [nearly US$23bn]. That is the potential of the BOP. It’s just common sense in a very interesting way.

If you can create a transparent system for bringing the unorganized into the organized sector, there is

C. K. prahalad, renowned author, university of michigan professor, and one of the top business strategists in the world, is best known for his pioneering approach towards poor people at the “bottom of the pyramid” (Bop). In his 2004 book, Fortune at the Bottom of the pyramid, prahalad encouraged companies to view the four billion poor people around the world as an underserved market of consumers deserving of unique products and innovations. prahalad’s newest book, the New Age of Innovation, speaks to the need for customers to be treated as unique in-dividuals, not segments or groups, and the imperative of implementing social and technological infrastructure in order to build an innovative business advantage. microfinance Insights spoke with professor prahalad about his perceptions of technology innovation for the Bop, and shared his predictions about the future of technology in mi-crofinance around the world.

Sketch by Ranjan Banerjee

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Prof. Prahalad: “You cannot be a global citizen and not be concerned about four billion people who live below US$2.50 a day.”


a huge growth opportunity and innovation op-portunity to create new solutions as well as new technology applications to mobilize this large population.

Insights: Who should take the lead to reach the BOP with new technologies? Telecom providers? Engineers? Mainstream banks? Microfinance institutions (MFIs)?Prahalad: To me, the person or group that can take the lead are the people who see the oppor-tunity first. Traditionally, NGOs have been what I call “proxy experimenters.” They have been led by highly educated people, very close to the com-munities they serve; therefore, they understand the needs and the opportunities, and they are able to provide solutions. But often, NGOs are unable or unwilling to scale their solutions to go beyond the specific communities with which they are involved.

So, how do we create solutions that are scale-able and replicable inside large and complex countries to create global opportunities?

In fact, if you stop and look, the problems that we face at the BOP provide unique and interest-ing solutions. For example, most poor people do not have access to a bank account. Since they are unbanked, they can’t be part of the organized sector. But, they do have access to cell phones, and now that enables them to be connected.

You see, a prepaid phone card is nothing more than an American Express card, traveler’s checks, or a Visa in your hand. So, why not al-low a borrower to execute small transactions through SMS, which is what Globe Telecom does in the Philippines. Essentially, they have said, “Why should money only be used to purchase minutes—why can’t it be the equivalent of cur-rency?” So the idea is to figure out the security (See “Trust on the Line” on page 38), and once you do that it can become a great success story—which it has.

One thing leads to another. And these emerg-ing countries are leapfrogging over the more ad-vanced countries in this way. Companies doing this include Globe Telecom, ICICI Bank, State Bank of India—all of them are using mobile technology and biometric technology to leap-frog.

Insights: So, really, we’re talking about tech-nology as the driving force? Prahalad: No. It is not only technology firms who need to drive innovation. ICICI in India is not a tech firm, it’s a bank. They are using the access to cell phones as a way of enlarging the scope of operations.

Let me give you another example. There is an organization experimenting in rural Mahar-ashtra [a state in India; Mumbai is the capital], where they give a mobile phone to a farmer for about INR 170 (~US$4) a month, and in return the farmer can access market prices of vegetables and fruits he sells or find out weather conditions; therefore, they can manage how to harvest, when to sell, how to price, and how to deal with in-termediaries in an intelligent way. The people they are dealing with had all the information before. They exploited the farmers. Now, there is a disintermediation, because farmers can get access to the information directly, and make a huge profit. The technology is the tool, but the end user is driving the innovation.

Insights: As you said a moment ago, emerging markets are leapfrogging developed markets when it comes to the application of technology for banking. What can the West learn from markets like India and the Philippines? Prahalad: I think that a lot of Western compa-nies are involved in some of these innovations—like Unilever, Cisco, IBM, Intel (See IBM inter-view on page 30). They are all involved in these markets and are experimenting significantly. Therefore, some companies are very tuned in to what is happening. But, some companies are not. I believe that the companies that are clued in will have enormous benefits, and will take that knowledge back to the rest of the world. To me, the base of the pyramid is not just an opportunity for market expansion…it is an opportunity for innovation.

Insights: Some of the companies you men-tioned like Intel, IBM, and Microsoft (See interview on page 32) are looking at the mi-crofinance space, but their solutions don’t al-ways fit small, sometimes unstructured MFIs. What can be done to create more appropriate technologies for MFIs that actually work ? Prahalad: I think we must be very clear that there are 3-4 layers of technology solutions in microfinance. The first layer is the individual borrower, and her ability to participate in the

formal system. You must ensure that if he/she is not educated, she is not denied access to the banking system. That is where biometric identi-fication or smart cards, or voice-activated ATMs can work. That is the very first level of technol-ogy innovation, and probably the most difficult to accomplish.

The second level is comprised of the tools re-quired for individual self help groups (SHGs) to keep track of their accounts and make sure that they are transparent and auditable at all times. This requires very simple accounting tools that one or two members of an SHG can be trained to operate. They need to be networked so that there is a common platform for all of them.

The third is how to securitize all loans that have been given to hundreds of thousands of people across the world and bring them into the modern financial services sector. It becomes an entire ecosystem.

So, you need different levels and different kinds of technology investment to make the en-tire ecosystem work. We need to think about the individual, the group level, the system level and how to connect them in a seamless fashion so that everyone gets a higher level of capacity and ease of use, better verification of transactions, and better security.

Insights: Many low-income customers are reluctant to use mobile banking technology because it’s “low-touch.” They want in-person contact, hand-written confirmation, etc. What do we do when the end-user doesn’t want the technology we provide?Prahalad: I think that may be an assumption worth examining. For example, people have no problem accepting cell phones or ringtone downloads or sports scores on the phone—they understand it, get enjoyment out of it, and are willing to pay for it. They are willing to un-derstand how to use text messaging as a way to transfer small amounts of money. They are willing to use a voice-activated ATM if it is avail-able. In other words, people must see benefits

“The base of the pyramid is not just an opportunity for market ex-pansion…it is an opportunity for innovation.”

- C.K. Prahalad

“If they do not see benefits, but they see risk, they will not adopt the technology. It has nothing to do with technology, it’s just a mat-ter of whether they can see the benefit and whether the benefit is worth it to them.”

- C.K. Prahalad

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that are clear and very obvious. If they do not see benefits, but they see risk,

they will not adopt the technology. It has noth-ing to do with technology, it’s just a matter of whether they can see the benefit and whether the benefit is worth it to them.

Villagers around the world have no problem accepting electronic voting booths—and that’s pretty high tech. So, the question is, if they can accept electronic voting booths, and hundreds of millions of people go to the polls without com-plaint, why can’t they accept mobile banking technology? There is nothing inherently good or bad about technology, even for the poor. It is the quality of benefits they get that make the difference.

Our job is to have high tech solutions with what I call, “soft touch”—high touch and high tech. So, if you only have high tech, without high touch—or obvious benefits without ease of use—then it’s not going to work.

Insights: There is some concern in the mi-crofinance community that the advent of m- banking could destroy the social element of microfinance—thus removing some of the most celebrated elements of the sector: wom-en’s empowerment and strong community net-works. How concerned should we be about technology breaking the “ties that bind”? Prahalad: Let me start by saying that the same technology that was supposed to break the social framework is now creating a new social frame-work—it’s called MySpace and Facebook.

But, I am not suggesting that SHGs, commu-nity ownership, peer pressure, group meetings have to be sacrificed. I think you will still have SHGs meeting, discussing, and making deci-sions on which woman gets a loan. All of that can still happen, but with improved technology the transactions can be recorded in a transpar-ent, auditable and permanent way so that the system has integrity.

In fact, [technology and social networks], these are compatible goals. Actually, you may just create a more trusting environment because whatever has been paid, whatever transaction has been executed—anyone can have access. It’s a stronger system.

So, in other words, the quality and localization of services increases because you have access to technology—not the other way around.

Insights: In your most recent book, The New

Age of Innovation, you write about the move towards N=1, conceptualizing the customer as a unique individual with specific needs. How can a small MFI, or any MFI for that matter, put the N=1 thesis into play? Isn’t it costly and time-intensive? Prahalad: Actually, SHGs are already a great example of N=1. With 15 women, the group decides what projects are approved and how much money is given. They have created unique transparent systems at the lowest levels. There is not somebody sitting in a big office deciding whose loan gets approved and whose doesn’t. Microfinance has already created a personalized experience. The person that gets the loan knows exactly why. SHGs in microfinance are one of the best examples of N=1.

Insights: But, what if I’m a Latin American MFI loaning to individual borrowers, not groups? Prahalad: If you are loaning to individual bor-rowers, it requires a different approach, with more counseling and questioning. If the goal is to truly know your customer, then you must establish a personal relationship; you must go beyond filling out a standardized form, because that does not lead to personalized customer re-lationships or N=1. You can use forms and use technology, but you must establish a personal relationship.

N=1 is taking place everywhere in India; you see that when you go to a dhaba [in Hindi, dhaba is a place for eating]: you tell him, “A little more salt, a little less chili, a little more oil.” What I’m basically saying is reclaim the culture of the dhaba—know and cater to your customer—but create the efficiency of the industrial system.

Insights: You have said that successful busi-nesses require a company to acquire outside resources at low cost. I think of this when it comes to MFIs bringing more products to the poor—they shouldn’t have to build everything in-house. They can utilize partnerships with other organizations to bring in resources.

When MFIs think about adding technology or creating new products, for example energy products, what sort of partnership models should they consider? Prahalad: Take energy. Are you familiar with the work of BP in India? They created and are selling a cooking stove and fuel pellets, and working with NGOs. It is a collaborative rela-tionship. BP is not doing everything. It’s a new model where both the NGO and the corporate supplier are intimately involved. So far they have sold 300,000 of these stoves, which means no smoke in homes, efficient burning, world class technology, and all at affordable prices.

Insights: Some MFIs think, “This isn’t my core business. We give loans to the unbanked. Why do I need to think about other products and technologies?”Prahalad: Sure, you can provide money—which is not a bad business—but if you want to increase human productivity and improve quality of life, you have to deal with five core industries: one is access to credit—but that’s only one. The second is access to energy; energy improves and increas-es personal productivity. Third is connectivity and access to information which reduces asym-metry of information—which is an indirect sign of poverty. Asymmetry of information is why poor people are poor. Fourth is access to health-care; and last is education. Those five together increase personal productivity, and therefore im-prove quality of life. We have to focus on all five to improve the human situation. But the same institution does not have to do all five itself. It can work with other companies and NGOs to bring these solutions to customers.

Insights: How do you develop successful products for the poor? Many of the designs are coming out of the West…can we trust the West to design or should the consumers cre-ate them? Prahalad: I don’t believe it is an either/or ques-tion. If we let each community decide what is good for them, they may create a phenomenal solution that isn’t sustainable. On the other hand, if you let everything come from the West, you may end up with a totally inappropriate solution. Neither needs to be done to the exclu-sion of the other. Why can’t we co-create the product and services? For example, when we created the cook stove, we took it to villages and talked to women about how the design could

“…connectivity and access to in-formation reduce asymmetries of information—which is an indirect sign of poverty. Asymmetry of in-formation is why poor people are poor.”

- C.K. Prahalad

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be improved. But, one has to constantly worry about scale.

When you create new solutions for the BOP, you have to embrace the constraints of a poor coun-try, rather than ignore them. For example, you have to make a product affordable—that means you must offer, for example, cataract surgery, for US$30-$40, not $3000. You also must provide universal access, which means you have to go to villages, because that’s where people who need access live. Third, you have to make your prod-uct or service world class, so that you don’t give poor people less than what is available in the US or the UK for the rich.

You must start by thinking about price per-formance, scale, world class quality, and univer-sal access. These are the elements which you will be constrained by when you set out to create a new business model for the BOP.

The development of these solutions can

take place anywhere, the developers could be anywhere, but they must deeply understand the constraints.

Insights: Regarding technology and the BOP, what do you predict we will see in terms of growth or change for the next decade? Prahalad: Right now, we see individual com-panies that are experimenting at each level and producing minor technology breakthroughs…but very few have really pulled them all together. Individual MFIs can do it, but the investment re-quired for building the entire system far exceeds the benefit they will get. So, what we have now is a lot of little systems with more or less similar characteristics, but each one thinks it is superior to the next.

I think that in the near future, we will have one or two competing systems emerge that work for each country or region that is easy to use and low

cost. I think it’s maybe two or three years away, but I’m absolutely convinced it will happen.

And, I’m not shy in making predictions. I also have a prediction of what India at 75 will look like: in 2022, I foresee 200 million graduates and 500 million professionally trained people. That means there is a very high level of technology-mediated education that needs to be done. We cannot just increase the number of teachers and schools—we have to think of ways to improve the quality of education.

Insights: Would you graft those projections onto other developing countries around the world? Prahalad: If we can do it in India, even if we get modest results, people in Brazil, South Africa, Turkey, all of South East Asia, Africa, they will figure out how to do it as well. They will learn how to do it as well. n

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To market, to market, to sell a…Who: Ma Jianlu, Greenhouse farmerOrganization: Planet FinanceWhere: Shaanxi Province, ChinaTechnology: Cell-phone provided through PlaNet Finance in collaboration with Qualcomm and China Unicom

China is the world’s largest mobile phone mar-ket with approximately 500 million subscribers. However, like most developing countries, the concentration of technology is greater in urban areas. According to the International Telecom Union, China’s mobile penetration in 2007 stands at 41 percent, though according to the Ministry of Information Industry, this figure can be as high as 90 percent in some urban areas. The enormous potential this market holds is perhaps the reason why PlaNet Finance, in partnership with Qualcomm and China Unicom, chose to run a pilot project offering microfinance loan officers or borrowers mobile handsets on which they receive critical information on weather, product pricing, loan information, and more.

The project, started in 2006, is currently under way in the three Western provinces of Shaanxi, Guizhou and Ningzia. Qualcomm, a California-based provider of wireless chipsets technology, contributed the 2000 handsets being used, while China Unicom donated recharge vouchers with up to two years of airtime.

PlaNet Finance will soon conduct a survey along with Qualcomm, to evaluate how the technology is being used on the ground. Micro-finance Insights reached out to PlaNet Finance to gauge how the project is being received by

the end users. Ma Jianlu is a greenhouse farmer based in Shaanxi. He earns RMB 1000-1500 (US$145–220) per month, and uses the China Unicom connection for his business.

Interviewer: Have these handsets changed how you buy/sell your goods? Do you use the same channels and market to buy/sell?Ma Jianlu, Farmer: Yes, it has definitely changed. Now I am the key person who is in charge of contact with outside buyers and I negotiate sell-ing prices with them. The handset can help me contact buyers in Xi’an to set a price and coordi-nate pick-up times for my vegetables. I use this handset to call my neighbors and collect their goods in order to sell to buyers [in bulk]. I use multiple channels to sell my goods, including

the internet.

Interviewer: What activities or information has the handset enabled you to access this year?Ma Jianlu, Farmer: Everyday I can receive in-formation about the weather forecast, which is very useful, especially for our greenhouse plant-ers. Last year, I got information that told me the temperature would drop early the next morning. After I got this message, I went to my greenhouse and kept it warm; that helped me keep my veg-etables in the greenhouse alive. While other vil-lagers’ vegetable died, I found the handset really helpful to me, so I tell other people to use the information which handsets provided.

When the mobile phone revolution took over the globe in the late 1990s few imagined the multiplicity of its us-age today. the instrument of peer-to-peer (p2p) communication has moved beyond its original realm and its

increasing ubiquity is only making it more applicable to a host of services—from weather updates, to booking tick-ets online, to opening a bank account. sensing the opportunity, mFIs, financial service providers, technology firms and a whole host of actors are experimenting with ways to use technology to tap into the bottom of the pyramid (Bop).

microfinance institutions are also making an effort to modernize their back-end framework by implementing new, more advanced management information systems (mIs) that help them track loans and borrowers on a large scale. When these systems work, they can be the foundation stone of expansion. But, when they fail, they can hamper the progress of the mFI and discourage them from trying other new technologies.

microfinance Insights spoke to people around the world—a Chinese farmer, an American technology provider, a south pacific mFI branch manager, and an egyptian NGo director—to find out about the technologies they are us-ing, and how it is helping or harming their business.

Global Viewpoints

Ma Jianlu, Chinese Farmer


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Interviewer: Can you describe how these handsets may have helped you save money? Ma Jianlu, Farmer: Before I got this phone, I could only sell my goods to local market where prices are much lower than faraway markets. If I need to sell far from our market, I must take a train. I seemed to earn more than at the local market, but actually I got the same price after transportation cost. Now I can earn more be-cause I can sell to remote markets through the handset.

Interviewer: Do you have a landline or other communication device in your home?Ma Jianlu, Farmer: I have a computer that can get online which PlaNet Finance donated to me in 2005. I use this computer to get agriculture updates on market prices and other useful infor-mation. I also use it to communicate with outside people, using QQ and MSN to chat.

Push-Button BankingWho: Carol Realini, Founder and CEO Company: Obopay, USAWhere: Bangladesh and Mumbai, India Technology: Mobile phones with Obopay soft-ware that enables financial services

On August 5, Grameen Solutions Ltd., the tech-nology company and member of the Grameen “family” of companies, and Obopay, the US-based mobile transaction company, launched the “Bank a Billion Initiative” to use mobile technol-ogy to deliver banking services (savings, cross-border remittances, money transfer, payments, and micro-credit) to a billion of the world’s poor-est people by 2018. Grameen, of course, is no novice when it comes to bringing mobile tech-nology to the poor. Grameenphone, launched in 1997 as a partnership between Grameen Bank and the Norwegian telecom operator Telenor, is the largest telecommunications operator in Bangladesh. Grameen Village Phone, launched

concurrently with Grameenphone, provides jobs to several hundred thousand “phone ladies” in rural areas. Combining mobile connectivity with an efficient microfinance network, Bang-ladesh makes for an ideal launch pad for a new mobile technology partnership.

India is no stranger to microfinance either, with a burgeoning sector that is spreading from the oversubscribed southern states to more northern states. Mobile phone purchases are also growing at all income levels. According to a 2007 research report by Gartner, mobile phone production in India is expected to reach 107 mil-lion units in 2011.

Carol Realini, Founder and CEO of Obopay, shares the rationale behind the partnership.

Insights: What is the roll out plan for imple-menting the mobile technology in Mumbai and Bangladesh? Realini, Obopay: Services in Mumbai and Bangladesh will begin in October of 2008 with a core team in each region determining what works and what doesn’t in a real-world applica-tion. The knowledge gained from the initial trial will be used to develop a “Center of Excellence” – a resource with knowledge and information to be shared as Grameen Solutions and Obopay move forward with their initiative in other de-veloping countries, and for other MFIs to consult in establishing their own programs.

Insights: Why have these locations been cho-sen?Realini, Obopay: Obopay, Inc. launched Obo-pay India, a wholly-owned subsidiary in March 2008. Because Obopay’s service is already avail-able in India, the infrastructure, technology, bank and wireless partnerships, and compliance requirements are already in place. Obopay and Grameen Solutions, based in Bangladesh, deter-mined that Mumbai and Bangladesh were ideal first markets both because there is a need for mi-crofinancing and as a way to reach segments of the population who do not have access to banks, and because they are regions with which Obopay India and Grameen are familiar.

