Hansonwade conference Technology Innovation for Banks in Growth Economies November 29-30, 2011, London

1. IT: stimulating structural growth
Technology Innovation for Banks in Growth
Economies
November 29 2011
Harrie Vollaard and Henk Doorenspleet
Rabobank

2. Agenda
1. Introduction to Rabobank
2. Importance of IT in emerging market activities
3. Case study Rwanda
4. IT hurdles for SACCO‟s and PO‟s
5. Conclusions
Rabobank

3. 1 Introduction Rabobank
Rabobank

4. Rabobank is a cooperative bank
Rabobank does not have shareholders, but 1.5 mio members. Not
maximizing profitability is being pursued, but the delivery of „customer
value‟.
Members of the 143 local banks appoint their board and are represented in
CKV („Rabobank parliament‟), which meets quarterly with the executive
board to decide on major issues.
Rabobank is now a large, international bank with EUR 612 billion of assets
and highly rated privately owned bank.
Rabobank
4

5. Roots and Mission
Rabobank was Today, more than 4 It is our mission to
founded 110 years billion people world- support financial
ago by poor farmers wide do not have sector development
who did not have access to financial in developing
access to financial services economies
services
Rabobank

6. Ambition
To replicate the success of Rabobank in
Netherlands, meaning that through providing
financial services a substantial contribution will
be made to the economic development of, in
particular, the rural areas in selected
developing countries
Rabobank

7. 35
Goal of Rabobank Foundation
In line with the cooperative roots and community involvement of
the Rabobank organisation, the Rabobank Foundation helps
underprivileged and disadvantaged people to become
economically active and independent
Focus: Member based producer organisations and
savings / credit cooperatives
Rabobank

8. Rabobank Foundation in Africa
Burkina Faso Uganda
Mali
Ethiopia
Senegal
Rwanda
Côte „d Ivoire
Kenya
Ghana
Cameroon
Tanzania
Burundi
Mozambique
Zambia
Rabobank Foundation Rabobank Development RI Terrafina Progreso
Rabobank

9. Rabo Development Partnership Proposition
• Equity participation (minority position) in a bank that remains local
• Board will be strengthened by Rabobank professionals
• Rabobank will provide managers for Executive Board to complement local
managers
• A comprehensive technical assistance program will be executed through
the deployment of Rabobank banking specialists
For Rabobank this is a long term commitment, in which the development
into a leading rural bank prevails over short term profitability
Rabobank

10. Partner Banks Rabo Development in Africa
Rwanda Tanzania
BPR NMB
Zambia Mozambique
Zanaco Banco Terra
Rabobank

11. 2 Importance of IT in
emerging markets activities
Rabobank

12. More and more IT driven
From: To: IT developments:
Mobile
Cloud
Rabobank

13. Serving the bottom of the pyramid requires IT
innovation
Global Banking Pyramid Daily Income* Type of Service vs. Daily Income
Current
Private Banking
US$ 500 model in
traditional
banking
Traditional Banking ~ 2 Billion
People
US$ 10
Microfinance
innovation +
Unbanked Segments
technology required to
lower the cost of this
high-touch model
~ 4 Billion People Inappropriate
US$ 1
microfinance
distribution model
Personalized, high Low touch
touch†
Type of Service
* Log Scale
Source: IBM
† Service includes origination, management and collection
Rabobank

14. Current solutions not applicable for SACCO‟s
Annualized cost per account Costs vs. Functionality
$20
Cost Per Client Per Year
Costs per
Size of MFIs
client* $15 Majority of MFIs
globally, high costs
Very Large MFIs (+250,000 accounts) $50-$60 Cloud Solution
and lack of
flexibility limit Cloud solution
Large MFIs (50,000 –2 50,000 accounts) $20-$30 $10 reaches cost
growth
Medium MFIs (10,000 – 50,000 accounts) $15-$25 efficiencies of
Small MFIs but
traditional
Small MFIs (2,000-10,000 accounts) $5-$12 $5 still common in
banks
some markets
Very Small MFIs (less than 2,000 accounts) $2-$5
Source IBM: Based on a sample of 25 MFIs Pen and Off-the-shelf or Full support of MF
paper, custom built requirements, access to
Spreadsheet traditional Core international payments
Banking with high networks, automated
costs and very limited reporting, flexibility and
support of MF cost efficiency of
requirements traditional banks
* Includes initial license investment
† Indicative price, not actual Functionality Spectrum
Rabobank

