There are 2.5 billion unbanked adults around the world, mainly in developing economies. Financial inclusion is important because the lack of access to formal financial services limits the ability of poor communities to thrive economically, and also entails greater risks of fraud and theft. This presentation gives an overview of the status of financial inclusion, what it means, and how new technologies such as mobile money services could help give poor people in remote areas better access to reliable financial services.
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What is financial inclusion?
Financial inclusion means that households and businesses
have access and can effectively use financial services. Such
services must be provided responsibly and sustainably, in
a well regulated environment
(CGAP / World Bank definition)
In practice, financial inclusion usually denotes a shift
away from the informal to the formal or semi-formal
sectors.
Financial inclusion is broader than access to finance. It
encompasses savings, remittances etc., not just loans.
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How many are unbanked?
Source: World Bank, Global Findex Database
World-wide, there are an estimated 2.5 billion
unbanked adults
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How many are unbanked?
Source: World Bank, Global Findex Database
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Who are the unbanked?
Source: World Bank, Global Findex Database
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Who are the unbanked?
In summary you are more
likely to be unbanked if you
are:
Young
Poor
In a developing economy
Less well educated
Live in a rural area
Female
Source: World Bank, Global Findex Database
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Why do the poor need banks?
The poor need financial services to:
– Transact
– Manage day-to-day cashflow
– Create usefully large sums (savings / borrowing)
– Manage and protect against risk (savings / insurance)
Financial diary studies suggest that:
– The poor unbanked have at least as many financial
transactions as the wealthy banked – they are just for
smaller amounts.
– Because the incomes of the poor tend to
fluctuate, their need for financial services may actually
be greater than the better off.
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How do the financially excluded
manage their money?
Cash transactions
Cash savings at home – the “mattress bank”
Borrow from family and friends
Save in kind – acquire valuable assets such as
land, jewellery, livestock – then sell assets when
cash is needed.
Entrust others with their cash, for safekeeping or
remittance
Use informal financial services
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Informal financial services
Community-based financial services have been around
for generations. Examples:
Reciprocation
Susu collectors (West Africa)
VSLAs
ROSCAs / Stokvels
ASCAs
Marriage and burial societies
A Susu collector in Ghana
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The ROSCA model
Every month a different member takes the full $40 pay-out.
The beneficiary can be determined by:
– Prior agreement – e.g. based on seniority
– Agreement at each round
– Lottery
– Auction (with surplus shared among members)
On the face of it, highly effective and efficient savings
mechanism
In practice, many are wound up then re-started, either because
of delinquency, or because they have fulfilled their need.
ROSCAs are widespread, especially in East
Africa. About 40m participants in the region.
Example: 10 members, each paying in $2 a
month
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Informal financial services – pros and cons
Informal
Financial
services
Local and
accessible
Simple to use
Adaptable to
community
needs
Trusted and
unintimidating
Unreliable and
clunky Prone to
delinquency
and fraud
Limited
capacity for
lending
Lack of privacy
Inefficient
allocation of
capital
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Semi-formal financial institutions
In this category:
– Savings and Credit Cooperative Societies (SACCOs) /
Credit Unions
– Microfinance Institutions (MFIs) – can be deposit-taking
or non-deposit-taking
MFIs can be independent commercial, bank-linked,
state-owned or NGOs
Regulated, but not usually as stringently as banks
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The micro-credit roller-coaster
Emergence: the Grameen Bank model
– Mohamed Yunus won the Nobel peace price in 2006
– main innovation was to recognise and commercialise the
concept of “group collateral”
– recognised the disproportionate value of small loans to the
economically active poor
– unsecured lending on reasonable (but not cheap) terms
Growth: MFIs proliferate - NGOs, commercial, bank-
linked
Disillusion: aggressive collection tactics, extortionate
pricing, give microfinance a bad name (Andhra Pradesh)
Redemption: More stringent regulation to protect
customers make way for principled NGOs, honest MFIs
and banks seeking a sustainable business model?