Insights: Why use mobile phones instead of ATMs or POS devices for rural banking? Realini, Obopay: The majority of people in developing countries, particularly those who benefit from microlending programs like Grameen’s, do not have access to banks – areas

are too remote for a bank to open a branch, and sometimes ATMs are also not possible due to the connectivity required to connect them to a network.

Mobile phones, however, are nearly universal, and even people in the most remote areas in the world are able to access a mobile phone signal and provider. Until now, most microlenders working in these geographic areas have had to hand-deliver bags of cash, a long and potentially dangerous process. People are already familiar with mobile phones so it doesn’t take a lot of in-troduction to a new technology, just a new way to use your phone for banking purposes.

When Technology Fails Who: Yvette Andrews, Branch ManagerOrganization: Vanwods Microfinance Inc. Where: Vanuatu, South PacificTechnology: An MIS that doesn’t suit the small organization’s needs.

Yvette Andrews is a branch manager at Vanwods in Vanuatu, an island in the South Pacific. Like many small island nations, the country’s econo-my is based primarily on small-scale agriculture. Economic development is slowed by depend-ence on relatively few commodity exports, vul-nerability to natural disasters, and disconnected markets because of its island geography.

Vanwods has been in operation as an NGO since the mid-1990s as part of the Vanuatu Plan of Action for Women. It only started to offer microfinance services in 2004. Because it is still a young organization, and operates in fairly re-mote settings, Vanwods can’t claim to be a part of the “IT revolution,” but getting a strong MIS in place is a priority.

Insights: Tell me about where you work.Andrews, Vanwods: Vanwods has a main branch which is in the capital [Port-Vila]. They have about 1,900 members. I work at a branch in the second largest town on an island called Santo, and we have about 1,030 members. So, nearly 3,000 borrowers.

Insights: What MIS system is Vanwods cur-rently using? Andrews, Vanwods: The headquarter uses a proper MIS called CommonCents (www.com-moncents101.com)—a program from the Phil-ippines that a former manager brought in. They aren’t happy with it and are trying to find a better

Carol Realini, Founder Obopay


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one, but cost hinders us from getting a better one, and a quicker one. Right now they are speaking with CommonCents, and meanwhile, those of us on the island are just using Excel.

Insights: What challenges do you have with your current MIS?Andrews, Vanwods: I’m not sure why it’s not working for us. We know that other people are using CommonCents and using it quite well, so we may have just set it up incorrectly. But, we’re just not happy with the reports we’re get-ting. Some parts are okay, but when we have to report to members or to the board, we’re just not getting correct, accurate information.

Insights: You’re currently using Microsoft Excel. Do you prefer to start using a more advanced MIS? Andrews, Vanwods: We would, if it worked. I think right now we’ve just stopped trying, be-cause the one being used in the capital is not working, and we don’t want to mess everything up. We’re quite happy to use Excel until we find a better MIS.

Insights: What about other technologies for your clients? Are any of your clients using mobile technologies yet? Andrews, Vanwods: We’re not as advanced as the rest of Asia, so technology is very limited. We don’t use ATMs much—they’re only used by those who work in the government or private sector, but not so much for the disadvantaged. Mobile phones are a possibility, but we haven’t come to the point where they use phones to pay loans and savings, like some of the other Asian countries do. In Fiji, they are trying to set it up because they already have a system in place that enables mobile phones to do payments, but we’re not quite there yet.

Insights: A lot of MFIs have started to use POS devices. Are you using handheld devices?Andrews, Vanwods: No, we’re not there yet. What’s different about us is that we’re very small, very far apart from everyone and are dealing with very poor infrastructure--costs for electricity and water are very high. It’s just very difficult and very expensive, so the organization is trying to make sure that we make enough profit to keep going. We’re really still just starting, and focusing on our core services—providing microcredit for our borrowers. Our branch just started last year;

we serve 98 percent women and 2 percent men, providing savings and loans.

Insights: In the future can you see that you might invest in a new MIS or start to bring in some of these new technologies? Andrews, Vanwods: It is one of the main goals of our board right now—to get a proper MIS. But, it’s just a matter of finding one that costs a reasonable amount, but provides quality infor-mation. For us, that’s hard to find. Connecting is hard. If we have problems with our MIS, it’s hard for any company to help us because we’re so far away. What we have experienced with our cur-rent system is that they are not quick to answer when we have a problem. We tried to get one in Australia, which was closer, but again it was the cost that held us back.

Insights: Right, and a lot of technology com-panies are working on products suitable for larger, more mature MFIs, but not necessarily for very small organizations. Andrews, Vanwods: I think that technology companies in Asia are looking toward the bigger MFIs in Asia. The Pacific MFIs are very small. Papua New Guinea has a number of people in microfinance, with over 9 MFIs, and over 50,000 borrowers, and that is quite big when you con-sider that their total population is about six mil-lion. Our population is 219,000 and we service over 2,900. We are reaching just 1-2 percent. But the emphasis on everything here is on the bigger Asian MFIs and not the smaller ones.

90,000 Tracked and CountingWho: Florette Makram, Deputy Executive Di-rector for Information Technology and Consul-tancy ServicesOrganization: Alexandria Business Association (ABA)Where: Alexandria, EgyptTechnology Used: Loan Tracker, a product de-veloped using ABA’s 16 years of experience in microlending.

Microfinance in the Middle East/North Africa region is characterized by donor dependency, low market penetration, and limited integration with the financial sector. Egypt’s national strat-egy is now seeking to coordinate the efforts of the government with donors, MFIs and other players in the sector, such as the Social Fund for Development and the Egypt Microfinance Network.

Egyptian microfinance services are mainly limited to credit and to a smaller extent, sav-ings. The Alexandria Business Association is a non-profit foundation that supplies small- and micro-enterprises with credit and supports their growth. ABA has been in operation for nearly twenty years, and has used that experience to build Loan Tracker, an MIS product now used by 46 branches.

Insights: What lessons has ABA learned since beginning to implement MIS technology?Makram, ABA: ABA has built its “Loan Track-

ABA-loan tracker


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er” from the beginning of the project. It was de-signed in-house through our technical team and built based on real market needs. It translated all strategies and policies of ABA and constituted a statistical and analytical module that grew as ABA expanded. It helped in the process of the evaluations on different levels, starting from credit officer evaluations to group managers, branches, and governorates, and finished with the complete evaluation of the whole project. The system is now monitoring the perform-ance of 46 branches with an active portfolio that exceeds US$26m and more than 90,000 active borrowers. These figures reflect the size of the Loan Tracker system and its ability to perform all operations and evaluations.

ABA has learned over time that MIS technol-ogy is a key tool for success as there are many different figures and indicators that a user can spontaneously break down and analyze to solve a problem before it grows.

Lesson #2: ABA’s expansion into now 46 branches working in 6 different governorates

could not have been achieved without the pres-ence of an excellent information system.

Lesson #3: It is very useful to have your in-formation system from day one to track proce-dures and to have all validations to your portfolio online with the procedures. This will minimize fraud, reduce the loan cycle time, and will let you reach a good performance level.

Insights: Have you provided sufficient techni-cal support to enterprises that use ABA Loan Tracking System? If so, how do you provide this support?Florette Makram, ABA: Yes, the system is in-stalled at many NGOs inside and outside Egypt. Many NGOs have realized that the system devel-oped from real market experience which trans-lates to their needs and growth demands.

We give technical support either through on-site training or remotely. In case of any failure or viruses, the ABA team can link to any NGO remotely to solve the problem. Also, telephone, fax, and email are available for any technical as-

sistance.

Insights: What technology does ABA plan to implement in the future?Florette Makram, ABA: ABA is now study-ing to apply Biometric technology in our Loan Tracker system. We have applied credit scoring technology as well. We are expecting to increase our outreach, minimize the time of our loan cy-cle and hence increase our loan disbursements. We currently have four releases every week and our target is daily releases to our clients. n

Visit www.microfinanceinsights.com to read responses from Brian Rich-ardson at WIZZIT in South Africa and Uyanga Zaankhuu from Xac Bank in Mongolia.

Contributors to this section include: Lindsay Clinton, Jerilene Creado, and Ranjit Koshi.


Making an Informed Decision:Assessing M-Banking Solutions

With the rapid growth of mobile payments in countries like the Philippines, Kenya,

and South Africa, microfinance institutions (MFIs) are increasingly exploring models to use these systems to reduce delivery costs, lower cash delivery risk, and improve back office operations. Other countries, like India, are also seeing sig-nificant activity in mobile payments, with the Reserve Bank of India about to formalize regula-tions. According to recent research by CGAP, the net benefit from branchless banking models such as mobile payments and agents can be as high as a 50 percent reduction in outreach costs.

Beyond the cost savings, security and trans-parency improvements for MFIs, the benefits of mobile payments for microfinance borrowers can be even more compelling and revolution-ary. Empowered with the ability to receive dis-bursements and repay loans electronically via the mobile, the mother of a child may stay home and receive her loan remotely instead of attend-ing a weekly meeting. With an immediate and accurate record of her transactions, her MFI has an accurate and detailed record of her financial profile qualifying her for more individualized financial services. If her local merchants were incorporated into the mobile payments frame-work, the broader ecosystem would benefit from cost savings and reduced risk from eliminating cash.

This may be a utopian view, but with today’s technology and growth in mobile phone pen-etration, the only roadblocks to achieving this vi-sion in the near future are business relationships and customer adoption. As the industry evolves towards this cashless utopia, mobile payments can solve immediate microfinance challenges. For example, mobile notification and borrower authentication combined with a network of mi-

crofinance cash disbursement agents reduce the risks and costs of cash handling.

As MFIs employ mobile payments solutions to address today’s needs and build towards fu-ture benefits, decision makers face a variety of technology options. While the first generation of mobile payment services have often been re-stricted to one or two dominant solutions per geography, often provided by a telecom opera-tor (e.g., Globe Telecom’s G-Cash in the Philip-pines), a number of newer solutions aim to work across operators and may provide increased cus-tomization and flexibility as the microfinance institution grows.

With the growing number of mobile payment platforms available, MFIs need to increasingly understand and compare a number of technical and business requirements. In order to serve as a guide for MFIs considering various mobile pay-ments solutions, this article delves deeper into the important considerations for assessing those requirements.

Identifying Mobile Payment Uses within Mi-crofinanceDetermining the most challenging points of friction or biggest opportunities in microfinance business operations and models will reveal where mobile payments could play a role. Rather than forcing a given solution into one’s operations, an MFI should have a good understanding of its needs, independent of what current solutions of-fer. The MFI can then work collaboratively with mobile payments partners to design the most appropriate solution.

Some institutions may find themselves bat-tling cash handling risks in the loan delivery process, and therefore are primarily interested in electronic disbursements. Others may be will-ing to experiment with electronic collections to reduce the number of in-person group meetings and MFI agent trips. Still others may see mo-bile payments as a way to extend value-added services and entrepreneurial opportunities, such as allowing customers to vend mobile airtime

credits.Beyond today’s challenges, institutions need

to consider their anticipated future needs as they seek to grow. For instance, an MFI may want to form tighter banking relationships or deploy their own automated disbursement network. This future need makes a solution that works with ATM machines and existing banking in-frastructure more attractive. Or, for example, an MFI whose borrowers or family members are migrant workers may anticipate supporting remittances. Partnering with the right platform solution provider will ensure flexibility to test and learn in the short term as well as evolve to meet an MFI’s growing transactional opportuni-ties in the long term.

A microfinance institution also needs to un-derstand basic information about its custom-ers, to determine whether and how a mobile payments solution can be deployed. Except for microfinance agent models, most mobile pay-ment systems will require ready customer access to a phone, often implying ownership within a family. Where there is a high incidence of illit-eracy, interactive voice response (IVR) solutions may become necessary features for deployment. Further, the customer’s perceived benefits and trust for electronic money need to be meas-ured to understand potential challenges. These environmental factors will influence where to concentrate resources, as well as underscore the most relevant features needed in a solution.

Empowering a Broad Customer BaseIf an MFI has ambitious goals for growth, then its mobile payments solution must also scale. While the involvement of a telecom operator is critical and very valuable to achieve scale and broader

With a growing number of mobile payment platforms available, mFIs need to know what technology they need and how it will meet their requirements. valerie Rozycki of mChek payment solutions offers an assessment guide for identifying technical and business requirements.

“…the net benefit from branchless banking models such as mobile payments and agents can be as high as a 50 percent reduction in outreach costs.”

“Partnering with the right platform solution provider will ensure flex-ibility to test and learn in the short term as well as evolve to meet an MFI’s growing transactional op-portunities in the long term.”

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customer education, deployment of mobile pay-ments should ideally not be limited by strong handset and operator dependencies, especially in countries where several carriers share the market and there is no dominant player.

For handsets, microfinance clients often use basic devices, which are regularly purchased secondhand, and therefore may not support more advanced technology such as JAVA appli-cations. To reach the handsets of all customers, mobile payments solutions may need to use the simplest wireless protocols such as SMS, USSD or a SIM Toolkit, which are supported by most handsets.

Regarding operators, it is important to dis-tinguish between three different models: op-erator-dependent, operator independent, and pan-operator. See Box 1 for descriptions of each operator model.

Beyond basic handset and operator acces-sibility, serving the broadest base also implies customer experience considerations. The phone interfaces and menus should be simple to use and ideally tested with various urban and rural

poor. Given literacy challenges and the need for language localization, solutions should also sup-port IVR, enabling transactions to be completed through a voice-based touch-tone system.

Securing Financial TransactionsEven with the multitude of overlapping inter-national certification standards and national regulatory requirements, security levels can vary widely across mobile payments implemen-tations. For example, certain solutions such as SMS-based mobile payments may face risks

from message storage in user mobiles and may be susceptible to spoofing. When assessing se-curity, MFIs need to feel comfortable with the potential providers’ solutions regarding the stor-age of sensitive customer data. For example, this could mean assessing whether financial account information is stored in a distributed manner on actual handsets or on a centralized server. An-other important element is user authentication models such as whether the customer certifies a transaction using a secure PIN, showing a physi-cal ID to a human agent, or verifying with some form of biometric data like voice recognition. Other considerations are the encryption of any transaction messaging as well as support or re-course in the event of a dispute.

It is especially important to ensure banking-grade security for mobile payments in micro-finance. These transaction amounts, although relatively low, have very high value for microfi-nance borrowers. Additionally, from the bank’s perspective, the costs of customer support and dispute resolution are flat for any transaction, so they are disproportionately high for transactions

“While the involvement of a tele-com operator is critical and very valuable to achieve scale and broader customer education, deployment of mobile payments should ideally not be limited by strong handset and operator de-pendencies, especially in coun-tries where several carriers share the market and there is no domi-nant player.”

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Operator-dependent – This model ties the mobile payments solution to one operator network without interoperability on other networks. In this model, the MFI can benefit from the quick deployment that such a model offers and ride on the operator’s mar-keting, distribution and customer education efforts, at the risk that users may be somewhat limited in transacting with customers of other carriers.In countries like Kenya, where there is a dominant telecom provider and an open regulatory environ-ment, this model has seen substantial success. How-ever, the operator-dependent model is not viable in a business environment such as India’s where any operator controls no more than around 25% market share.

Operator-independent – Some technologies enable mobile payments solutions to be agnostic to opera-tor networks. An example is a JAVA client that can be downloaded to any JAVA phone with GPRS con-nectivity. However, technology requirements can limit customer reach, especially for low-end phone users. Many MFI clients do not yet own phones at all, let alone phones with higher-end technology. While the operator-independent model avoids the

steps of business relationships and integration with network operators, this approach can severely limit MFI customer access.

Pan-operator – This hybrid approach combines the benefits of the two others while avoiding some of the shortcomings. The pan-operator model works across networks to ensure transactions can occur between many customers regardless of their chosen wireless providers. But this approach also leverages partner relationships with operators to gain the benefits of customer reach, marketing, and education. An ex-ample is what has been achieved in India between our company’s mobile payments provider mChek and telecom operator Airtel. This business relation-ship ensures that the application is embedded on all SIM cards for Airtel subscribers, and mChek con-tinues to build similar relationships with other leading telecoms. Meanwhile as deals with telecoms are forming, mChek also supports operator-indepen-dent technologies for early-adopter customers. This approach uses the benefits of operator relationships while not being restricted to any given operator and is set to ultimately achieve broadest scale and cus-tomer accessibility.

Box 1: Operator Payment Models

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of small amounts. Hence, for banks to manage costs and to protect low-income customers, banking-grade security must be ensured.

Building Solutions to Meet Regulatory RequirementsAs with other banking regulations, laws govern-ing mobile payments differ widely based on ge-ography, with certain countries still in the process of finalizing their regulations. While regulatory compliance is often handled directly by the solu-tions provider, a microfinance institution needs to understand the impact of regulations on their use of mobile payments. One example is iden-tifying relevant “know your customer” (KYC) requirements. Regulations such as whether or not businesses can share KYC information or use third-party agents for KYC collection can significantly impact the operational effort and cost of acquiring and maintaining mobile pay-ments customers.

The comparison between Kenya and India highlights how banks may or may not also play a role. In Kenya, where Safaricom’s M-Pesa money transfer service has been wildly successful, flex-ible regulations allow telecommunications pro-viders to directly hold client money transfers enabling MFIs to work solely with Safaricom. On the other hand, stringent KYC requirements and worries over financial health of non-banks in India require mobile payments solutions to link to a bank account whenever “public de-posits” are held in a mobile wallet. This means that the most feature-rich deployments in In-dia will require a bank account for customers and often a bank-MFI partnership. While this regulation initially requires upfront effort that an MFI may wish to avoid, enabling clients with bank accounts from the start will provide signifi-cant long-term benefits through more flexible customer uses and stronger connectivity to the formal financial sector.

Achieving Integration with MIS and ITProcessesA microfinance institution must also determine a solution’s compatibility with existing MIS sys-tems and the ideal level of integration. Some

MFIs may consider it appropriate to have a sep-arate system for mobile payments information that is updated into their MIS system periodi-cally through a batch process, while others prefer (and have the capability) for a direct connection that can update their central systems in real time. If decision-makers wish to achieve the greatest MIS and mobile payments compatibility, ease of integration, and streamlining of backend opera-tions, there are important elements to consider in MIS alternatives, such as openness of APIs and whether or not the MIS is open source.

Beyond MIS integration, institutions need to determine who will support the solution. Where the telecommunications provider enables mobile payments services, customers facing issues may need to be directed to their support staff. In other cases, an organization may need to negotiate di-rectly with solution providers to ensure that they will provide support, both for customer issues and for the integration of services with the mi-crofinance MIS.

Testing and Scaling IncrementallyFinally, as with other new technological solu-tions and business innovations, MFIs should identify providers that enable them to roll out solutions incrementally, with very little up front capital expenditures. This allows the execution of small pilots that can help explore various delivery models and identify potential challenges. Any solution should come at very little cost to MFIs and ideally require only variable costs that grow along with the benefits of client adoption. Such a favourable cost structure enables a test-and-learn approach that is necessary in this nascent industry.