15. Three possible areas to address
There are three primary pools of cost that can be addressed through innovation
Emerging markets example
Key value chain components to address:
Processing: Shared services hubs are emerging which
provide a radically lower cost banking platform to a
community of MFIs
Distribution: M-commerce (village phones) and other
services are enabling radical reductions in distribution
costs
21,00%
2,90%
Credit / Risk: New credit assessment methods are
emerging to lower credit/compliance costs
100,00% 40,00%
1,80%
31,60%
2,80%
Total Operating Processing Manufacturing Distribution Insights Credit/Risk Infrastructure
Costs
Key Banking Value Chain Components
Source: Presentation by Peter Bladin, Grameen Technology Center and CGAP; IBM analysis
Rabobank

16. Objective
Enhance the Saving Credit COperatives (SACCO) and Producer
Organizations (PO) operational and governance processes
used to record and report management information:
• Improves transparency
• Facilitates internal governance
• Reduces monitoring costs
In order to:
• Better comply with stakeholders‟ reporting requirements
• Easier access to additional external funds.
Earlier independency of the SACCO or PO
Rabobank

17. Challenges on SACCO's
• Inadequate knowledge by SACCO's leaders and staff in microfinance
• Lack of relevant backoffice software for SACCO's operations
• Weak and inadequate internal controls and financial systems (thus
creating opportunities for mismanagement of resources)
• Inability to maintain adequate liquidity to meet savings withdrawals
• Low membership leading to very slow growth of savings (most
SACCO's have < 500 members)
• Poor portfolio quality and low capital base
Rabobank

18. Conditions
• The Management Information System must be accessible
for inexperienced and non-tech-savvy users.
• The solution must be able to deal with remote areas and
poor technical facilities and knowledge.
• The solution must be easy to implement and limit the
need for supporting activities such as travel, set-up and
training as much as possible.
Rabobank

19. Experience
India
Ethiopia
Rwanda
Key
RIAS & Rabo Development Saving Credit Cooperatives
Rabobank Foundation Producer Organisations Rabobank

20. 3 Case study Rwanda
Rabobank

21. Rwanda mission
Field mission to investigate collaboration between Rabobank
Foundation (Terrafina) & Rabo Development (BPR) in Rwanda
en lessons learned van Musoni (Kenia) on:
– Processing (MIS)
– Distribution (Mobile Money)
• BPR: Banque Populaire du Rwanda (Ownership: 65% local members, 35% Rabobank)
• Terrafina: Financial en technical support for MFI‟s through Oikocredit, ICCO and Rabobank Foundation
Rabobank

22. BPR
• Peoples bank 1st office 1975
• Since 1986 a union of BPRs: UBPR
• Since 2008 commercial bank
• Largest retail bank
– Branches: 18
– Sub-Branches: 109 BPR
– Outlets: 61 (individual
– Staff Number:1460
– Launched BPR mobile banking 2010
liability)
– Enhancing IT capabilities
~€1000
• Aim: People‟s bank of Rwanda SACCO/Unions
– Urban & Rural (joint liability)
• Significant portfolio of small loans
– High NPL-rate
– Not equipped to manage
• Looking for Cooperation with MFIs/SACCOs
– Mobile banking, IT, funding
Rabobank

23. Rabobank Foundation / Terrafina partners
in Rwanda
SACCO‟s
• Wizigara cooperative Union
• 125 registered MFI’s and
• Ejoheza cooperative Union
Cooperatives
• Umurimo cooperative Union
• ~700k clients
• Iti cooperative
• Differences in sophistication
• Inkunga cooperative
• Processes
• IT-support
MFI‟s
• Availability of connections
• Duterimbere MFI
and electricity
• Amaseserano MFI
• Caf Isonga MFI
• Vision Finance MFI
• Swoft MFI
Rabobank