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Formal financial institutions
The players:
Commercial banks (state and private sector)
Savings banks / postal banks (often state owned)
The drive:
The potential size of the market
Less volatile, less price-sensitive
Government policy - e.g. social payments and
pensions
Good CSR image
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Up-scaling and down-scaling
The market gaps between the banks’ and the MFIs’
traditional customer bases are now being recognised as
having greater potential
Banks looking to “down-scale” to SMEs, micro-
enterprises and to poorer retail customer segments, even
the rural poor
Technology shifts are facilitating accessibility
MFIs “upscaling” to SME lending
Although microfinance has captured the imagination,
basic accounts and transactional services are equally
important
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“The poor” are not homogeneous
Rural
village
Peri-
urban
Remote
ruralUrban
Micro
enterpriseSalaried DependentFarmers
Working
age
ElderlyYoung
FemaleMale
Location
Activity
Age
Gender
Some segments will be commercially more attractive to banks than others
There may always be gaps in provision of formal financial services
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Criteria for pro-poor financial services
Benefits / Literacy
Proximity /
Accessibility
Simplicity /
Usability
Affordability
Must I have a bank account to receive state benefits?
Am I convinced of the advantages of being banked?
Am I confident of my understanding of how it all works?
How far do I have to go?
Will I feel intimidated / will the staff be helpful or arrogant?
Can I get my money when I need it?
What if I can’t read or write?
Does the product give me the flexibility I need?
How easy is it to start? What documents will I need?
How much will it cost?
Will all my savings get eaten up in fees?
Are interest rates on loans reasonable?
Safety
Could I lose my money?
How will I know it’s there?
Can it help me keep my money away from others?
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Poor people EXPECT to pay for financial services
They are very aware of the real current costs:
– Travel costs
– High risks of loss / fraud
– Informal sector and MFI interest rates
Pricing models for the poor:
– Little or no interest on deposits
– High transaction fees
– No account fees
– High interest on microcredits
Pricing for the poor
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Supply-side challenges for banks
Financial
sustainability
Large numbers of low-value transactions
Lack of collateral for lending
High levels of dormancy
Customers /
Products
Developing pro-poor products, appropriately priced, for the
chosen market segments
Avoiding “contamination” of existing customers/products
Delivery model
Managing a remote network
Reaching the remote poor at low cost
Harnessing technology
Operational
IT and staff capacity to cope with increased volumes
Physical security, especially for cash transportation
Poor infrastructure – power and communications
Cultural
Staff with negative attitude to the poor and to micro segment
Banking the poor still often seen as largely a CSR activity
Financial literacy improving but not perfect
Regulatory
Difficulty of customer identification
Inflexible AML/CFT rules
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Traditional distribution model
The branch/ATM/online banking model
familiar in developed countries or in
urban centres doesn’t work in a poor
rural environment:
– Revenue streams cannot support high branch
fixed costs
– ATMs are “high maintenance” and need reliable
power, land-line communication networks, secure
locations, and regular loading
– Internet banking is of limited use in cash-
dominated economies
So, what are the alternatives . . . . .
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Pro-poor delivery options
Mini-branches and kiosks: work well in higher-density
locations, but costs still too high for remote rural areas.
Banks and regulators nervous about one-person outlets
Mobile banks: Expensive to run, especially in areas with
poor security. Good for image promotion and customer
recruitment.
Non bank agencies: The humble POS terminal serves as
a “bank in a box”. Recruiting and training agents can be
difficult.
Mobile banking and mobile money: Phenomenal
growth, and now ubiquitous in many developing
economies, especially Sub-Saharan Africa.
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AML/ CFT
AML/CFT rules can create unintended obstacles to
financial inclusion
The Financial Action Task Force (FATF) allows for some
flexibility in the implementation of AML/CFT rules - low-
risk activities can have simplified controls
But national regulators often find it difficult to design
appropriate controls and tend to take a blanket approach
Specific issues include:
– Inadequate or unreliable ID systems
– Problems faced by banks with international relationships
– Lack of resources and systems to monitor financial activity
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Lessons learned
Banks’ traditional distribution model is uneconomic for small
numbers of low-balance accounts
The costs of compliance with AML/CFT rules undermine the
concept of mass financial inclusion.