Mobile payments solutions are seeing ini-tial success in some parts of the world, but the deployment of mobile payments for microfi-nance is especially nascent. As experiments and product launches are rolled out in the coming months and years, practitioners will continue to refine ideas on how mobile payments can improve business operations, serve clients and build towards even more visionary enablers for the poor. n

Valerie Rozycki is the Head of Strategic Initiatives at mChek Payment Systems, a leading firm in the mobile payments industry. She can be contacted at [email protected].

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An Eko Account in Under 10 Minutes-What’s that you say?

When I moved to India earlier this year, it took nearly three weeks to set up a bank

account with a multi-national bank with which I already had an account in the US. I had proof of address, passports from two countries and a driver’s license. Nevertheless, it felt like I was talking to Rumpelstiltskin—the fairy tale dwarf who requested a girl’s first born child in return for doing her a favor. The bank required a hefty minimum balance, multiple “original” letters from my employer, my apartment’s lease agree-ment, and countless passport-sized photos. After many visits to the bank, and a fiery exchange with my bank-appointed “relationship manager,” I became “banked.”

Financial inclusion is a challenge no matter who you are. But, it is exponentially harder for those who are less familiar with the system. Im-agine, for a moment, the same scenario, but in a different economic stratum. I am a vegetable seller, who has just moved to a big city to make more money. I don’t have a permanent address, much less proof of one. Maybe I have a small tea shop or drive a rickshaw—but my employer is not willing to vouch for me. How do I even attempt to become “banked”? Instead, I store my money in an old glass pickle jar or invest in a gold necklace—at least I can keep that with me at all times.

M-Banking could be Your SaviorOn a recent field visit in an urbanized village in northwest Delhi, my colleague Ranjit Koshi and I opened a bank account on his phone at a customer service point (CSP) in a chemist’s shop in less than ten minutes. I turned around to speak to a passerby, and by the time I turned back, Ranjit had made his first deposit—INR 100 (~US$2.50) into his new “no frills savings account.” At this rate, I thought, mobile banking could be my savior. It may even be yours. And, it could be the helpmeet that millions of unbanked men and women need.

This moment of miraculous convenience

was made possible through a pilot project run by Eko (pronounced like the reverberating “echo”), a start-up technology company work-ing to become the intermediary between banks and the unbanked in India. In a country with 270 million mobile phones sending out signals across the world, this isn’t a bad market to vet a new mobile-transaction technology. Plenty of other mobile technology firms are eyeing India as well, including mChek, Obopay, NGPay (this magazine’s new partner for the sale of subscrip-tions to Indian mobile customers), FINO, and A Little World, to name a few. Seventy percent of the owners of these millions of mobiles are unbanked, so it is a ready market waiting to be cracked.

Taking it to the MassesEko has a partnership in the works with the largest telecom operator in the country to use its customer service hubs dotting the urban, peri-urban and rural landscape which enable pre-paid mobile customers to recharge their phones. The Eko-telecom alliance would enable Eko to turn 650,000 mobile retailers into Eko CSPs, allowing them to handle banking transactions.

For now, Eko’s goal is to leverage India’s ex-isting infrastructure to bring their model to scale. Through partnerships with mainstream banks, they have been appointed a “business correspondent” which allows them to interact with customers on behalf of a licensed bank, and enables banks to reach farther, faster without set-ting up new branches. Eko has focused its efforts on the simple, but ubiquitous kirana shop: tight, packed-to-the-brim stores that roost on almost every corner of every street in every state in In-dia. These stores sell mobile recharge cards, eggs, soda, onions, shampoo, and now, many of them in Uttam Nagar, Delhi offer savings accounts. “We are trying to remove the friction and make the market as accessible as possible,” said Matteo Chiampo, Chief Product Architect at Eko.

As Easy As *123#The set-up doesn’t require hardware other than a phone. Customers, when possible, should have ID and proof of address and be fully “KYC” com-pliant (Know Your Customer, i.e., due diligence and customer identification). However, if the customer is unable to furnish the documents, the customers are enrolled into formal banking by following limited KYC guidelines put forth by the Reserve Bank of India. Customers use an Eko PIN and a unique signature booklet (patent pending) to make transactions. Using USSD technology—the mobile interacts with a program when the user types a string of code—each transaction in a single step. The signature booklet, which contains 100 ten-digit “signature” stickers, is used in each transaction. Using this system, the customer make deposits, withdraw-als, gets a mini bank statement, and checks the account balance. Each transaction takes seconds to complete, and costs, on average, about INR 1 (US$.02).

In an effort to understand the usp of mobile software providers for banking technology, members of the microfi-nance Insights team ventured into the field to visit a pilot project built by one of India’s up-and-coming front-end technology providers. We came away with a new mobile bank account, and a clearer understanding of why new mobile-transaction providers may change the way people save and exchange money. managing editor lindsay Clinton shares the field diary from the team’s visit with eko in Delhi.

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An Eko cash point where customers can deposit and withdraw money.


Who Gains?At this point, the program does not have a spe-cific microfinance focus, but Eko sees MFIs as great potential partners. Their technology could make MFI cash management much more effi-cient and secure. For now, they are working on partnerships with mainstream banks, which supply the bank account through which all Eko customers are banked.

So, who is really “banking” on the technology, so to speak? Eko’s model brings in interest on the savings mobilzed in the bank—anywhere from 6-14 percent, and the company also receives a portion of the cost of each account opening, and a commission on each transaction. CSPs are paid by Eko on a transactional basis. Banks

benefit by spreading their tentacles and accessing customers which would be too costly to reach otherwise. Our hope is that the costs are not passed on to the customers—who do receive interest on their savings—for this is their first step into the financial sector.

The Reverberations are Loud and ClearAfter Ranjit opened his account, we walked down the road and shortly came across another Eko CSP indicated by an orange sign hanging outside. Ranjit stepped across the lane, wet from a recent downpour, and walked up to the shop. Through an exchange with the shopkeeper, he withdrew his INR 100 from his account, and put it safely back in his wallet. In a time span of

thirty minutes, we had opened an account, made a deposit, and made a withdrawal.

Seeing the simplicity of these mobile transac-tions was remarkable, and the ease of use for any customer rang loud and clear. I have no doubt we will all feel the reverberations of technologies like Eko’s very soon. n

The Exotic Maldives – 1% Land, 99% Water, 100% Cashless Banking

The tiny Indian Ocean island country of the Maldives—with only one percent of its total area actually terre firma—may not seem like an ideal place for a mobile banking project. Looming neighbor, India, home to a giant mobile market, seems like a more likely breeding ground for such an initiative. In this case though, a fractured land mass, an unbanked population, a relatively high GDP, and the willingness to experiment, made the Maldives the chosen testing ground to establish the only seamless mobile banking environment in the world.

In April 2008, the Maldives received a US$7.7m loan from the World Bank, to bring all of the nation’s banks under a single mobile banking system. The project targets the rural islanders who often have limited or no access to a bank branch which is often miles away or on a neighboring island. The Maldives, however, does have a strong mobile network, and together, with a highly literate population, the system was easier to conceive.

Still in its infancy, the Mobile Phone Banking Project will work towards creating a single currency payment system, offering a set of mobile phone-based accounts, in addition to existing branch-based bank accounts. Account holders will be able to use the system to trans-fer funds to and from bank accounts, as well as to and from telephone-based accounts.

The project, a collaborative effort between the Maldives Monetary Authority and CGAP, will also see parallel CGAP funding of US$1.5m, largely directed towards policy advice and the establishment of a regu-latory framework.

Although the Project is groundbreaking and innovative, it brings with it a fair amount of concern. Chief among them is doubt about the prioritization of such a project in a country that faces other argu-ably more pressing issues, such as lack of access to healthcare and education.

Yet, it is widely recognized that the lack of access to financial services is a general impediment to overall growth. This, and the cost of finance, have been identified as the top two hindrances for private businesses in the country (World Bank Investment Assessment Report of 2006). This is unlike other South Asian countries where businesses suffer due to the lack of adequate infrastructure rather than limited access to capital. It is this deficiency that the Mobile Phone Banking Project seeks to address. It is hoped that in time the island will see an improve-ment in overall growth, and a reduction in poverty levels.

While it is too early to tell what problems could occur with the execution of the project (there are some doubts as to the function-ing and security of a cashless system), it is clear that the Maldives is certainly on course to set an example for the rest of the world. If it is successful, the project will establish a 100 percent cashless banking system throughout the country. When the pilot project ends in 2012, it is hoped that at least 75 percent of the adult population will have a phone account; at least 70 percent of the population will have a regular bank account accessible over a mobile phone; a large share of salary payments and supply chain management will happen electronically; and every Maldivian with a phone will be able to deposit and withdraw cash from accounts on any of the country’s 198 inhabited islands!

If the project is a success, the Maldives will show the world not only the “sunny side of life”—the country’s slogan—but also the sunny side of m-banking.

-By Ranjit Koshi, Associate, Intellecap

Photo by Mariyam Mohamed

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Outreach

Whenever the words “Africa” and “econom-ic development” meet – which is often

– it is usually in the context of external, foreign aid and large, multilateral development efforts. Large numbers and global donor agencies do, after all, have a habit of stealing the headlines. You’d be forgiven for thinking that little else was happening.

But you’d be wrong. With penetration rates in excess of 30 percent, and handset sales among the highest in the world, Sub-Saharan Africa is witnessing a new kind of home grown, mobile-driven economic development. The numbers may not be that big – yet – but the impact on the ground is obvious and the difference it is making in people’s lives is clear. Farmers are now able to access market information through their phones, increasing income in some cases by up to 40 per-cent. Casual laborers are able to advertise their services, allowing them to take on more work and avoid down-time waiting on street corners for work to come their way. Unemployed youth can get job vacancies on their phones, alerting them when work becomes available. And, for the first time, the unbanked can transfer money to relatives, or make payments for goods and services, through their phones.

Their impact is not restricted to economic empowerment, either. Mobile phones are also able to provide health information and advice, remind people when to take their medicine, and allow citizens to engage more actively in civil society by monitoring elections and help-ing keep governments accountable. Others can get wildlife-related warnings, mitigating against livelihood and life-threatening human-elephant conflict. It turns out that mobile phones can be useful for much more than just ordering pizza,

looking up sports scores or arranging a Friday night out.

The impact and uses of mobile technology in the developing world are nothing short of staggering. What’s more, mobile technology has spurred the growth of a whole new infor-mal sector, empowering local entrepreneurs and businesspeople the continent-over. With im-mense value placed on owning a phone, there is no shortage of opportunities for people to make a little money on the way.

In Mobile Telephony: Leveraging Strengths and Opportunities for Socio-Economic Trans-formation in Nigeria, Christiana Charles-Iyoha sheds some light on the value Nigerians place on their mobile phones; many describe losing them as literally a matter of life or death for their businesses. At the same time, many—not only in Nigeria but also many other parts of Sub-Saharan Africa—have been quick to exploit the numerous opportunities that this explosion in

ownership brings. Anyone who’s traveled to an African country

in the past couple of years would not have failed to notice women selling airtime on the streets, children dodging cars at main junctions selling chargers and phone covers, street vendors mak-ing a living charging people’s phones, and mobile phone repair shops helping people squeeze one last drop of life from their old phones. There is also a thriving second-hand market, with stalls selling all manner of new and recycled handsets. Entrepreneurs are even building their own “mo-bile” mobile services, strapping phones and spare batteries to the front of bikes and travelling to where the business is.

In a now oft-cited 2005 study, London Busi-ness School economist Leonard Waverman con-cluded that an extra ten mobile phones per hun-dred people in a “typical developing country” leads to an additional 0.59 percentage points of growth in GDP per person. From a government

Ken Banks, a veteran in the mobile technology space, has been working to make positive change in Africa for over a decade. Here, Banks takes a break from his blog, www.kiwanja.net, to share his perspective on the rise of mobile technology in Africa.

“With penetration rates in excess of 30 percent, and handset sales among the highest in the world, Sub-Saharan Africa is witnessing a new kind of home grown, mobile-driven economic development.”

Mobile Telephony and the EntrepreneurAn African Perspective

Women Selling Airtime*


Outreach

perspective, taxes and revenue generated from an insatiable demand for communications no doubt fuels a large part of this growth, but there’s also little doubt that a significant amount also comes from a growing and increasingly efficient informal sector. At the bottom of the pyramid (BOP), where micro-loans of just a few dollars are a proven catalyst in helping people work their own way out of poverty, we have a technology which has the clear potential to do the same.

Of course, more phones in more hands also presents opportunities for microfinance institu-tions (MFIs), many of which seek to improve the lives of those same people in or around the BOP. Mobile technology has already been embraced by organizations such as Grameen Bank, with its now-much duplicated Village Phone program,

but mobile phones also present organizational opportunities through improved communica-tions with field staff, and options to electroni-cally capture data from the field. MFIs are al-ready utilizing text message (SMS) technology to communicate with customers, using software such as FrontlineSMS – which turns a computer and attached mobile phone into a central SMS communications hub – to run surveys and col-lect information. In many remote areas where keeping in touch with borrowers, or collecting financial data is a challenge, the humble SMS is opening up a raft of new opportunities.

Grameen Village Phone in Kampala, Uganda, a user of FrontlineSMS, said, “We use it to au-tomate communication with our VPO [village phone operator] channel. It really makes our lives easier by giving us a clear record of what’s been sent and responded to that can be repro-duced and reused elsewhere. It also helps us promote a culture of SMS use for communica-tions.”

As more and more people become connected, future studies of Sub-Saharan Africa and its eco-nomic potential will find it harder to ignore the growing influence of mobile technology and the power and spirit of African entrepreneur-ship – and grassroots NGOs – to capitalize on it. There is little doubt that this spirit has always been there, but perhaps it has just taken mobile technology to create an environment in which much of it can thrive. n

*Photographed by Ken Banks. All photos available from www.kiwanja.net/mobilegallery.htm

“…an extra ten mobile phones per hundred people in a ‘typical developing country’ leads to an additional 0.59 percentage points of growth in GDP per person.”

Ken Banks devotes himself to the application of mobile technology for positive social and environmental change in the developing world, and has spent the last 15 years working on projects in Africa. Recently, his research resulted in the de-velopment of FrontlineSMS, a field communication system designed to empower grassroots non-profit organizations. Ken currently divides his time between Cambridge (UK) and Stanford University in California on a MacArthur Foundation-funded Fellowship. Further details of Ken’s wider work are available on his website at www.kiwanja.net.

Street Vendors make a living charging mobile telephones*

some of the most innovative thinking in the social business sector involves the delivery of environmental, health, and energy solutions through microfinance institutions and their de-livery channels.

What are the cost issues associated with part-nerships when developing diversified product offerings? Which are the most outstanding examples of health and education solutions? Clean water and sanitation tools? Are we asking too much of mFIs?

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This fall, Microfinance Insights goes to Africa. In November, we will publish an entire issue on new trends and developments, the investment landscape on the continent, and a look at who to watch in African microfinance. Contact us to suggest article ideas, for enquiries about advertising, or event partnerships.Email: [email protected] | Tel: +91-22-40359222

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Technology Usage among MFIs: Types of Technology and Cost Perceptions

Technology and Microfinance: Making the Right ConnectionsFrom mobile phones to PDAs and smart cards, microfinance institutions across the globe are rapidly adopting new and efficient ways to improve performance and outreach. In this issue’s survey, we asked MFIs to share their perspectives on a wide range of technology issues – from the types of technology used to MIS software applications and the benefits and challenges of technology usage. We also tried to gauge the potential of increased technology adoption and imple-mentation. The survey drew on responses from 243 MFIs from 65 countries who completed some or all of our questions. We found that while many MFIs utilize technology for their operations (62% of MFIs have computerized branches), many do not feel satisfied with their systems and do not feel that they receive adequate tech support. The biggest hurdles associated with using technology are high implementation costs and staff training. We selected some of the most compelling highlights from our survey for these pages. The complete Technology Solutions and Microfinance Survey will be sent to subscribers mid-September and will be available online at www.microfinanceinsights.com.

0%

10%

20%

30%

40%

50%

60%

Least expensive to implement

Least expensive to maintain

Least Expensive Cost Comparison

93%

5% 2%

0% - 24% of annual revenue



Spending on Technology Solutions by Respondents

23%

21%

10%8%

8%

7%

6%

6%

4%4% 3%

None, 23%

Mobile Phones, 21%

Mobile banking through retail agents, 10%

Mobile Branches (buses or trucks touring villages), 8%

Point-of-sale (POS) networks, 8%

Smart cards, 7%

Automated Teller Machines (ATMs), 6%

Internet kiosks, 6%

Interactive-voice response, 4%

Biometric technology, 4%

Personal Digital Assistants (PDAs), 3%

23%

21%

10%8%

8%

7%

6%

6%

4%4% 3%

None, 23%

Mobile Phones, 21%

Mobile banking through retail agents, 10%

Mobile Branches (buses or trucks touring villages), 8%

Point-of-sale (POS) networks, 8%

Smart cards, 7%

Automated Teller Machines (ATMs), 6%

Internet kiosks, 6%

Interactive-voice response, 4%

Biometric technology, 4%

Personal Digital Assistants (PDAs), 3%

Technologies used by Respondents in Operations

0%

10%

20%

30%

40%

50%

60%

70%Most expensive to implement

Most expensive to maintain

Most Expensive Cost Comparison

% o

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Figuring it out…21% of MFIs are using mobile phones to provide ser-vices77% of MFIs surveyed are interested in offering branchless banking services62% of MFIs surveyed have all branches computerized76% of MFIs surveyed do not have an IT department


survey

Adopting Technology: Challenges and Ease of Use

MFIs not only utilize technology for front-end operations, but also, sometimes more critically, to improve efficiencies and perform-ance at the back end. Below we look at some of the back-end software used, how MFIs rate each one, and what benefits they derive from them.

23%

16%

13%16%

12%

8%

12%

0.3% High costs of implementation and staff trainingLow connectivity of networks

Difficulties in using the technology effectivelyLack of institutional capacity to deal with the changeUnknown return on investment in costly technology solutionsLack of after-sales support service

Lack of customization

Regulation

0%

5%

10%

15%

20%

25%

30%

35%

Not critical Somewhat Critical

Neutral Critical Very Critical

0%

2%

4%

6%

8%

10%

12%

14%

Do not adapt to technology easily

Easily adapt to technology

Staff's Ease to Adapt to Technology

Customers' Ease to Adapt to Technology

0%

5%

10%

15%

20%

25%

30%

35%

40%

Not critical Somewhat Critical

Neutral Critical Very Critical

0%

5%

10%

15%

20%

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MIS in use

MIS preference

Challenges MFIs Face due to Technology Adoption Ease with which MFI Staff and Customers Adapt to Technology

Importance of MIS for Lower Operating Costs Importance of MIS for Better Reporting

% o

f MFI

resp

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% o

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% o

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MIS (Management Information System) Usage among MFIs

46% of MFIs polled are unsatisfied with the technology they use63% of management teams have access to real-time operational data

MIS Usage vs. Preference%

of M

FI re

spon

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s


In Focus:IBM and Microfinance

Microfinance Insights (Insights): Why is IBM involved in microfinance?

Alexander Bloch (Bloch): Well, there are several reasons. There is a commercial reason, because of the sheer immensity of the market potential: as you know three billion people on this planet live on less than US$2 a day and most of those people have limited or no access to basic banking services. This is clearly an unsustainable propo-sition, and we feel that there is an opportunity to capitalize on this market upside potential.