24. Current situation Rwandese SACCOs
• Review of IT solutions by CGAP 2009 commissioned by AMIR;
research report available
• CGAP process standardization pilot
– 7 SACCO/Unions (10 locations)
– 7 tools, evaluation report available
– Implementation finalized 2011
• NGO‟s starting to computerize SACCO‟s
• Government and central bank stresses importance of
computerization
Conclusion: A lot of momentum for computerization
• CGAP: Consultancy Group for Assisting the Poor (Development agencies & world bank)
• Amir: Association of MFI Rwanda
Rabobank

25. Two possibilities to connect BPR and
SACCO‟s gives advantages for both
parties
Two possiblities to deliver IT services:
• Distribution: Mobile Banking
• Processing: MIS
Advantages:
SACCO BPR
• Up to date loan admin • Rural network
• Cashless • Local Liability group
• Funding • Leverage IT
• Fraud detection
• Disadvantage:
– Competitive position between BPR and SACCOs /MFIs
– New practise
Rabobank Groep ICT

26. Distribution part: Mobile Banking
• Too expensive to develop by SACCO‟s
• Current BPR mobile banking solution can be offered as white label
or BPR label
• Mobile Banking works only with computerized SACCO‟s
• Offset account BPR, connected to MIS SACCO
• Alternative:
– DYI and cooperate with the mobile operators
Rabobank

27. Processing part; different
IT solutions
• Local implemented stand alone
system
– This appears the most common
way currently
• Centralized consolidation
Computerization prerequisites
– For multi site operations
– Central aggregation (import) of • Settled processes (CGAP method)
local exported data • Business casus
– AD Banking as „bench mark‟
– Physical data carriers or email • Trained staff
or FTP – On processes
– On IT
• Centralized model: – Basic computer skills
– SaaS/Cloud model – MIS skills
• Electricity
• Connectivity for SaaS approach
Rabobank

28. Ways to connect the SACCO‟s
ADBanking
SACCO ADBanking
ADBanking
BPR Non Connected Branches
BPR Connected Branches
Internet
Internet
SACCO
T24
BPR Headoffice
Rabobank

29. Outline
Distribution (40%)
Modular
Integrated
DYI approach
approach
(~ current
direction)
Processing (21%)
Credit/risk (32%)
See sheet15 for
operating cost %‟s
Rabobank

30. Strategic options for SACCO‟s
• Standalone MIS e.g. AD
• Identifying core task
Banking MFI/SACCO
– Current practice @advanced – Joint Liability group
MFIs management & building
– Also for multi site operations • Recognizing cash in/out in
– Extend with mobile banking Rwanda
– Branches, ATMs, agents
– Add on is consolidation T24 – POS network
– Coop with Mobile operator
• SaaS MIS with T24 • Adding mobile disbursements
& depositing
– Powered by BPR
– Powered by a JV or third party
– Connected to BPR mobile
banking
• Do nothing
Rabobank

31. Pro‟s and con‟s per SaaS MIS versus
MIS Standalone
– Pro‟s: – Pro‟s:
– Opex model – Re use existing MIS
– Limited maintenance – Leveraging BPR
– Better quality investments
(availability, backup)
– Credit Risk Rating – Con‟s:
possibilities – Limited experience and
knowledge available
– Con‟s:
– Connectivity
Rabobank