But, IBM, being a global entity, feels a certain responsibility to the community, and to contrib-ute to positive societal change. Therefore, we synthesize the altruistic with the commercial aspects of this solution and make this a sustain-able value proposition.

Insights: Tell me about the front end and back-end solutions IBM is working on for micro-finance. Bloch: On the back-end, there are multiple op-tions. By back-end we mean a core software used together with the journal ledger, cash management, liquidity management, risk man-agement, and anti-money laundering suites that support basic products such as loans, deposits, customer information files, and basic transaction processing.

At the front end, we have branch-centric delivery, and perhaps more effective, given the cost structure of MFIs, there is the delivery or distribution of financial services using mobile devices. So, a person with limited access to a bank branch, but with a mobile device in her/his hands, can access the services one would typi-cally get from bank. That is another example of a front-end option that our microfinance clients experience.

Insights: In terms of implementation, what sort of challenges have you seen with the MFIs you have worked with?

Bloch: In our scenario, we are integrating mul-tiple financial institutions onto a single hub. As you know, every institution is different—they have evolved from different perspectives, they operate in unique and specific markets, they have different work flows, different customer bases and preferences, and the way they inter-act with customers may vary significantly. So, the biggest challenge for us is to create a critical mass of capabilities and functionality that will accommodate enough MFIs so that they will de-rive benefit from participating in this solution. The challenge is not system integration and it’s not deployment of the front end. It’s making sure we develop something that suits the bulk of MFIs.

A related challenge is that MFIs need to rec-ognize some of the sacrifices, compromises or

redesign initiatives that they will then need to invest in themselves to take advantage of our solution.

Saket Sinha (Sinha): The way MFIs have his-torically maintained their business data makes it difficult to bring them into a new solution. The data is in the wrong format or missing, so you cannot integrate them straight away. To imple-ment any system you need a certain amount of data already available--which is not there with MFIs. Second, many MFIs, because there is so much profit potential, want to maintain a closed book. They don’t want to adopt technology [making operations transparent] because they will be more liable. That’s one of the problems we find in many developing countries—that MFIs are happy keeping things the way they are so they can manipulate the system.

Insights: Have you had any issues with regards to regulation in certain countries? Bloch: In many of the countries where there is a propensity for microfinance, there isn’t a specific framework governing MFIs. However, there are some countries—Mexico is the obvious exam-

At the Asia pacific microcredit summit in Bali, Indonesia in July, microfinance Insights had the opportunity to sit down with two leaders in the micro- and sme space at IBm and ask them about the company’s involvement in microfinance. Alexander Bloch, Associate partner, and saket sinha in the sme strategy & Change Global Banking group talked with us about the new Africa Grid, and reasons mIs implementation within mFIs can fail.

Alexander Bloch (left) and Saket Sinha present during a technology panel at the Microcredit Summit in Bali.

“A related challenge is that MFIs need to recognize some of the sacrifices, compromises or rede-sign initiatives that they will then need to invest in themselves to take advantage of our solution.”

-Alexander Bloch

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ple—where the government and the Ministry of Finance have taken steps to include caixas, or microfinance, in the regulatory framework for the financial services sector.

Countries that recognize that a significant benefit could be gained by bringing people into the banking system are encouraging financial institutions to attribute part of their portfolio to the microfinance sector and they give incentives. Brazil is a good example: if you are a traditional bank and you assign 2.5% of your book to the microfinance sector, there is a significant tax benefit. Some countries are recognizing the value of microfinance of bringing people into the financial system, which is an essential un-derpinning of a healthy economy.

Insights: Could MFIs be put out of business if banks use technology to skip over MFIs?Bloch: Theoretically, yes. In practice, I don’t see that happening. Banks have historically evolved as institutions that excel in low touch, high vol-ume business. Microfinance is the opposite. It’s a very high-touch business, dealing with very low value transactions and frequent interaction. The banks are just not set up that way. Certainly not in my lifetime, I don’t think the banks would be able to capitalize on this market.

Sinha: Think of it this way: why are large banks so interested in microfinance? There is a huge amount of learning potential from the innova-tions that are happening in microfinance. This is a hot concept, and if it works for microfinance, nothing stops it from working for a mainstream environment—even if it doesn’t work for retail, maybe it could work for the commercial side, where you could create a hub to service all com-mercial clients in one go. Big banks are interested in the innovations around credit monitoring and distribution outreach because of the possibility of adapting them to their mainstream business. In the long-term, when MFIs grow as big as banks,

there will be an amalgamation of those two mar-ket spaces, and whoever is stronger will play the dominant role.

Insights: Tell me more about the African Fi-nancial Grid that IBM and CARE Interna-tional announced late last year.Bloch: Africa Grid is similar to the microfinance processing hub. It’s called a grid because it op-erates across multiple nations in Sub-Saharan Africa. Given that South Africa, and specifically Johannesburg, is where IBM has a significant data center, we’re considering using that as a hub of operations to host the grid to support multiple countries. The idea is to attract MFIs in coun-tries like Tanzania, Kenya, Ghana, Botswana, and South Africa and allow those customers to migrate data onto the Grid and for it to be the transaction processor. The idea is to provide a reduced cost structure for the MFIs, and pass the savings onto their customers and therefore attract more people into the microfinance bank-ing system.

IBM is very interested in participating—we see great societal value in it—and given the size of the market, we can make this a self-sustaining, non-loss making proposition. CARE is co-fund-ing this initiative, and we are in the process of executing a plan for the accommodation of the grid, and once we reach a common understand-ing for what the grid execution looks like, we will consider how the investment case will play out.

Sinha: IBM has already made a commitment for a second grid. Apart from the technologi-cal collaboration that the Grid will support, it is also mandated to bring the economies of each small country, which cannot be sustained on an individual basis, into the bigger ecosystem. Vol-ume can be attracted though back-end providers like payment systems and ATM networks, and there would be a free flow of money between countries. In Africa, the population is so mobile that there is always the issue of money flowing from one country to another. They don’t have an effective mechanism to track between countries. But, the Grid, which would include banks from each country, would make that kind of flow hap-pen more freely through back-end systems.

Insights: To implement your MIS system for MFIs, I’ve heard you say that the cost is US$7-$9 per account per year. If they have just 2000 clients, they would pay at minimum

US$14,000 a year just to track the financial activities of their clients. It seems high for a Tier 2 or Tier 3 institution to implement such a costly system. Bloch: That figure is appropriate for India, be-cause India is a very unique market—a large landmass, but very, very patchy infrastructure. For someone to go to a remote region, there is a significant high touch and high cost structure component. So, India may be a unique case in end-to-end service delivery. In Latin America, where there is a less sparse population, there is branch center delivery, and more urban popu-lations, the cost per account per year is much lower. In South East Asia, if you take Indo-nesia as an example, you’ll find that you have greater population densities that are more easily reachable, and a significant microfinance seg-ment; prices may be a fraction of India’s. Each economy or geography will determine its own price structure, and it will depend on the infra-structure in the country and how reachable these people are, and what the market can bear—those factors will shape our business case around ad-ditional hubs.

Sinha: Whether is it is US$7, $9, $13 or $2, it is important for MFIs not to think purely from a cost perspective. MFIs have to think about what they are gaining, and we are trying to educate them from our side and through forums like yours. The key to remember is what they gain with this US$5 per account per year. First, they are gaining technology. But more importantly, they are also increasing their ability to do more business. Without technology, they are limited in going to scale. But with technology they are increasing their ability to grow more business, have more agents on the field to process transac-tions, attract and maintain their customer base. If you equate the potential, in terms of what this technology can attract in terms of business, this US$5 per account, per year pales in terms of that potential. That is something that MFIs have to understand. n

“Why are large banks so inter-ested in microfinance? There is a huge amount of learning poten-tial from the innovations that are happening in microfinance. This is a hot concept, and if it works for microfinance, nothing stops it for working for a mainstream environ-ment…”

-Saket Sinha

“If you equate the potential, in terms of what this technology can attract in terms of business, this US$5 per account, per year pales in terms of that potential. That is something that MFIs have to understand.”

-Saket Sinha

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A Guy on a Bicycle Rides into a Village…Practical Applications of New Technologies

Microfinance Insights (Insights): What is Microsoft working on within the mi-

crofinance space, and why is Microsoft getting involved in this sector?Aishwarya Ratan (Ratan): The research wing of the company investigates interesting problems that go beyond our core business of software development. I’m with the group that handles technology for emerging markets (http://re-search.microsoft.com/research/tem), and our role is to think about interesting ways that IT can influence people’s development in economi-cally poorer communities.

We’ve been looking across a number of do-mains which are important for development; financial service delivery is one of them. We haven’t come to this specifically as microfinance providers, but because we know that financial services are important to poor households.

Most of the things we do in this space are pure research projects, but some of our work is in col-laboration with MFIs themselves, and this has taken a turn into investigating mobile banking and mobile payment solutions more aggressively. Right now, we are working on a collaboration with CGAP in eight countries, and we have a mandate to study these mobile banking roll-outs from an impact and social context perspective, and most importantly, from a usability stand-point. The question is, for low-income users, how do you design optimal user interfaces so that their interactions are perfectly smooth?

Insights: How are you finding that? My moth-er, an educated woman, who lives in a city in the US, isn’t sure how to send a text message. How adaptable are poorer communities to technology? Ratan: Right now, there is a specific researcher who works on this—Indrani Medhi —and her work involves trying to develop PC interfaces that are text free. At the same time, she is explor-ing which of those are relevant for mobile phone interfaces. The specific things she is working on

include heavy usage of graphics, very heavy use of voice-over functionality, as well as “full-con-text video”—like you’d see on an airplane before a flight. For example, a video could present a full end-to-end scenario on a PC to tell you how to use a device or application.

SMS is another option we are looking at—using it not just as a message carrier, but as a tool to conduct m–banking transactions alone, or via SIM-card-based applications (like M-PE-SA, the Kenyan mobile banking tool). So, on your phone, you might go to the “Tools” folder, choose M-PESA, and then make a transaction—either buy talk-time, or get money—entirely on your phone.

You could also use the USSD channel—like when you get alerts on your phone, giving you news or product advertisements—which is ex-clusive to providers or telecom companies. Hav-ing an m-banking application ride on this chan-nel involves an entirely different user interaction, involving input of a string of numbers or code.

We look at these tools in very rigorous way, through usability tests working with a sample of low- income individuals, obtaining qualitative feedback. We will hopefully attain results that will be applicable to many scenarios.

Insights: When you look at branch managers and their ability to apply technology, what have you discovered? Are staff members of MFIs able to readily adopt new technologies?Ratan: We have some experience with this. In a pilot we ran, the field-level officers were equiva-

lent in their ability to process a paper form and a form on a smart phone that gathered detailed customer data. It took them 20 minutes both ways. In that context, there needs to be some additional gain for you to actually use the phone-based application.

Where we have seen actual benefits from technology for front-end microfinance data management, it has simply been because there was less information to process per form and a large scale of operations. The loan officer didn’t have to enter any information himself. He just went through a set of preloaded options, enter-ing in transaction info, pressing next…next…next after each one. So, it’s less complicated if you’re entering transaction data than customer profile data.

For self help groups (SHGs), there is a whole new set of constraints because payment amounts change from week to week. If I’m the group lead-er, I have to recalculate the balance and then enter it, and that’s much more intensive. Also, SHGs tend to be in poor and excluded communities, so that is an added difficulty. We have done some work with PRADAN, an NGO in North India, that has created a compromise between having the ladies themselves enter the information on paper, and having all the information aggregated in a beautiful decentralized way.

They [PRADAN] have munshis, or account-ants, in semi-urban locations, whose job is to run an enterprise that does SHG accounting. They sit in a kiosk that has a computer and software to process these records, and they provide this as a service for just a few rupees a record. Now the women in the SHG don’t have to take on the burden of accounting and recalculating balances week to week. They enter the information as they normally would into a ledger, take a copy of it, and put it in a post box. A guy on a bicycle rides to each village, picks up the papers, and bring it to the munshi. The computer munshi enters the information, processes it in about three minutes, creates a print out, and gives it

microsoft’s research wing has been looking into smart applications of technology for microfinance. How do users respond to mobile technology? Can branch managers incorporate mobile devices into their record keeping? Aish-warya Ratan, a member of the research team, tells microfinance Insights about their projects and some of the social ramifications of technology adoption.

MFIs Can Adapt Technology to Rural Areas

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back to the same bicycle rider. Each group gets a copy of their accounts for the next week.

It’s a perfectly beautiful and contextual way of incorporating technology. The users were find-ing it difficult to process the information, and it may be very difficult to get technology to work in their community, so PRADAN has made the system work smartly. Change the work flow in-stead of adding new things. That has worked well across all the branches.

Insights:Yes, it’s hugely beneficial to look at practical applications for technology before spending money on inappropriate solutions. Let me ask you this. From your research, do you think technology could replace or hamper some of the social interaction that character-izes microfinance? Ratan: I’m not sure. I think it really depends on the mandate of the organization. Some MFIs are very clear cut—especially the NBFCs—that they are in this just for the finance. They have de-

signed their product well and are catering to the needs of the poor, but their implementation is just to provide the finance and get out. In those scenarios, especially for more mature customers who are used to social interaction, but may not benefit from it anymore—they’re happy to cut the time costs of attending a weekly meeting. Graduating them to paying at the local corner shop through a mobile phone can be much more convenient. You know, it doesn’t have to be the same rules for everybody.

But, take Grameen for instance, which has a great emphasis on the meeting itself as a social empowerment tool. In those scenarios, it’s hard to say. People react very differently to these tech-nologies. These devices have small displays, it’s hard for everyone to see, whereas the ledger book used by these organizations is so huge—it’s interactive, everyone can see. It’s very public. But, with technology, I’m wondering how that will change. Until the point when payments themselves become electronic, I think that they

won’t have such an impact. The moment you are able to only use a phone

or ATM to handle financial transactions, things will change. You will have to really provide an incentive for people to come to the meeting. So, it’s an open question. n

Managing Risks and Rewards for Institutional Investors in

Ensuring Financial Returns without Compromising Global Social Objectives29 & 30 October 2008 | Millennium Knightsbridge Hotel, London, UK

MicrofinanceBusiness Information In A Global Context

Join an unparalleled faculty including CEOs, Chairpersons, Global Heads of Microfi nance Departments and Managing Directors from Deutsche Bank, Citibank, Standard Chartered Bank, Blue Orchard, responsAbility, Grameen Foundation, CGAP, Symbiotics, Microvest, Merrill Lynch, ACCION, IFC, Unitus Investment Group, Standards and Poor’s, Fitch Ratings, LuxFlag, MIX and other industry leaders as they share their expertise on how to balance the needs of the issuers against the risk/reward appetite of investors, so that a well structured mechanism can evolve to facilitate and increase global investment in microfi nance. Through in-depth research and analysis with key industry professionals, this event will not only put current market transactions into context, but also explore the potential business models emerging to ensure sustained growth in the microfi nance industry.

Be present at Europe’s leading event on the 29th & 30th October, bringing together experts from across the globe to identify and resolve the microfi nance industry’s concerns, including:• What are the investment alternatives available in microfi nance for institutional investors?• Recent innovative fund structures in the microfi nance context• US market perspective on microfi nance investments• Analysis of fund rating methodologies currently being used

in microfi nance• Strategies for balancing the risks and rewards of having microfi nance

in your portfolio

• Developing a uniform framework for evaluating social performance• How to avoid a sub-prime crisis in microfi nance• Importance of development agencies’ investments for growth

in microfi nance• MIX market update on how the microfi nance industry is performing• Developing internationally applicable corporate governance

guidelines for MFIs

Visit www.C5-Online.com/microfi nance for further information and ways to register. Alternatively e-mail Susan Jacques at [email protected] for a copy of the brochure. Remember to quote priority service code 794F09.MI on all correspondence.

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www.microfinanceinsights.com

Visit our new website!


Using technology to bridge the digital divide has become an accepted practice as micro-

finance organizations strive to alleviate poverty in the developing world. Grameen Bank, the pioneering microfinance organization founded by Muhammad Yunus, is a classic example of how small loans can be a model of sustainable economic development. Coupling its efforts with technology such as a cell phone, Grameen has helped thousands of poor, rural villagers in Bangladesh — often, women with little or no education — make a comfortable living by sell-ing airtime.

Intel has also seen affordable technology make a huge difference, in places as diverse as Africa, South America and Asia. For example, “digital villages” created through public-private partnerships in Parintins, Brazil; Oseem, Egypt; and Baramati, India have changed thousands of lives by linking these remote communities to the outside world. Through the World Ahead Program, Intel has focused on how computers and Internet connectivity can help the poor gain access to better education and healthcare, with the larger goal of spurring social and economic development though technology innovation. While influencing healthcare and education is fairly straightforward, lifting people out of pov-erty is more challenging. Like Grameen, Intel believes any effort must go beyond a simple handout. It has to be self-sustaining, as well as tailored to local needs and circumstances.

Complementary philosophies and a common cause led Intel to join hands with Grameen ear-lier this year and form a “social business.” Intel’s main motivation for investing in the Grameen-Intel Joint Venture is addressing the need in the developing world via a formal framework and an organized structure, similar to what exists in the developed world. The rationale is obvious: When you have no formal mechanism for providing

goods and services, poor people are deprived of the market efficiencies that exist in the developed world. For example, nothing prevents a remote village’s only financial provider from charging 80 percent interest, or charging much more for products than the price at which they’re avail-able in a well-functioning market supported by technology.

The Grameen-Intel Joint Venture aims to put such a framework in place, using information technology to help with the market structure and provide a social benefit for the impoverished segment of the world population. Building on Grameen’s “phone ladies” concept, the venture is using computing technology as the means to create entrepreneurs. It focuses on technology-based services that offer poor people an avenue to a better livelihood.

The current initiative will bring healthcare solutions to rural communities. Because there is a lack of both professional doctors and sophis-ticated technology in rural villages, this program works to solve both solutions by using technolo-gy as a connector. The venture will provide solu-tion packages that a local entrepreneur can use to offer medical services to his/her fellow villagers. For example, asthma detection can be offered by means of a breathing device connected to a com-puter for data gathering and reading. The data is then transmitted to a doctor via the Internet for analysis. Similar services focus on heart-rate or weight monitoring. Using connectivity and technology, the joint venture will bring medical care to faraway places.

To date, such solutions have been cost pro-hibitive for a typical micro-finance borrower. A computer kiosk with internet connectivity used to require more than a US$1,000 upfront capital investment and if successful, would require two to three years for an entrepreneur to break even. As a result, these projects are often limited to pi-lot projects subsidized by NGOs due to the high upfront investment.

Therefore, we need to provide technology innovations at a price point that would be ideal for micro-financing. New technology, such as the new generation of Intel® Atom processors, a processor introduced in April of this year, purpose-built for simple, affordable mobile de-vices, along with various third party peripherals, would be ideal for local entrepreneurs. Instead of having to force existing technology solutions, our goal is to design innovative solutions from the ground up (such as the Intel Atom processor) that fit the business and financial profile needed for local entrepreneurs. Credit provided by a lo-cal MFI could then provide the means for a local citizen to empower himself/herself and the com-munity with more convenient healthcare.

Breaking New Business GroundThe joint venture’s operating model breaks new ground by mimicking an organized business in the capitalist world, focusing on the efficient production of goods and services rather than just “tinkering” with technology. The venture is structured as a standalone company, with tradi-tional financial metrics and management over-sight by both parties. Its board of directors will include representatives from Intel and Grameen, and both entities have committed to invest funds and expertise. Intel’s contribution includes exten-sive technical and management expertise, and Grameen brings three decades of experience in creating income-generation opportunities at the

Intel’s recent investment in a joint venture with Grameen trust has created a standalone “social business,” suggest-ing a new breed of organization that falls outside the traditional purview of technology companies. the Grameen-Intel partnership goes beyond the typical CsR program by establishing a corporate framework for understanding the needs of a population segment and providing It-related solutions to meet those needs. this concept could pave the way for more ventures of this nature, especially if the social business model proves viable in the project’s start-up country of Bangladesh. microcredit organizations may be well-advised to understand the structure of these emerg-ing businesses and identify the unique role they can play in a changing landscape.

Increasing Borrower Bandwidth:Technology for the Poor through Social Business

“Villagers seeking to become en-trepreneurs won’t be able to buy mobile or computing devices un-less they have access to banking facilities and credit.”

iNNOvatiON


village level. Day-to-day operations and project implementation will be handled by a local team that can grasp the social requirements of an area, recommend solutions that fit the local context, and deploy those solutions effectively.

It’s important to note that this venture differs from a traditional company in some key respects, too. In keeping with the social business concept advocated by Dr. Yunus, it is a multi-dimensional business that is not just about profits. It is about “doing the right thing,” and developing a seg-ment of the population for the future. In essence, this means giving people the opportunity for a better livelihood, and a better life, analogous to the way technology has created millions of out-sourcing jobs in India. The venture is designed as a non-loss business, because after recovering the costs of staffing and infrastructure, any excess cash will be reinvested in the business to help make it scalable.

Microcredit Companies Are Key to Support StructureTo succeed, the social business partnership mod-el needs a supporting ecosystem. Villagers seek-ing to become entrepreneurs won’t be able to buy mobile or computing devices unless they have access to banking facilities and credit. Microfi-nance institutions play a crucial part here, not only because they’ll be the ones extending credit but also because they have grass-roots knowl-edge of local needs. That proximity makes them the best resource for determining how new usage models can apply to this customer segment.

Because the joint venture is new, it’s too early to speculate what those new usage models might be. But targeting technology innovation for the poor clearly calls for a different process than the business-as-usual approach. Intel’s own experi-ence proves the point: For several decades, Intel’s business has been about PCs for prosperous us-ers, servers and data centers, and its innovation has revolved around faster processors, better power consumption and so forth. This works fine for the corporate environment and urban consumers, but it doesn’t fit the needs of Bang-ladeshi villagers.

Addressing that population raises new ques-tions: How does your design change? What type of mobile devices will work best in a certain area? Does your portal need to look as sophisticated as Amazon.com, or is it as simple as five icons, since villagers only need five products? In short, social business ventures need to shift from a corporate

Kazi I. Huque is the Intel manager serving as the CEO of the Grameen-Intel Joint Venture. Prior to assuming his startup role with the joint venture, Huque had various management responsibilities in IT and finance. He can be reached via e-mail at [email protected].

iNNOvatiON

Technology &Financial Inclusion

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mindset to understanding the needs of the im-poverished segment, then determine how best to meet those needs. However, innovating for the poor isn’t just a bottom-up process. Along with sending unique requirements upstream, innova-tions created in research labs in the developed world must be adapted to meet the needs of poor communities. Plus, because poverty is a multi-faceted problem, technology innovation must occur in parallel with efforts that target other pressing needs, including infrastructure, clean water, healthcare, and education.

For Intel, Grameen’s insight is a key asset to the learning process. Grameen has 24,000 staff members in Bangladesh, where the project is ini-tially being deployed. These people have worked closely with villagers for decades while extend-ing credit to more than 7.5 million borrowers. Worldwide, the industry boasts nearly 100 mil-lion borrowers, a number that bodes well for the role that microcredit companies can play in the

evolving social business climate. That role is two-fold. One, the microcredit in-

dustry can provide valuable customer service. Since microcredit organizations are the closest ones to the customer, businesses can rely on them to take the lead in the creative process, such as recommending new usage models and the best ways technology can be applied for end user benefit.

Two, the technology-based services provided by businesses like the Grameen-Intel Joint Ven-ture offer microcredit companies the means to extend their business portfolio. As new usage models evolve, microcredit companies will have the opportunity to take the next leap into emerg-ing areas, while helping to foster innovation in technology-based services.

These opportunities are likely to increase over time. Assuming the pilot projects succeed in Bangladesh, the goal is to extend the effort into other countries. Also, once Intel proves the vi-ability of the social business partnership model, other technology companies can be expected to follow. n

“That means technology innova-tion has to occur in parallel with efforts that target other pressing needs, including infrastructure, clean water, healthcare and edu-cation.”


A hotelier in South Africa anticipates that he will have a certain percentage of rooms

available on most nights during the low season. The hotel decides to offer these empty room nights to an exclusive membership of busi-nesses on a trade exchange. In return, the hotel obtains advertising, transportation services and employee incentives, all things they needed but did not have the surplus cash to pay for. Using a trade exchange has allowed the hotel to turn its excess capacity into thousands of dollars in products and services.

Modern Barter TradeThe modern barter trade exchange industry has existed for over forty years, surviving and growing through numerous changes in the economic landscape. The International Recip-rocal Trade Association estimates that in 2007 the trade exchange industry made it possible for over 400,000 businesses worldwide to uti-lize their excess capacities to earn an estimated US$10bn in previously lost revenues. This is up from US$8.25bn in 2004. In terms of income, excess business capacity represents the differ-ence between actual cash revenues received, and the cash revenues and profits that would be realized, if a business operated at 100% of its capacity. Broken down by geographic region, there are approximately 500 commercial trade exchange companies operating in North/Latin America with an estimated annual trade volume of US$2.3bn, 100 commercial trade exchanges operating in Europe and the Middle East with

an estimated annual trade volume of €1.8bn, and approximately 100 commercial trade exchanges in Australia/Asia with an estimated annual trade volume of AUD 1.85bn. As a specific example of the kind of growth possible in this industry, BizXchange, a retail and corporate barter compa-ny based in Washington, California and Dubai, has grown to include nearly 1500 member busi-nesses since its inception in 2002 and currently facilitates over US$30m in increased commerce between its members each year.

Understanding Barter Trade A barter trade exchange is a collection of busi-nesses that trade their goods and services, called the barter pool, managed by an intermediary, called the trade exchange. In modern barter, businesses do not exchange goods directly in the bilateral fashion of traditional barter. Rath-er, modern barter is multilateral, using a form of private label currency. The trade exchange issues trade dollars to the member businesses and acts as a neutral third party record keeper, similar to a bank. When a company sells a good or service, they receive credit in trade dollars for the full retail amount of the product sold, which

they can then use to purchase goods and services from any other member in the exchange. The value of the trade dollar is tied to the national currency providing standard pricing guidelines that do not permit businesses to charge more for their goods in terms of trade dollars than they do in the open market, thus preventing devaluation of the currency.

Like a Normal EconomyA barter pool is a relatively closed economy about which we have very detailed information due to the bookkeeping function of the trade exchange. The trade exchange maintains a gen-eral profile for every member business, as well as complete records of all transactions between members. A barter pool has many similarities with a traditional economy, with the trade ex-change playing a role analogous to that of the federal government in regulating the economy. The exchange controls such variables as mon-etary supply, interest rate, rate of commission (analogous to revenue tax), and even supply and demand through its ability to selectively recruit new member businesses. Interestingly, although it has control over all these parameters, the trade exchange works to stimulate the barter pool economy primarily by making referrals to member businesses through trade brokers.

A barter pool can be viewed as a carefully managed small-scale economy. Managers of trade exchanges attempt to recruit member businesses in such a way that supply and de-mand for each product category in the pool are

“A barter pool can be viewed as a carefully managed small-scale economy…with member busi-nesses recruited in such a way that supply and demand for each product category in the pool are approximately balanced.”

Barter has come a long way since the spice trade.

Let’s Make a Deal: Can the Modern Commercial Barter Model Work for Microfinance?

organized business trade exchanges have created a platform to renew and refresh one of the oldest forms of economic growth: barter. Could the commercial barter exchange model be used to expand and develop microfinance? peter and Chris Haddawy explain how barter trade works and how the model could be utilized by mFIs.

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approximately balanced. Member businesses are typically small to medium sized enterprises that offer products and/or services. They fall into the broad categories of general operating expenses, employee benefits, and travel and entertainment. Examples of typical businesses in barter trade exchanges include car rental, catering, advertis-ing, office equipment and furniture, office sup-plies, dental services, health clubs, restaurants, and hotels.

It is a common misconception that the pri-mary benefit of barter is to avoid taxes. In fact, the US Tax Equity and Fiscal Responsibility Act, passed in 1982, legislated that barter income be treated as equivalent to cash income and taxed on the same basis.

Getting StartedWhen a business joins a trade exchange, it typi-cally pays a membership fee. This represents a small fraction of the revenues of the trade exchange. The primary revenue is made by charging a fee to the buyer and seller on each transaction. The fee is typically in the range of 10 to 15 percent, split equally among the buyer and seller, and payable in US dollars (in the case of BizXchange). When a business joins the trade exchange, they are issued a line of credit in trade dollars, which permits them to make purchases without first having to sell and also gives them flexibility in conducting transactions. The trade exchange charges interest on negative balances also payable in trade dollars, usually at the same rate as major credit cards. In order to give a company some control over how much of their profits are accrued in terms of trade dollars, the trade exchange permits the member to set an upper limit on the amount of trade dollars they are willing to accumulate. The credit line and upper limit define the financial operating range of the business within the barter pool.

Catalyzing TransactionsEach member is assigned to a trade broker. A

broker typically represents a set of 100 - 200 member businesses. The broker’s job from the standpoint of the client is to help the client sell his goods to other members and to inform him of goods he might like to buy. This results in new sales for the member that they normally would not have received with their normal sales and marketing efforts and an improvement in cash flow by offsetting normal budgeted cash expens-es. The broker’s job from the standpoint of the trade exchange is to stimulate trade transactions, since the exchange’s revenues are directly tied to volume of trade that occurs among members. The broker stimulates trade by working to help clients spend their trade dollars when they have positive balance and generate sales when they have negative balance. The broker’s primary tool is the referral, referring potential buyers to suppliers. While member businesses are under no obligation to follow the broker’s referrals, re-search and experience show that they generally do. In a real operational sense, a trade exchange is like a financial institution that not only pro-vides loans but also works hard to help its cus-tomers repay them through additional sales.

Implications for MicrofinanceThe organized trade exchange model provides a number of interesting opportunities for mi-crocredit. The modest line of credit that trade exchanges extend to members’ businesses is pro-vided in terms of trade dollars and thus requires little or no capital to secure. This mechanism could be used by MFIs to achieve increased lev-erage from their available capital, meaning they could lower the interest and fees charged to loan recipients.

This leveraging of capital is possible because of the excess capacity in goods and services present among the members in the barter pool. Thus, to use this model for microfinance would require establishing a barter pool with a mixture of busi-nesses, with the poorest customers representing a certain percentage of the members. The only real difficulty is in getting the MFI borrowers together to get it started.

The model is not constrained by online access or currency type, and therefore, is applicable to almost any region. The currency used on the ex-change is a complimentary currency that simply mirrors another currency in terms of value, but could even suffice entirely on its own. Software is used by the exchange to track and report the transactions, but the currency, support, and management of the membership (or customers) is maintained by people. Online systems can as-sist businesses in locating products and services through a search engine but is not necessary for running or managing an exchange.

By issuing lines of credit rather than loans, the MFI could provide increased financial flexibility to customers. Additionally, the lines of credit are paid back when the customer receives new business thus allowing the MFI to have a direct, positive impact on the growth of the customer’s business. Under this model of microcredit, the MFI could generate revenue by following the standard barter model of charging some interest on outstanding balances and receiving commis-sions on trades. Receiving commission on trade provides an important incentive to the MFI to provide extended support to its customers. For example, the detailed trade information available would enable the MFI to support to customers by providing them with information and linking them with buyers and suppliers.

This is the kind of support to customers that is currently so intensely discussed in the microfi-nance community. n

“This mechanism could be used by MFIs to achieve increased le-verage from their available capi-tal, meaning they could lower the interest and fees charged to loan recipients.”

Peter Haddawy at the Asian Institute of Technology, Bangkok, Thailand and Chris Haddawy, founder of BizXchange in San Francisco, California contributed this piece. A tutorial on the basics of commercial barter can be found at www.BizXchange.com. Other information sources include: International Reciprocal Trade Association at www.irta.com and the National Association of Trade Exchanges at www.nate.org. For more information, see: P. Haddawy, C. Cheng, N. Rujikeadkumjorn, K. Dhananaiyapergse, Optimizing Ad Hoc Trade in a Commercial Barter Trade Exchange. In Electronic Commerce Re-search and Applications, 4(4):299-314, Winter 2005.


Trust on the Line -Making the Mobile Channel Secure

A trader sitting in his store in a shanty town has to pay his electricity bill. He uses a new

service called “pay from mobile.” He sends an SMS text message to his electricity company con-taining the electricity account number to be paid, the amount due and the number of his bank ac-count. The payment goes through and the trader receives an SMS from the electricity company. However, two weeks later the trader’s account is mysteriously empty. The trader is bewildered. He has no idea where his money went.

How did the trader lose his money? Is this a widespread problem for users of mobile bank-ing technology? It turns out this man’s SMS text message was intercepted as it passed through the mobile network. His account number was copied and used to pay other accounts. There are several ways the trader could have avoided being exposed, including pre-registration of informa-tion with the electricity company to avoid having to send sensitive information in the transaction. But, the electricity company failed to set up the proper security infrastructure required to protect its users.

This example, although simplistic, highlights the need for proper security and process design when implementing mobile payment systems.

Without proper security measures, mobile and branchless banking could backfire for hundreds of thousands of customers.

Knowledge about Risks is Still LimitedThe introduction of branchless banking and payment by mobile in the developing world is moving ahead at a clip. A good example of this is the M-PESA business in Kenya which, in just under a year and a half of operation, has regis-tered around three million customers. Similarly Smart Money and G-Cash in the Philippines and MTN Banking in South Africa have also shown that large numbers of customers can be reached and served.

The use of mobile phones for mobile Financial Services (m-FS) is relatively new, and as a conse-quence, the knowledge of the risks and the risk experience of providers is still limited. The rapid

take-up and potential scale of new mobile-based payment offerings has led to increased interest from both banks and non-banks as well as from government regulators in understanding and managing the additional risks that arise from the use of mobile phones for payments.

Two elements of the mobile channel are dis-tinctive relative to other e-banking channels like Internet banking and point of sale devices: first, the mobile handset, which comes with a wide range of functionality, from “basic” on stand-ard handsets to “advanced” on feature phones and smart phones, and therefore, a wide range of security capabilities; second, the mobile net-work itself, which includes all the links carrying a message from a handset to the mobile Finan-cial Service Provider (mFSP) and back, and the methods used to communicate between the handset and the mFSP over these links.

Both of these elements contribute to a differ-ent risk environment for m-banking. Boards and management of mFSPs, as well as regula-tors, need to have a clear basic understanding of how these elements work and what options are available for the deployment of mobile telephone technology, including a comparison to other es-tablished e-banking channels.

Regulators in many countries are highly concerned about the security risks brought about by mobile banking.Johann Bezuidenhoudt, who works for Bankable Frontier Associates, explains the risk profile of various mobile chan-nels, and the need for careful risk appraisal and operational management.

Table 1: Mobile Technology Options

Channel Technology Description Supported onHandsets

IVR A call is made to (or from) an automatic system and the user receives pre-recorded prompts and responds by selecting keys.

Standard HandsetStructured SMS A SMS text message is sent to the mFSP. The message is interpreted and acted upon, and a

response SMS is sent.

USSD A number is called from the handset and a menu is displayed on the handset that the user navigates through, selects options from, and enters data into.

SIM toolkit Implemented within the SIM that is inserted in the handset. The functionality appears as a set of additional menu/s on the handset.

J2ME Java applications that can run on the handset.

Advanced HandsetWAP Internet Browsing using a WAP protocol browser. Same as browsing off a PC. WAP pro-vides optimized (data usage and size of screen presentation) interaction for the mobile.

HTTPS – Internet browser

Standard Internet browsing off the mobile to the bank’s website. Mobile performs the function of a PC.

“The addition of a new channel—mobile banking—brings new op-erational risks to providers, just as the introduction of Internet bank-ing more than a decade ago also opened new risks.”

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Regulators and those involved in the mobile sector commonly list additional risk considera-tions arising from the use of this channel. These include the higher possibility of loss of device, the restricted screen and keypad of the device, the information security of the end-to-end net-work, the availability and reliability of the com-munications network, and the use of outsourced service providers. These factors contribute to the channel’s risk profile, but do not necessarily make deployments of mobile financial services more or less risky than other forms of e-banking.

The mobile technology deployed and the result-ant risks must be balanced with risk-mitigating operational practices so as to meet overall risk objectives and regulatory requirements.

The Market for Mobile Financial ServicesMobile banking brings new opportunities and risks to financial providers, carriers, and the fi-nancial system.

On the one hand, it offers the new, added convenience of bringing banking and payment services to existing banked customers, referred to as “additive m-banking.” Specifically in devel-oping countries, it will go even further by offer-ing banking and payment services to those who have never participated in the formal electronic banking system. This is called “transformational m-banking” to distinguish it from additive m-banking. In the process, customers, banks, mo-bile network operators (MNO), and third party suppliers stand to gain.

These opportunities have caused new play-ers to enter this market along with the many Financial Service Providers who are consider-

ing businesses based on the mobile transacting channel. The addition of a new channel brings new operational risks to providers, just as the introduction of Internet banking more than a decade ago also opened new risks. For this rea-son, mFSPs seeking to enter the market, or those already in the market, should assess their risks and develop strategies to mitigate them on an ongoing basis. As adoption of mobile financial services increases, financial regulators in various countries are also paying increasing attention to the specific risks brought on by the use of the mobile channel.

The Available Mobile TechnologyTypically, the functionality available on mobile handsets (a large majority of which use the GSM standard) enables users to send plain-text mes-sages to a financial service provider and receive responses about the execution of the instruction thereafter. This plain-text or SMS messaging functionality is visible and modifiable at many parts of its journey, and as such is not that secure. The same applies to USSD messaging which is similar in that it is supported on all GSM hand-sets manufactured in the last few years. USSD is a dialed string that the user enters in the form of *123*1231234#. USSD is a way of entering a code into one’s phone and then interacting with a service on a mobile phone.

The more secure technology involves putting the mobile banking or mobile payment applica-tion onto a SIM card in a SIM toolkit application. The SIM card then goes into the GSM Mobile handset, grants access to the operator’s mobile network, and provides end-to-end security. Ta-

ble 1 details the seven technology options avail-able through the mobile channel

In developing markets, “Standard” handsets usually comprise over 80% of the handset base in the field; in order to deliver services to as wide a base of customers as possible, developing world mobile Financial Service Providers have four technologies that they can use in various com-binations: IVR, Structured SMS, USSD, and SIM toolkit.