32. 4 IT hurdles for Sacco‟s &
PO‟s
Rabobank

34. Rabobank

35. Mobile phone penetration
5000
Users/lines (mn), after 100 years Telecom
Fixed tel
4000 Cellular
phone
Internet users
operator operator penetation Cable
country rank 1 3000
rank 2 rate Broadband
Cameroon MTN Orange 29,87
2000
Egypt Mobinil Vodafone 58,85
Ethiopia ETHMTN 1000 1,45
Ghana MTN Ghana Tigo 43,81
Ivory Coast MTN Orange
0 40,28
Kenya Safaricom Airtel 55,00
00
20
40
52
56
60
68
72
76
80
88
92
96
00
03
05
07
09
64
84
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
19
19
Mali Orange Sotelma 30,00
Mozambique mCel Vodacom 36,00
Rwanda MTN Tigo 31,70
Senegal Orange Tigo 51,60
Tanzania Vodacom Airtel 33,00
Uganda MTN Airtel 25,00
Zambia Airtel MTN 22,17 Rabobank

36. IT & financial infrastructure holdings
• IT supply issues • Availability of mobile
– Hardware & services money
– Local support & partners for foreign
• Availability of inter bank
suppliers
– General IT knowledge systems
• IT application issues • Teller machines
– Implementation & maintenance of • Savety issues surrounding
hard & software physical transport of
– Reliability & continuity money
– Education / tech savvyness of staff
– Lack of busines processes
– Urban – Rural gap
Rabobank

37. Urban and rural differences
• Not only difference between different parts
of the world
• Significant differences within countries
• Sacco‟s tend on the „thin‟ end of the
infrastructure
– Electricity
– Connectvity
– IT Knowledge & skills
Kigali center of town
Somewhere else…
Rabobank

38. 5 Conclusions
Rabobank

39. Bringing IT in the world of SACCOs
and POs
• The changes and needs are obvious
• The wins enormous
– Reach
– Transparency
– Governance
– Cost
• To route to implementation has many hurdles
– IT knowledge infrastructure
– Electricity
– Connectivity
– Current practices and knowledge
– Availability of IT infrastructure
– Availability of financial infrastructure
– How to organize (JV…)
Rabobank

40. Solution requirements
• The Management Information System must be accessible for
inexperienced and non-tech-savvy users.
• The solution must be able to deal with remote areas and poor
technical facilities and knowledge.
• The solution must be easy to implement and limit the need for
supporting activities such as travel, set-up and training as much as
possible.
Rabobank

41. Solution (mandatory) wish list
• The system has to be managed (and hosted) at Union level
• First things first: Unions to be equipped with processes and a
general accounting package
• “Open architecture” is key: capacity to allow upload / download of
spreadsheet files, to be interfaced later on with mobile banking, etc.
• Don‟t try an “integrated system”: only solutions that can be easily
interfaced
• Adaptability to internal processes (when in place)
• Capacity to allow “back-dated” transactions - meaning to work “off-
line”
42 Rabobank

42. IT solution development stage
SACCO‟s and PO‟s
5 – 10 years
2– 5 years
Mobile Banking
0– 2 years
Mobile Money
Visibility
Cloud solutions
PC Stand alone
Maturity
Rabobank

43. 44
Implementation steps
Phase Goal Characteristics
Administration skills, office tools,
? Knowledge & !! basic computer skills for union staff
Now @Union
Skills To be repeated after 6 months
Preparation: Quick Wins
Pilot: Simplified processes, printed
templates, Union in the Lead,
Quick Standardized manual recording @Sacco,
Wins Processes & forms automated accounting &
consolidating @Union, PoCs
Preparation: Next Phase
Automated Automated recording @Sacco,
1–2 Core MF Solution @Union, rollout
Recording
Years QWs beyond pilot
& MIS Preparation: Next Phase
Simple mobile banking (given an
Mobile /
3–5 adequate infrastructure), product
Branchless differentiation, partnerships
Years growth market share, customer
Banking differentiation
Rabobank

44. IT infrastructure building:
do it together
• Inmature solutions and market
• Many organisations cope with the same issues
• Many organisations trying to find the same solution
• Prepare for IT and real IT innovation
• Develop building blocks as a generic service
SACCO‟s and PO‟s: very eligible for SaaS / cloud computing!
Rabobank

45. Henk Doorenspleet, Henk.Doorenspleet@rabobank.com
Harrie Vollaard, C.H.Vollaard@rn.rabobank.nl
Rabobank