The deployment of the seven channel tech-nologies above can be expressed in four use cases. The available options for developing markets are Use Case 1: “Use what is there,” and Use Case 4: “Use a secure environment on the mobile.” Table 2 maps out these Use cases and associated risks.

The implementation of Use Case 1 does not need close co-operation with all the mobile operators and can be made to work across all the mobile networks in a country. Use Case 4 requires the direct co-operation with one or many mobile operators to get the secure appli-cation and the associated encryption keys onto their SIM cards as well as the need thereafter to change the existing SIM cards in the customers’ phones to the new secure SIM cards so they can use the secure services.

Risk Assessment and ManagementMobile Financial Services are subject to many of the same vulnerabilities as e-banking. The risks associated with each mobile channel and the cor-relation with each use case should be evaluated in a three step process:

First, the likelihood and severity of the vul-•

Table 2: Use Cases and Associated Risks

Use Case Approach Technologies available Associated Risk

1 “Use what is there” and make use of the existing ge-neric mobile bearer services provided on all phones ac-cessible directly by a user

SMS, Voice/IVR, USSD There is no encryption of information, so the channel from the mobile to the mFSP is open to monitoring, replay, modifi-cation and impersonation.

2 “Use mobile browsing services” that are provided on phones - not MNO dependent

HTTPS = normal web browsingWAP phase 1WAP phase 2

Same risks as for a PC on the Internet. Channel is less ex-posed than regular Internet as much of it is within MNOs.

3 “Use advanced application services” provided on phones - not MNO dependent J2ME

Same as client side applications on PCs. Mobiles less ex-posed to the Internet and threats. However issues around the trust (integrity and authenticity) of the applications exist and need to be managed.

4 “Use a secure environment on the mobile” provided by the MNO or MNOs

SIM ToolkitWIB, S@T, and Java cards

The highest technical end-to-end security as the applica-tion runs securely within the SIM and the encryption keys are kept within the SIM.

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ReferencesBezuidenhoudt, Johann S. and David Porteous. Managing the Risk of Mobile Banking Technologies. Johannesburg, FinMark Trust, 2008 <www.finmark.org.za/documents/MBTechnologies_risks.pdf>Porteous, David. Enabling Environment for M-Banking in Africa. Department for International Development (DFID) Report. 2006<www.bankablefrontier.com/publications.php>Lyman, Timothy R., Mark Pickens and David Porteous. Regulating Transformational Branchless Banking: Mobile Phones and Other Technology to Increase Access to Finance (No.43). Consultative Group to Assist the Poor and DFID. January 2008.

Johann Bezuidenhoudt ([email protected]) is an Associate of Bankable Frontier Associates and has experience in consulting internationally in strategy and technology deployment in financial services. He has training in econom-ics and engineering and has worked in the private sector at a electricity utility and mobile operator and now consults on mobile banking. Johann has been involved in the MTN Banking project in South Africa and other banking and mobile payment initiatives.

nerability occurring is assessed in order to determine the risk rating. Second, control measures are proposed based •on the assessed risk. The final risk is the risk adjusted for the control measure. Third, environmental factors may scale the •adjusted risk rating upwards or downwards. These factors include whether the mFSP is a new entrant or not, and the extent to which the mobile channel is the main or dominant channel offered by the mFSP itself and/or on a country basis.

For further detail see Managing the Risk of Mo-bile Banking Technologies, a paper that covers this subject in depth.

High Security versus Prudent OperationThere are tradeoffs that must be made when end-to-end security is not used. Typically one must accept increased risk from using less se-cure technology, and then in parallel reduce the overall risk through operational procedures and controls. This requires a careful analysis of situ-ation-specific risks that are introduced and then an appropriate procedural/operational response to this. What we have seen is that every case is different and the responses vary.

If a “lower” security level is chosen by the pro-vider of the payment service, thus allowing the use of the more ubiquitous technologies to pro-vide universal mobile access to a banking service, then a careful risk analysis should be undertaken to understand and mitigate the increased risk. Using this understanding as a basis, the neces-sary processes and controls are constructed.

Using more ubiquitous technologies that ex-hibit lower technical security capability can be offset by increased operational controls, thereby maintaining overall risk to the provider within acceptable bounds. Where the level of operation-al risk is inherently low (e.g., low value of funds and small payment values), the more secure technologies may be unnecessary. For example,

in some modes of m-banking where information is exchanged with clients but there is little or no transaction capacity, less secure technology may not be as much of a concern.

Diagram 1 depicts the security models that can be used and the relative tradeoffs between technical security and operational controls.

Moving to prudent and adjusted security models requires a proportionate regulatory framework within which to ensure ongoing and active supervision of risk management.

The Current LandscapeThe mobile technology options available today allow for a variety of choices when implementing Mobile Financial Services. Options range from technologically secure end-to-end implementa-tions to less secure options that do not have full mobile-to-banking system security.

Examples of Prudent Security Models based on this approach do already exist, such as the USSD services from First National Bank and ABSA in South Africa. The ubiquity of less secure mobile technologies, as per Use Case 1, namely Voice/DTMF/IVR, SMS, and USSD on all mobile handsets and the feasibility to offset the risks introduced by their use in mobile fi-

nancial service provision makes it possible to ex-tend financial services to all mobile subscribers, which bodes well for the millions of unbanked people in the world.

Given the lower levels of mobile handset technology prevalent in many developing coun-tries, transformational mobile banking can be accomplished through a careful risk appraisal, and then the introduction and management of operational controls (including user education) necessary to offset the higher technical risks inherent in choosing ubiquitous but less secure technologies.

For the potential mobile financial service provider, a careful choice from a range of tech-nical solutions, using a risk management based approach, can balance availability of the mobile service with the need to manage risk and thereby result in a successful mobile financial service de-ployment.

Thus, it is key that an aspiring provider of mo-bile financial services consults with regulators, mobile networks, banks and technology provid-ers in selecting the technical and operational so-lutions that will enable them to provide effective services at an acceptable level of risk. n

End-to-EndSecurity model

Use Case 2, 3 and 4

Prudent mobile Security model

Use Case 1

Adjusted mobile Security model

Custom Implementation

Diagram 1: Balancing Technical Security with Operational Controls

Technical Security Operational controls

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Cha

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Less Technology and more Process Control

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Sifting out Bad Debtors:Developing Credit Bureaus

The incredible development of the microfi-nance sector over the past twenty years has

led the public to look upon the sector with rose-colored glasses, often only seeing the advantages of the system. However, behind the well-known repayment rates of the microfinance sector, some realities have to be considered to serve the mar-ket correctly.

In the late 1990s, many MFI client portfolios appeared to be over-indebted. The inability of a household to cover its expenses or its loans became critical in some countries. Clients bor-rowed money from multiple MFIs in order to re-pay the previous ones. This trend often stemmed from increased competition between MFIs in the same region, and the fact that MFIs would not share information on clients and outreach. For example, the Bolivian microfinance sector spun into crisis due to over-indebtedness of clients. The bad debt rate in some Bolivian MFIs was higher than 25 percent. The most strategic way to prevent similar situations around the world is the establishment and widespread participation of MFIs in credit bureaus.

Traditional Banking vs. MicrobankingIn traditional banking structures, the over-indebtedness of the private individual has been tracked and handled since the end of 1980s, thanks to Credit Bureaus (CBs). CBs use so-phisticated technology to collect information from various sources and provide consumer credit information on individual consumers for a variety of uses. The customer’s data, as well as credit history, are centralized in one database in order to draw information from several actors. These tools were created due to pressure from Central Banks and Public Credit Registries in most developed countries.

MFIs can and should institute some sort of customer tracking database, akin to what tra-ditional banks use. Due to precise state laws re-garding banking and private data retention and exchange in most countries, the microfinance sector cannot use the term Credit Bureaus. The technology MFIs use is instead referred to as

“Information Sharing Systems” (ISSs).ISSs were initially implemented in many

countries to prevent clients as well as MFIs from driving themselves into a state of indebtedness. ISS sifts bad debtors from the good, reduces the cost of credit, prices risk accordingly, uses automated/semi-automated underwriting tools like credit scoring, and avoids aggregation of bad debt among a number of financial institutions. The technology also facilitates the financial sec-tor’s supervision and regulation (Public Credit Registries in particular) and increases trans-parency, which is key for funding. Moreover, it provides data for economic research. Addition-ally, it consolidates the microfinance sector, and facilitates the entrance of new market players, such as banks looking to downscale.

Different MethodologiesThe methodology of implementing an ISS for the microfinance sector is completely different from implementing a CB for the traditional finance sector. Traditional banking systems determine whether to grant consumer loans using credit bureau data for salaried clients with an auto-mated, “high-tech” credit scoring approach; on

the other hand, MFI loans are based on an in-dividualized, labor-intensive, “high-touch” ap-proach which requires gathering data directly from the applicant and analyzing the cash flows and personal character of the micro-borrower. Quantitative data is essential for the traditional finance sector; therefore CBs are a priority. How-ever, due to a lack of documentation concern-ing income and credit history within the lower income population, credit reporting and CBs were deemed secondary in the microfinance sector, hence the late implementation of ISS in poor countries.

Legal issues regarding ISS vary by country. The role of the National Regulator differs widely as does the supervision of the CB, which can be taken care of either by the industry itself or by a public entity (Central Bank, Supervisory Com-mission, etc.). In many countries, microfinance ISS initiatives stem from the industry and do not require institutional investments in IT in the short term. Instead of incurring costs on new technologies to track customers, MFIs can simply exchange lists of delinquent clients or create a database that logs negative information on clients. If the Central Bank supervises, the in-stitutional framework should be solidified prior to setting up the technical framework. Laws re-quiring use of the ISS by all relevant MFIs should be put in place.

ISS business models are usually based on a large number of inquiries for small loans which require more frequent updates due to shorter loan cycles. Therefore, the amount charged per inquiry cannot be the same as the amount charged to banks. ISS inquiry prices have to be adjusted to MFIs’ financial capacity, which is much lower than the prices other financial in-stitutions can afford.

A closer look at the nearly 100 percent repayment rates in microfinance, reveals that some borrowers refinance their debt by taking out loans from multiple mFIs. to prevent this, and encourage tracking of clients and debt, credit bu-reaus for microfinance are needed. laurent lepage of plaNet Finance tells us more.

“Clients borrowed money from multiple MFIs in order to repay the previous ones.”

Credit Bureaus Help Sift out Bad Debtors


Technical ChallengesOn the technical side, other challenges emerge. Some MFIs find it difficult to meet all reporting requirements regarding clients due to poor or nonexistent Management Information Systems (MIS), so there is a need to implement relevant technology and to diversify information chan-nels, despite the tendency of MFI management to think that very basic technologies can be suf-ficient in the short-to-mid-term. In addition, a large portion of MFI staff remain poorly educat-ed. The system must be adapted to their level of knowledge and technology. For the time being, time, ISS brings limited functionality compared to a CB.

Support and TrainingIn the setup of an ISS, PlaNet Finance plays the role of the technical and institutional advisor drawing upon its experience with MFIs around the world. Our philosophy is to build a sus-tainable ISS managed by local operators using open-source technologies. Our ISS software has

been designed to be easily adaptable and to use technology that MFI managers will be familiar with. The software, linked to our methodology, ensures that the ISS is a powerful tool within the microfinance sector and can possibly be linked with a Credit Bureau in the future. PlaNet Fi-nance has already implemented ISSs in Morocco, Benin, and Egypt.

MFIs need sufficient support and training to incorporate credit reports and value-added services into their credit underwriting processes, otherwise MFIs will not gain the full impact of ISS. In addition, MFIs should be encouraged to collect both positive and negative information about borrowers, to reduce information asym-metry, and increase the likelihood of successful utilization of the ISS.

The goal of all countries should be full infor-mation sharing between financial (banks, credit institutions, MFIs) and non-financial institutions (retailers, telecom operators, utilities, etc.). Oth-erwise, with the downscaling of banks and up-scaling of MFIs, information will not be fully in-

tegrated and useful for the actors. In time, global and specialized private operators will be better positioned to ensure maintenance and evolution of a credit reporting system. It also appears to be a better way to bring technological and market-ing innovations to the forefront, e.g., real time updates, mobile access, applicant scoring, and payment default alerts. Through ISSs, we will see more small firms obtaining loans, lower default rates, higher loan sizes, and higher approval rates for applicants. n

Laurent Lepage, Project Manager, Chief of the Computing Department at PlaNet Finance, contributed this article. He is in charge of communi-cation and information systems, and has worked on the Microsoft project and credit bureaus, and provides technical assistance to MFIs.

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No Customer Left Behind:Financial Education for Long-Term Adoption of Branchless Banking

Across the microfinance industry, there has been much speculation about branchless

banking as a solution for increasing financial ac-cess for the poor on a rapid and massive scale. Without proper financial education, long-term usage rates may suffer. The key to improving technology uptake and understanding is formal-ized financial education for low-income clients in developing countries.

Identifying Knowledge ConstraintsThe entry point to this discussion is what and how information about mobile phone banking and bank cards is currently delivered to clients. Financial service providers often rely on prod-uct marketing and product orientation to deliver their key messages which respectively highlight services and teach subscribers to use the tech-nologies associated with the products. These two methods are seen by many users, and increas-ingly service providers, as inadequate or too in-frequent to be effective. They often fall short of stimulating the appropriate client behavior that could close the gap between uptake and usage.

In order to identify good usage behaviors which could be applied in financial education, Microfinance Opportunities conducted mar-ket research in four countries: the Dominican Republic, Kenya, the Philippines and South Africa. The research teams conducted 51 indi-vidual interviews with current users, seven focus group discussions with users and non-users of branchless banking, and 68 interviews with key informants .

From the research, three major themes emerged about financial education:

Lack of Understanding of Formal Financial •ServicesIt is widely assumed in the microfinance sec-tor that consumers who use informal finan-cial services also understand formal financial

services. However, many may not, and as a result, are unable to fully utilize the products and services to meet their financial goals. In the Dominican Republic, respondents who were bank cardholders wanted to know more about how to save, manage credit, set finan-cial goals and know the differences between types of bank cards such as debit cards and credit cards.

When clients do not understand bank-ing, they have difficulty accessing financial services regardless of the delivery channel. Technology, meant to provide convenience, can add another layer of complexity for these consumers. Many low adopters, whose mo-bile phone accounts are linked to their bank accounts, were unaware of the full range of financial services, such as savings products, at their disposal. They limited their transactions to airtime top-ups, transfers, and payments. Similarly, bank card holders restricted their usage of debit cards to cash withdrawals and balance inquiries at ATMs. Weak Consumer Trust in Branchless Bank-•ingLimited confidence in technology slows up-take and usage of both mobile phone banking and bank cards. Respondents accustomed to “high touch” banking were often reluctant to part with its perceived benefits--interaction

with bank staff, passbooks, and receipts for payments. One respondent commented “I am used to the book [passbook]…the book helps me keep track of my account and I can also deposit money using it…I cannot do the same with the ATM.”

Low touch banking can be seen as less trustworthy, with machines replacing hu-man interface as primary points of contact, and SMS confirmation numbers replacing paper receipts. Respondents commented, “I can’t feel the money,” and, “I don’t want to keep worrying whether the money has been received or not so I would rather go to the teller.” Respondents worried that they lacked recourse if they made transactional errors (i.e., wrong phone number for a money transfer) or if technical difficulties occur (i.e., bank card swallowed by an ATM). They often found as-sistance from agents or help desks unsatis-factory and worried that technical problems would translate into problems with the money in their accounts. Low Levels of Familiarity with Technology •Client discussions identified the PIN (per-sonal identification number), a singular fea-ture of mobile banking and bank cards, as a major source of confusion. Because many had never used them before, users found that the PIN presented an array of pitfalls. Many did not understand the importance of remem-bering the PIN and keeping it secure. Some clients, particularly the elderly, shared their PIN with others who then stole from them, or with their children who conducted transac-tions on their behalf. Many clients forgot their PINs and were locked out of their accounts. Others, not knowing the mechanics of how to change a PIN using a keypad either had the agent make the change for them or never established their own numbers.

Customers also confused the PIN and the

High initial uptake of mobile phone banking and bank cards by low income clients has fueled optimism about branchless banking. But, continued confusion among some clients—“what is a pIN?, why can’t I keep using my passbook?”—has precipitated interest in financial education as a way to increase long-term adoption. to date there has been limited discussion of what such financial education will actually look like. In this piece, monique Cohen and Julie lee of microfinance opportunities, present how financial education might be designed to address the knowledge constraints that impede poor people’s adoption and usage of technology-based financial services.

“When clients do not understand banking, they have difficulty ac-cessing financial services regard-less of the delivery channel.”

Many low-income clients prefer personal aspectsof high-touch banking.


clieNt readiNess

user number. At a call center in South Africa, recurrent questions were, “What is my user number?”, and, “When do I enter my PIN?” Despite a familiarity with texting, many cus-tomers in Kenya said they ignored the text messages from their bank promoting the new technologies because they felt overwhelmed by the number of messages. Other respond-ents noted that with infrequent usage they tend to forget the operational mechanics of conducting transactions, especially with mo-bile phone banking.

Delivering Financial EducationFinancial education can play a role in making financial products work better for both clients and providers. Furthermore, it can help fill the gap between client uptake and usage by encour-aging behavioral changes that help clients better navigate both the technology and the financial services environment.

Financial education teaches the knowledge, skills and attitudes that people can use to adopt good money management practices for earning,

spending, saving, borrowing, and investing. Suc-cessful financial education is more than simply imparting information about financial products and services, and money management; it devel-ops financial literacy about a broad range of basic financial skills and is therefore relevant to anyone who makes decisions about money. Overlapping with, but broader in scope and more in-depth than product marketing and orientation, finan-cial education builds the foundation for clients to become more effective managers of their per-sonal finances and as a result, better consumers of formal financial services.

The success of financial education is linked to its delivery as much as it is to content. Microfi-nance Opportunities’ experience in the field has shown us that financial education can be broad as well as deep. The former encompasses blan-ket messages intended to reach large numbers of

people. Going deep with group training requires a more nuanced approach but is a challenge to deliver when users are dispersed. A combina-tion of both is likely to be the most effective in delivering key messages.

Based on the research findings, Microfi-nance Opportunities plans to develop a fi-nancial education curriculum that promotes increased usage of the technologies. With its focus on issues such as building trust and pri-vacy of personal information, the curriculum will be adaptable to different contexts—from a classroom format to a variety of cost-effective delivery channels, including, print, radio, video, and street theater. n

“Client discussions identified the PIN, a singular feature of mobile banking and bank cards, as a major source of confusion. Monique Cohen & Julie Lee of Mi-

crofinance Opportunities contributed this piece. Microfinance Opportuni-ties, is at the leading edge in provid-ing global financial education for the poor. Please contact Julie Lee at [email protected] or visit www.microfinanceopportunities.org.

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Technology for Financial Inclusion: What Works?

Around the world, as the practice of offering microfinance to the poor is spreading, the

penetration of technologies like mobile phones, smart cards, and POS devices within the sector is facilitating some of this expansion. It is esti-mated that in India alone, there are currently 300 million mobile phones in use, with eight million added every month. This technology holds po-tential for providing financial services to rural masses in ways that are potentially less risky and more operationally viable than current systems, like hand-written ledgers or manually-updated excel sheets. To explore the synergies between technology and financial inclusion, Microfinance Insights organized a public discussion to bring together leaders from the telecom, regulatory, academic and financial inclusion perspectives to talk about key challenges and opportunities in-volving the use of technology for financial inclu-sion. “Technology and Financial Inclusion: What Works?” included Mr. Vijay Mahajan, Founder of BASIX, Dr. Ashok Jhunjhunwala, a leading technologist in India and a professor at the In-dian Institute of Technology (IIT)-Chennai, Mr. Rajesh Dongre, Head of Mobile Business Com-

merce at Vodafone India, and Mr. Manish Khera, CEO of FINO, a technology solutions provider for microfinance institutions. The discussion also benefited from key inputs by regulators Mr. Kaza Sudhakar, Chief General Manager, and Mr. R.B. Barman, Executive Director, both from the Reserve Bank of India, the central regulator and bank in the country. Their conversation brought up many of the possibilities that can be unleashed through the use of technology for the “unbanked,” which Microfinance Insights has condensed below.

Where There’s a Need, There’s a WayIndia, already a global leader in information technology (IT) services, and a market char-acterized by the growing penetration of mobile phones, makes an ideal testing ground for mar-rying the power of microfinance with the power of the microprocessor.

An assessment of microfinance operations in the country from a bird’s eye view points to two cost centers: the cost of collecting from the field and the cost of transferring monies to another lo-cation (the field or branch office). Mr. Mahajan

of BASIX, an Indian organization that promotes sustainable livelihoods through microcredit, em-phasized that we must strive to reduce costs, but be realistic about the results. “Because microfi-nance depends on low ticket sizes, and utilizes manual collection,” he said, “operational costs can realistically never be single digit. But, they can be reduced dramatically by trimming where there are inefficiencies.” Replacing the manual collection method with a cashless system is an optimal area to reduce costs.

What is Being Done?BASIX has been an early adopter of technol-ogy. It operates as the business correspondent (BC) (agents who work on behalf of banks) for Axis Bank, Citibank, and the State Bank of In-dia (SBI), to reach areas where opening a bank branch is not viable. BASIX uses mobile phones to enroll customers and carry out transactions. It has set up fixed-location BC outlets, equipped with hand-held devices which are now being converted to mobile connections. BASIX is also trying out a card, similar to smart cards, and a remittance initiative to help workers in Delhi

on July 3, 2008, microfinance Insights hosted a panel discussion in mumbai, India focused on the use and regulation of technology for financial inclusion. While the conversation, which included leaders from telecom, the regulatory side, academia, and microfinance, focused on India, the event illuminated many of the global issues, challenges and opportunities that arise through the use of technology for banking with the poor. A webcast of the discussion is available online at www.microfinanceinsights.com.

From left, Anurag Agrawal, Intellecap; Rajesh Dongre, Vodafone; Vijay Mahajan, BASIX; Dr. Ashok Jhunjhunwala, IIT-Chennai; Manish Khera, FINO

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to send money home to their villages in central India.

Working at six different locations with three different modalities, BASIX believes they are on track to implement customer-appropriate tech-nology. “What stands in the way,” says Mr. Ma-hajan, “are technology providers who are looking for higher market share too early in the process rather than moving towards the goals of market building and interoperability.” Meanwhile, regu-lators are also playing a conservative “wait and watch” game, and not intervening early enough to set standards and create a suitable operating environment for all who satisfy those standards. “There have to be forward-looking policies,” Mr. Mahajan continued, “…there is a need for a paradigm shift. It could change the nature of financial services from being elitist to being for the masses.”

Mr. Manish Khera, representing the views of FINO, a technology solution provider to MFIs, is actively looking to the BC model as a channel to implement FINO’s service offerings. FINO entered this sphere with the aim of segregating banking services from the infrastructure needed to support those services. Like many technol-ogy providers in this sector, such as Gradatim, A Little World, and Craft Silicon in India and Orbit or Total Microfinance Solution (TMS) in Africa, FINO aims to develop enabling tech-nology. The company believes that smart cards, those embedded with integrated circuits which can process information, are a smart solution to attain the stability and robustness required by this market.

Very few banks in India like ICICI, SBI and AXIS have a BC network and fewer have con-fidence in such a network, adopting it only in small scale. FINO closes the loop by establishing their own BCs who now serve over one million customers for different banks. FINO’s BCs de-liver banking services in a less expensive way, as the rudimentary infrastructure required need not be owned by the bank. The approach has already worked in Brazil where practically all (98%) municipalities have a banking agent.1 The

roadblock to wide-scale adoption seems to be a lack of commitment on the part of companies to use the agents for the long term. Banks in India have been cautious about incorporating business correspondents into their outreach plans. Ac-cording to Mr. Khera, regulators can be useful by stepping in to provide support, which in India, could accelerate and lead to a technology explo-sion, as has occurred in Brazil.

What Needs to be Done?Professor Jhunjhunwala from IIT-Chennai has led several rural technology projects and is a highly respected leader in this arena. He believes that mobile technology has become successful because it adds value at a very affordable cost. Technology can not only facilitate transactions, but also provide services like risk assessment and help develop viable businesses in rural settings, for example, agri-business.

While a farmer can use mobile technology to access pricing information, he is often still exploited, not because of lack of information, but because he is constrained by the small scale of his operation. Speaking about agri-business in particular, Mr. Mahajan explained, “As things stand now, output prices are not increasing in correspondence to rising input costs. In order to overcome this, we need an aggregation of de-mand, an aggregation of information, and then using the strength of collective demand, appro-priate prices will be possible.” This process, he says, is not just “IT” but what he calls “ID,” or Institutional Development. If this process is con-tinuous, it becomes very technology-intensive. Issues like productivity enhancement, soil sam-pling, nutrient analysis, pesticide management and tracking yields arise—things a farmer can-not do himself. Such investment models have been created which can supply these services sustainably, as with “E-Choupal,” an ITC initia-tive in India. Farm input companies and technol-ogy providers can work together to make this happen profitable at the required scale.

Why Mobile Banking?Mr. Rajesh Dongre of Vodafone, the telecom that created the hugely successful M-PESA platform in Kenya, adds, “The mobile phone industry of-fers a readymade solution to current challenges of financial inclusion. Its built-in network and reach, scalability, and cost effectiveness are nearly unbeatable.” Customer spending pat-terns can be tracked for real time information

on customer behavior identifying which season he/she is more likely to have more income, his/her financial capacity, etc. “The rate of growth of about eight million a month in this sector is very promising, with 30% - 40% of the newer addi-tions coming from the rural setting,” Khera said. “In a sense,” he continued, “telephone operators could be the keystone for the strategic facilitation of financial inclusion programs.”

Whose Line is it Anyway?Many people who work in the technology sector foresee an important role for mobile phones to make small ticket transactions happen. However, by some accounts, mobile phone operators have been working independently and not sharing their ideas. They have assumed that they can replace banks. On the other hand, banks natu-rally consider the financial space their own, but many have not been creative or open to includ-ing technology innovations in their business and outreach. Up until September 2007, when the Mobile Payment Forum of India was created, there was no common environment for dialogue amongst the technologists, banks, and regulators. The Forum now serves as a platform for dialogue so that the concept of mobile banking can be-come a reality, allowing numerous parties—low-income borrowers as well as banks, MFIs, and mobile operators—to reap the benefits. From the Forum, a set of guidelines will emerge that will hopefully increase the reach of banking services and make banking a less “elitist” arena.

What Immediate Steps should be Taken?Our discussants emphasized that the time has come to run pilots that have the potential for large impact. Dr. Jhunjhunwala suggested iden-tifing a district where experimentation with cashless transactions could be carried out. For instance, BASIX would handle the service, Vo-dafone the necessary technology, and a bank would provide accounts. All transactions in the district would be cashless and low cost. A similar real-world experience is currently being tested in the Maldives. The feasibility of such a financial environment, once proven, could bring a huge change in microfinance, not to mention, the world.

“What stands in the way are tech-nology providers who are looking for higher market share too early in the process rather than moving towards the goals of market build-ing and interoperability.”

– Vijay Mahajan, Founder, BASIX

“In a sense, telephone operators could be the keystone for the stra-tegic facilitation of financial inclu-sion programs.”

– Manish Khera, CEO, FINO

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Mr. Mahajan noted that regulators will need to play a leading role, rather than following. Bra-zil, thanks to forward-looking policies, has seen a surge in the number of BCs, to over 80,000 within five years. Before this revolution, 30% of Brazilian districts were not covered by any bank-ing system. Mobile banking technologies have taken off in South Africa, Kenya and the Philip-pines. The absence of such a system in a global IT leader like India is a missed opportunity.

What do Regulators Think?Mr. Kaza Sudhakar of theRBI defined “financial inclusion” as a condition in which a person has a basic account, microcredit availability, and a remittances facility. The recently-issued RBI guidelines (June 12, 2008) state that a mobile company is to act as a facilitator and that a bank will undertake banking operations by maintain-ing a customer account which can be operated using mobile technology.

The guidelines also stipulate a working radius

of 15 kilometers for BCs to ensure that imple-mentation is regulated and that networks of BCs do not dictate terms to the banks. Some in the field view the distance constraint as heavy-handed. The regulators “welcome the adoption of technology” by maintaining what they see as very simple guidelines, which exist so that sys-tem is not abused.

Some Suggestions for Greater ImpactAll discussants endorsed the need for telcos to not only function as a transaction medium but also as an educator. The advances in technology itself, such as the use of biometrics and voice recognition engines, offer hope for technology transfer in low literacy areas of India.

Mr. Mahajan said, “The rural people have been held back so far because of distances, hos-tility, lack of courtesy, and inadequate services. These have to be facilitated.”

For now, it may be a while before people ac-cept virtual money for groceries, wage payments,

and other services. But taking steps to test the potential of such a system would be proactive and forward thinking.

ConclusionThe end goal, of course, is a financial system that enables people to increase productivity and move up the value chain. There is a need for all parties involved—banks, MFIs, regulators, tele-com operators, technology providers—to look at the whole picture and consider all the actors, so that the people we hope will benefit, the borrow-ers, will actually become financially empowered and move up the ladder. Capturing transactions electronically creates enough information about a borrower to not only establish his identity and credit record, but also identify what he needs to move up and achieve a greater standard of life. All this requires coordination, of which some part is banking, some infrastructure, and some technology. n

By Ankit Madhogaria, Intern, Intellecap

1 Siedek, Hannah. 2008. “Extending Financial Services with Banking Agents.” Brief. Washington, D.C.:CGAP, April.

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Moving Targets: The Rising use of ATM Technology to Improve Financial Inclusion For many of us, regular banking transactions are carried out through ATMs (Automatic Teller Machines) that are spread throughout our urban jungles – in supermarkets, at airports, train stations and in shop-ping malls. ATM usage varies across the globe, with South Korea lead-ing the way with 1600 machines per million people (or 1 for every 625 people). In developing countries such as India and China that figure is as low as 28 and 55 ATMs per million, respectively. But low ATM penetration in the developing world does not mean that banks are not catering to the needs of the rural, often-illiterate masses. Extending ATM facilities is an important part of increasing financial inclusion, and the banks are prepared to go the extra mile, literally, in order to reach the rural market.

If you are an Opportunity Bank customer in Malawi, where the average distance between a client and a bank is 600km, popping down to the closest ATM is not an option. That is why the bank, operating in a country with 85 percent of its population residing in rural areas, has designed a mobile ATM system. Bullet-proof, all terrain vehicles, fitted with ATMs, cover 26 service points in five of the country’s dis-tricts every week. While the bank has branches and operates through kiosks in certain areas, these mobile ATMs are the best option for clients in far-flung districts.

Increasing ATM presence is not a localized trend, though. In the UAE, Sharjah Islamic Bank recently launched “Al Hurr,” the country’s first mobile ATM service in Islamic banking. Because setting up a bank branch can be expensive and cumbersome, the use of ATMs is seen as a quick and cost effective way to have a presence in small towns and

rural areas. It’s a win-win situation for banks which cut costs measur-ably, and customers, who don’t have to walk or ride miles to make a financial transaction.

As is the case with fast-adopted technology, innovation becomes the key to providing a holistic experience to customers. The security of traditional ATMs depends on the use of a PIN code, which illiterate clients find impractical and confusing. The biometric ATM circum-vents this limitation by using a combination of smart card technology, fingerprint recognition, and voice-recognition operations. In 2006, Citibank announced the use of biometric ATMs catering to holders of its “Citibank Pragati” no-frills account holders, offered directly to customers and in partnership with MFIs. Bolivian MFI PRODEM also uses similar technology to operate multilingual ATMs across all its bank branches. The use of multi-language audio instructions helps their clients, many of whom speak Quechua or Aymara, and are not familiar with ATM technology.

Technology service providers are also increasingly getting involved in catering to this market. NCR Corporation—a global supplier of ATMs—is is currently working with Symstream Technology Group, a worldwide leader in wireless technology, to create a wireless modem for GSM operations that will enable banks to deploy ATMs in the most rural areas of India where telephone connectivity and internet penetra-tion is often low. Diebold, a global company that builds and supplies ATMs to banks and financial institutions, received five patents last year alone for new systems that capitalize on the interactions between mobile phones and ATMs. n

By Ranjit Koshi, Associate, Intellecaphttp://www.merinews.com/catFull.jsp?articleID=1312401. http://www.opportunitycanada.ca/learn/current.html2.


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Recommended Readings

Banking on Mobiles: Why, How, for Whom? Ignacio Mas & Kabir Kumar, CGAP, July 2008 This recent Focus Note by CGAP looks at mobile technology for small banks and MFIs which face a high cost of service delivery due to smaller transaction sizes and remote locations.

While mobile operators are moving full speed ahead on im-plementing technology for remittances and bill payments around over the world, banks and MFIs have not really utilized mobiles to improved their outreach strategy.

Many MFIs have sufficient back office and transaction switch-ing capabilities to support mobile banking. What is important is finding a technology platform that offers a solid customer ex-perience. Finding the correct technology partner is essential to optimize resources. This may give mobile phone operators the upper hand when negotiating with banks and MFIs; they real-ize that m-banking is an opportunity for financial institutions to grow. Banks on the other hand can take advantage of the mobile operator’s wireless coverage and distribution networks.

The development of efficient channels to create awareness re-garding m-banking and branding is required to ensure poten-tial customers put aside their security fears. Once the customer adoption barrier is overcome, customers can truly understand the convenience of using the technology.

The Focus Note provides an effective starting point to match mobile banking with an MFI’s customer outreach strategy.

Client-Focused MFI Technologies Case StudyUSAID, January 2007

The study analyzes client-focused technologies: personal digital as-sistants (PDAs), point-of-sale (POS) devices, and mobile phones. There are a series of case studies from across the globe, including WIZZIT, GCash, Opportunity International, and others.

The analysis shows how client-focused technologies support scale and efficiency build-up of MFIs. One of the questions ad-dressed is: “what are the reasons for success or failure of the different business models used to deploy these client-focused technologies?” The case studies demonstrate that factors such as institutional buy-in, selecting the right technology provider, exist-ing local communication infrastructure, and regulation play a very important role to effectively create financial inclusion.

Some interesting results of the study revealed that once people perceive the value of technology and find it more convenient, they are willing to try it and get a clearer understanding of the direct benefits. Therefore providing sufficient and continuous training for clients is crucial. It is also difficult to assess a quantifiable re-turn on investments from technology as MFIs do not have the tools, nor do they collect financial metrics to allow them to per-form a thorough investment analysis.

Overall, the report answers key questions for an MFI or tech-nology provider launching a client-focused technology.

The Transformational Potential of M-Transactions The Policy Paper Series, July 2007

This report is a compilation of papers that contribute to the mobile banking policy debate and aims to outline the economic impact of m-transactions by addressing the drivers of this growth. The series of papers examines the challenges of m-transactions and ways to overcome hurdles, the largest of which is the development of suitable cash-in and cash-out mechanisms.

The report includes lessons from the deployment of Vodafone’s M-PESA which reveals that “keeping things simple, focusing on what the customer wants, and getting early visibility and adop-tion is critical.”

Another paper addresses the regulatory implications of mo-bile and financial services convergence. It calls for the regulatory framework to evolve in order to develop efficient reforms.

“Airtime Transfer Services in Egypt” summarizes the findings of a study of Balance Transfer Service (BTS), which, according to the paper, reinforces networks and builds social capital. The paper also presents ways to develop BTS.

“Competition Issues in the Development of M-Transaction Schemes” describes the types of m-transactions systems in use and highlights their key characteristics. It presents potential policy options to deal with market failures.

The papers are technically oriented and address the question: which “populations could be affected, and what key attributes would be necessary to realize the transformational potential?”

Free & Open Source Software for Microfinance: Increasing Efficiency and Extending Benefits to the Poor Britta Augsburg & J. Philipp Schmidt, October 2006

This paper looks at the potential of open source software to in-crease the impact of microfinance and suggests a framework for econometric evaluation of such intervention. There is also an investigation of the effects of ICT, as well as a look at how a self-sustaining holistic approach leads to increasing financial inclusion.

Free/open source software is presented as a solution for small and remote MFIs to provide them with a common technology platform that can improve the efficiency of MFIs. The discus-sion also focuses on methods to increase outreach, one of which entails introducing evaluation systems, in order to successfully measure impact.

The paper has some interesting conclusions, including one about the situation in India where, despite successful projects and software development capacity, it is challenging to increase outreach and make affordable solutions.

The authors argue that a free/open source software MIS for smaller MFIs will enable scaling up, improved evaluation and reporting standards, and access to donor funding. The govern-ment is encouraged to facilitate partnerships that support self-sustainability.


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maRk youR calendaR

SeptemberLONDON, England*Banking on Women – Driving Profit and Growth18th – 19th September The two day event will focus on the importance of banking on women, who traditionally are not targeted by banks, but who have financial habits very different from men. The event targets bankers, wealth managers, small and medium enterprises, and corporate departments that cater to women. Sponsor: Uniglobal ResearchWebsite: www.ugr-cz.com/en/event/2008-53 BRUSSELS, BelgiumEuropean Microfinance Program14th – 15th SeptemberThis program is aimed at students pursuing their in microfinance, and looking to acquire expertise by working in developing coun-tries. The course draws on the experiences of academics and prac-titioners from the field.Sponsor: The Wallonie-Brussels Academic AuthorityWebsite: www.academiewb.be/catalogue/MC-FINA.html

OctoberGENEVA, SwitzerlandBuilding Fair Financial Markets for All: Profitable Investment Opportunities in Micro and Small Businesses1st – 2nd OctoberThe event will bring together mainstream and public investors, MFIs, specialized microfinance investment intermediaries, and public actors for two days of discussion about growing investment opportunities in micro and small businesses. Symposium attend-ees will hear from experts and innovators in the field through a series of moderated discussions and networking sessions.Sponsor: World Microfinance Forum GenevaWebsite: www.microfinanceforum.org/en/p66000025.html

SAN FRANCISCO, USA* Social Capital Markets 2008From the Margin to the Mainstream13th - 15th OctoberThe three day event will bring together the people and the or-ganizations dedicated to changing the world through sustainable business. Meet with entrepreneurs with ideas for change, and investors looking to direct capital towards social impact. Sessions will include those on social capital, clean energy, ICT & digital inclusion, microfinance and social entrepreneurship.Sponsor: Xigi Media.Website: http://socialcapitalmarkets.net/index.php

DELHI, India*Microfinance and New Technologies Summit 200821st-22nd OctoberThe Summit focuses on the role of ICT in expanding microfi-nance. The discussion will focus on raising awareness among ICT companies of the untapped microfinance market, increase knowledge of ICT solutions and their impact on the sector and the need for regulation enabling the use of ICT. Sponsor: PlaNet FinanceWebsite: www.mfntsummit2008.org/index.htm

LONDON, England*Global Summit on Microfinance Investments29th – 30th OctoberThe Summit will bring together key industry professionals and will look at addressing the need for a balanced approach towards microfinance investment that can lead to structured mechanisms for global investments in microfinance.Sponsor: C5Website: www.c5-online.com/microfinance.htm

NovemberDUBAI, UAE*Mobile Money Summit 2008 – Conference and Expo10th – 11th November The international remittance market is already worth a trillion dollars a year. As demonstrated by M-Pesa which secured 2.5 million customers in one year, the potential value of new revenues and volume of new, loyal customers is phenomenal. Over 40 key industry speakers from companies such as, Safaricom, Roshan, FSA, World Bank, WIZZIT, Tata Communications, Western Un-ion, Bharti Airtel, and many more.Sponsor: Clarion EventsWebsite: www.mobile-money-transfer.com

ARLINGTON, VIRGINIA, USA*2008 SEEP Annual Conference4th – 7th NovemberThe Annual SEEP event will allow participants key opportunities to learn from trainings, workshops and networking. Participants would include practitioners from non-governmental organiza-tions as well as private-sector firms, and investment funds. Sponsor: SEEP NetworkWebsite: http://seepnetwork.org/conference/index.html

BOGATA, ColombiaMicroinsurance Conference 20085th – 7th NovemberThe fourth edition of the international event on microinsurance is expected to be attended by 300 experts, to discuss the challenges on microinsurance. Registration for the event ends 15th October (bank draft) and 1st November by credit card.Sponsor: Munich Re Foundation, CGAP Working Group on MicroinsuranceWebsite: www.microinsuranceconference2008.org

* Indicates a Microfinance Insights Recommended Event


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Connectivity in Emerging Markets

Microfinance Market IndicatorsStatistics and indicators related to technology used for financial inclusion, selected and compiled by the editorial team.

Remittances3

52.63%

59.26%57.14%

54.76%

75.00%

29.41%26.83%

49.55%

35.29%

47.95%

25%

35%

45%

55%

65%

75%

India Pakistan Philippines Sri Lanka Thailand

Access to fixed phone lines

Access to mobile phones

0

20

40

60

80

100

120

140

2008 2012

Africa Asia PacificEastern EuropeLatin America/CaribbeanMiddle East

0

20

40

60

80

100

120

140

2008 2012


0

20

40

60

80

100

120

140

2008 2012


Estimated Wireless Penetration1

Wire

less

pen

erea

tion

(per

100

peo

ple)

48% Expected average growth in wireless penetration be-tween 2008-12

Wom

en’s

acc

ess

to p

hone

s as

a p

erce

ntag

e of

tota

l acc

ess

75,000 100,000 125,000 150,000 175,000 200,000 225,000 250,000 275,000 300,000 325,000 350,000

2000 2001 2002 2003 2004 2005 2006 2007

All developing countries (inflows)

World (inflows)

High Income countries (outflows)

World (outflows)

75,000 100,000 125,000 150,000 175,000 200,000 225,000 250,000 275,000 300,000 325,000 350,000

2000 2001 2002 2003 2004 2005 2006 2007


World (inflows)


World (outflows)

75,000 100,000 125,000 150,000 175,000 200,000 225,000 250,000 275,000 300,000 325,000 350,000

2000 2001 2002 2003 2004 2005 2006 2007


World (inflows)


World (outflows)

US$

(mill

ions

)

Women’s Access to Phones*2

6789

1011121314151617181920

2005 2006 2007

Africa

Eastern Europe & Central AsiaLatin America

South & South East Asia

No.

of m

obile

pho

nes

(per

100

peo

ple)

1015202530354045505560657075

2005 2006 2007

Africa

Eastern Europe and Central AsiaLatin America


LegendApply to the next two graphs

6789

1011121314151617181920

2005 2006 2007

Africa

Eastern Europe & Central AsiaLatin America


No.

of I

nter

net u

sers

(per

100

peo

ple)

79% Average growth in mo-bile phone penetration between 2005-07

Increasing Internet Usage**3Increasing Mobile Phone Penetration**3

55% Average growth in In-ternet usage between 2005-07

20 yearsFor the first 1bn people to use mobile phones.

6 yearsFor the next 2bn people to use mobile phones.5

40 timesA branch is 40 times more expensive than a correspondent

agent. More than 60%

of the worlds mobile phones are accounted for by developing countries.8 US$459bn

Amount of global workers remittances expected in 2010.6

3.4%Remittance outflows as a share of GDP in high income countries.

2%Remittance inflows as a share of GDP in developing countries.3

Facts and Figures


treNds

Comparison of M-payment Systems***7

GCash philippines

m-pesA Kenya

smart moneyphilippines

WIZZIt south Africa

Initiated November 2004 April 2007 December 2003 November 2005

Account opening fees Free for mobile banking, us$5.24 for card (no min. deposit)

Free (no min. deposit) Free (no min. deposit) us$5.88 for a card and user manual (no min. deposit)

Card provision optional maestro branded debit card

No No mandatory maestro-branded debit card

Account size limit us$1,190.48 us$952.38 us$781.25 us$3,676.47

Fee for person to per-son transfers

us$0.06 user pays no charge (plus us$0.02 for the sms to authorize the transaction)

us$0.47 (plus standard sms charge)

us$0.43 to other WIZZIt clients. us$0.73 to others. (plus stand-ard sms charge)

Can users send mon-ey to nonusers?

No No Yes Yes

Can users receive money from nonus-ers?

Yes (us$0.24 fee) No No Yes

Allow payments to third party bank ac-counts?

No No No Yes

Fee for cash deposits user pays 1% of cash de-posit (free if using card)

user pays 1% of cash deposit (min fee of us$0.24)

Free user pays 1% of cash deposit (min us$0.73)

Fee for cash with-drawals

Atm charge of us$0.07-0.26

user pays 1% of amount with-drawn, with a min fee of us$0.24

us$0.39-2.66, depend-ing on size of transaction

At Atms, us$0.73 plus us$0.15 per us$14.71

Account manage-ment

Free access to the current credit balance

us$0.02 for the cost of the sms to make the request

us$0.02 (plus cost of sms)

us$0.15 for account balance via mobile, us$0.74 via Atm

No. of clients8 500,000 1.6 million 900,000 50,000

International remit-tances

Yes Yes Not applicable No

SourcesWireless Intelligence at www.wirelessintelligence.com.1. Zainudeen, Ayeesha, Tahani Iqbal, et al. “Who’s Got the Phone? The Gendered 2. Use of Telephones at the bottom of the Pyramid.” LIRNEasia.net, May 2008.Adapted from: The World Bank data: 2005-06 and International Telecommuni-3. cation Union data: 2007.Gagnon, Gisele. “Innovations in microfinance technologies.” January 2007.4. “More on Mobile Phone Banking for Development.” International Political 5. Economy Zone: http://ipezone.blogspot.com/2008/04/more-on-mobile-phone-banking-for.html.Reports page of Aite Group: http://www.aitegroup.com/reports.php. 6. Mas, Ignacio and Kabir Kumar. “Banking on Mobiles: Why, How, and for 7. Whom?” CGAP. FocusNote No. 48. June 2008.“Client Focused MFI Technologies Case Study.” USAID MicroReport #77. Jan 8. 2007.

“Vodacom Announces Intention to Launch Vodafone M-PESA Mobile Money Transfer Service in Tanzania.” http://www.noticias.info/Archivo/20 08/200804/20080409/20080409_350261.shtm. Ivatury, Gautam and Ignacio Mas. “The Early Experience with Branchless Banking.” CGAP. April 2008.

Statistics and indicators related to technology used for financial inclusion, selected and compiled by the editorial team.

Notes* The results are from a study which was conducted in mid-2006.Telephone users, the target group of the study, were defined asthose who had used a phone (own or someone else’s; paid for orfree-of-charge) during the preceding three months. Male and femaletelecom users between the ages of 18 and 60, from rural and urbanlocations were studied.**The countries representing the regions named in the “Increasing Mobile Penetration” and “Increasing Internet Usage” are as follows:Africa: Kenya, Morocco, Nigeria, South AfricaLatin America: Bolivia, Brazil, Colombia, PeruEastern Europe & Central Asia: Bosnia & Herzegovina, Kazakhstan,Kyzgyz Republic, UkraineSouth & South East Asia: Bangladesh, India, Indonesia, Vietnam*** 1US$ = 42PHP; 1US$ = 64 KES; 1US$ = 6.8ZAR

Microfinance Market Indicators


BOOks

paul polak, a Canadian septuagenarian, has spent the last twenty-five years wan-dering the world talking to one-acre farmers about their woes. You don’t have to be an agriculturalist to find value in this fresh, down-to-earth book which is truly inspiring for those who want to create lasting solutions for the “other 90%.”

ordering InformationOut of Poverty: What Works when Traditional Approaches FailPublished by: Berrett-Koehler publishers, February 2008 248 pagesISBN: 978 1 57675 449 8Price: us$27.95, Hardcover

Appropriate Technologies for the Other 90%

In 1945, in farm country in Ontario, Canada, a fifteen year old boy named Paul Polak de-

cided to become a strawberry farmer. Having made US$10 a day picking strawberries in a local farmer’s field, he felt inspired to try his hand at growing and cultivating that red, succulent fruit. There was no telling just how much money one could make if you actually owned the field, he reasoned. A few growing seasons later, after sowing and hoeing, and going on “genocidal” weed attacks, Polak had made a few thousand dollars. But, he also learned that small-scale farming’s risks were as great (or greater) than the rewards. A half century later and now in his seventies, Polak is using his brief stint as a strawberry farmer to innovate for the population he calls, “the other 90 percent.”

Polak’s book, Out of Poverty, takes us to Asia, Africa and back and gives readers a first hand look at the lives of “one-acre farmers” around the world through the story of Krishna Baha-dur Thapa, a Nepali farmer who transformed his family’s economic standing using Polak’s princi-ples. After reading it, you’ll probably know more about small scale agriculture than you need to, but you’ll also have a new explanation for why poor people are poor, and how those who are not poor can help them out of poverty.

Poverty isn’t about lack of power or education, corrupt political systems, or ill health, he writes. Poor people are poor because they don’t have enough money. Seems simple? It is. All of the issues that we see as symbols of poverty—poor infrastructure, lack of access to clean water, lim-ited education and healthcare facilities—can be avoided or hurdled if poor people can increase their income.

“The key to the poverty dilemma is market access,” says Polak. Rural and urban poor can only begin to increase their incomes in a sus-tainable way if they have access to supply chains, credit and customers.

For the last 25 years, Polak has made an ef-fort to steep himself in the world of one-acre farmers by visiting them in their villages and having frank discussions about their hardships and hopes. His discoveries about the needs and challenges of poor farmers led him to found In-ternational Development Enterprises (IDE) in 1981, an organization that uses a market-based approach that has enabled millions to perma-nently escape poverty. IDE uses business princi-ples to facilitate unsubsidized market systems in which the rural poor can participate effectively as micro-entrepreneurs and earn an income.

Echoing the “school of Prahalad” (See cover story on page 12), which dictates that poor peo-ple should be thought of as customers instead of as recipients of charity, IDE aims to foster market opportunities for poor people, help de-velop practical technologies that they can use to generate income, and create supply chains and establish links with output markets. Through these mandates, IDE has created many problem-solving, affordable tools to sell to small farmers: treadle pumps, wind and solar pumping systems, low-cost well-drilling tools, water storage sys-tems, drip irrigation systems, solar dryers, etc.

Paul writes about many of these in the book, explaining why cheaper is often better, and why simpler technologies are more appropriate for these segments of society.

One of the most intriguing ideas put forth by Polak is the notion that most of the world’s designers spend their time and energy working on solutions for the richest 10 percent. Polak and IDE advocate for “Design for the Other 90 Percent”—creative and affordable design solu-tions for the way most of the world lives. The concept has become the launch pad for a new or-ganization called D-Rev and global institutions like Stanford and MIT have incorporated the concept into courses like the former’s “d.school” class called “Entrepreneurial Design for Extreme Affordability.”

Although the book does not focus specifically on microfinance, Polak’s subjects are exactly the segment that is receiving or in need of micro-loans. In fact, these loans could help small farm-ers invest in the kind of systems Polak proposes. His philosophy recommends that products should not be given outright to the poor, but rather priced affordably, and made so that the buyer can pay off his investment in one season.

Skeptics may find the concepts overly simplis-tic or unrealistic—making money off of design-ing for the bottom of the pyramid is not likely in the near future. However, the last chapter offers plenty of realistic action steps for every reader, and will spur most to think constructively about applying what you’ve read to your own commu-nity or network. n

By Lindsay Clinton, Managing Editor

“Poverty isn’t about lack of power or education, corrupt political sys-tems, or ill health, he writes. Poor people are poor because they don’t have enough money.”


BOOks

maria pagura, editor of this collection of papers on linkages and alliances in rural finance, is a Rural Finance officer at the FAo in Rome and has 16 years of experience in rural finance, microfinance, and small enterprise development in Africa and Asia. In this book, she explores the role that financial linkages and strategic alliances play in increasing the outreach of finance. As with many mFIs today, adopting technology often means exploring partnerships with a host of entities – from donors, to technology firms, to investors. In the excerpt below, pagura discusses the increas-ing use of commercial agents to expand access to “non-traditional” financial services – including mobile banking and transfers. ordering InformationExpanding the Frontier in Rural Finance:Financial Linkages and Strategic AlliancesEdited by: maria pagura Published by: practical Action publishing, may 2008 (paperback)285 pagesISBN: 978 1 85339 666 3Price: us$45.95

Financial Linkages as a Road to Technology

We are beginning to see a trend by formal and informal banks towards building

strategic alliances to offer non-traditional fi-nancial services. Two of the cases demonstrate this trend in practice. FADES, as previously men-tioned, established several inter-institutional alli-ances to expand into new services, including bill payment, benefit disbursements, and transfers. In Tanzania, clients of linked SACCOs can obtain a debit card, allowing them to access any CRDB and partners’ ATM in the country. Through the linkage SACCO clients can also transfer money anywhere in the country and make purchases with a limited number of input suppliers using their CRDB debit card.

Indeed, in the last three to four years we have witnessed banks and non-bank firms using com-mercial agents to ‘facilitate’ their business trans-actions, typically referred to as ‘correspondent’ or ‘branchless’ banking (Kumar et al., 2007; Lyman, Ivatury, and Staschen, 2006). In some markets, banks are utilizing grocery stores, petrol stations, lottery kiosks, pharmacies, post offices, MFIs and NGOs to facilitate transactions where the busi-ness risks are lowest, such as account-opening, bill payments, collection services, government benefit and pension payments and transfers. Some models include the facilitation of ‘limited’ banking services (e.g., deposits and withdrawals to receiving and forwarding savings and credit account applications). Mobile phone network

operators, with their wide and well-developed distribution channels, are also beginning to offer bank-like services to their subscribers, including transfer of airtime, deposit and withdrawal of funds, loan payments, and the purchase of goods at retail shops (Lyman, Ivatury, and Staschen, 2006).

Although not surprising, the most successful cases of correspondent and branchless banking are from emerging countries, where the bank-ing and telecommunication infrastructures are strongest. The most successful experiences to date are coming out of Brazil, India, Kenya, the Philippines and South Africa. Although there is much optimism about the tremendous poten-tial of emerging correspondent and branchless banking models to expand access to the un-banked, very few transformational modes exist today (Porteous, 2006), especially with signifi-cant outreach in rural areas. Recent studies point to the following reasons why this is the case:

Uncertainties about pace and scale of opera-•tions and the viability of the low-end business models that require higher transaction vol-umes for survival;Complex and ill-defined regulatory envi-•ronments cross-cutting various regulatory domains, such as those regulating banking, telecommunications and information tech-nology;Technological sophistication of banking and •

other sectors weak or absent in most mar-kets;Increase the agent-related risks especially by •those that are not prudentially regulated.…. It must be concluded, that for the time

being there is much more scope for formal and informal financial sector linkages to extend non-traditional services, such as bill payments, trans-fers, disbursements, pre-paid card purchases than for the facilitation of credit and insurance services, in which agency-related risks and com-plexity of contracting are greater.

… Linkages between formal and informal financial institutions help expand financial serv-ices in rural areas. The eleven case studies exam-ined here offer a shopping bag full of options, from commercial banks using the infrastructure and local knowledge provided by MFIs to reach self-help groups, via MFIs seeking strategic alli-ances to offer non-traditional services to their clients (e.g., bill payments, transfers, deposits), to larger international insurance companies gaining thousands of clients by linking their insurance products to every loan that an MFI makes. Clearly, linkages offer mutually beneficial solutions for both formal and informal financial institutions but, as is demonstrated in several of the cases, establishing and maintaining robust partnerships brings new challenges and risks. n

Book Excerpt: “Expanding the Frontier in Rural Finance: Financial Linkages and Strategic Alliances”

In the last two months, Microfinance Insights participated in eight financial inclu-sion conferences and events around the world. The highlight for our team was our panel discussion hosted at the Microcredit Summit in Indonesia, which focused on Microfinance Plus, the theme of our Jan/Feb 2009 issue.

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If you just started reading Microfinance Insights, here’s what you’ve missed….

This volume draws from global perspectives to highlight ways to solve issues related to recruitment practices, staff training and incentive systems. Inside you’ll find a provocative commentary on the Forbes Top 50 MFIs List and international voices from Pakistan to Bolivia and Tanzania to Tunisia.

There are numerous signs of the sector’s move into the mainstream: MFIs are shedding their NGO skins to become regulated entities; commercial banks are scaling down to reach a segment once thought “unbankable,” and mainstream investors are pushing money at the sector. All the while, traditionalists shout, “What about mission?” The July 2008 issue focuses on this move from niche to mainsteam.

A strong drive to understand microinsurance stems from the realization that insurance is an essential tool to provide protection against financial losses due to illness, economic activity, environmental and political issues. This issue provides insight into the growth potential for microinsurance and reveals how it can mitigate risks for the poor.

Globally, the microfinance sector is standing at a juncture where innovative mechanisms to take financial services delivery to the last mile, are emerging regularly. The issue reveals the tip of the “innovations” iceberg and highlights examples of mechanisms that have made a difference and challenged estab-lished norms.

Investors, banks, and other financial actors play a crucial role in facilitating the growth of the microfinance industry and some deals have attracted attention to the capital markets. This issue seeks to discuss investors’ perspectives, various valuation methodologies, and recommendations for MFIs and investors.

Volume 6: Focus on Human Resources

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Technology Solutions: Testing the Waters