The agency model can work economically, but creating the right
incentives is important. Not all regulators approve.
Cash transportation and storage costs can be prohibitive
Important to create pro-poor products with targeted features and
innovative pricing structures.
Financial literacy campaigns can help, but the causes of financial
exclusion are mainly practical ones.
The more aggressive the marketing, the higher the rates of
dormancy.
Closer cooperation between banks and mobile operators has
promise.
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A fast-changing environment
Banks and MFIs are no longer the only, nor even the
main, players
The mobile money revolution, which started in Kenya, is
revolutionising the financial inclusion landscape
MNOs are now competing head-on with the banks, and
in many markets are winning easily
Growing “ecosystem” of mobile-based financial
services – including G2P, bill payment, mobile
insurance, mobile credit and savings etc.
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Mobile Money vs Mobile Banking
Mobile Money
Does not require users to have a
bank account
Uses transaction points that are
primarily separate from banks
(e.g. MNO agents for cash-in and
cash-out)
Typically offers P2P transfers, bill
payments, bulk payments and
international remittances
Increasingly used for G2P
transfers
Mobile Banking
Uses the mobile phone as
another channel to access
banking services
Requires users to be customers of
the bank
Cash-in and cash-out transactions
still require a branch or ATM
However, the distinction between Mobile Money and Mobile Banking is gradually
becoming blurred. Banks and MNOs are increasingly working together so that, for
example, mobile money services can be used to access bank accounts.
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The mobile money revolution
What are mobile money services used for?
Source: GSMA
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Mobile money data
In June 2013, there were over 203 million registered mobile
money accounts worldwide.
In Sub-Saharan Africa, there were 98 million registered
accounts; twice as many as Facebook.
East Africa accounts for 34% of total registered accounts.
Nine markets have more registered mobile money accounts
than bank accounts: Cameroon, the DRC, Gabon, Kenya,
Madagascar, Tanzania, Uganda, Zambia and Zimbabwe.
Monthly value of mobile money transactions (excluding cash
in and cash out): USD 3.2 billion (based on June 2013)
The density of mobile money agents is six times that of bank
branches (28.4 / 100,000 adults vs. 8.6)
Source: GSMA, Mobile Money for the Unbanked, State of the Industry 2013
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How mobile money P2P transfers work
Sender’s
mobile
money
E-wallet
credited
Sender pays
cash to
mobile
money agent
Sender sends
payment
message to
recipient
Recipient gets
confirmation
message
Recipient’s
mobile
money
E-wallet
credited
Recipient
collects cash
from mobile
money agent
Sender’s
mobile
money
E-wallet
debited
Money transfer using SMS / USSD
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Mobile money: some issues
Regulatory rules vary considerably. Some countries still
do not allow MNOs to operate mobile money services.
Others allow them only in conjunction with banks.
Mobile money E-wallets are being used for savings. Is it
appropriate to save with an MNO rather than a bank?
Managing liquidity – especially for G2P payments
Recruiting, training and incentivising huge agent
networks present challenges
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The future?
The dividing line between MNOs and banks is already
becoming blurred (e.g. M-Kesho in Kenya)
More poor people will have direct access to bank
accounts:
– Via mobile banking
– Via mobile money services
– Using low-cost outlets and agency networks
– Regulators will relax KYC/CFT/AML rules for very low balance accounts
Increased access to credit, from banks as well as MFIs
Cooperation between banks and informal financial
institutions will increase
Remittances linked to social networking? E.g. Fastacash
and Azimo.
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References
World Bank, Global Financial Development Report 2014 – Financial Inclusion, World Bank Nov 2013
CGAP, Annual Report 2013: Advancing Financial Inclusion to Improve the Lives of the Poor, 2013
GSMA Mobile Money for the Unbanked, State of the Industry 2013.
FATF Guidance, Anti-Money Laundering & Terrorist Financing Measures and Financial Inclusion, June 2011
World Bank – World Development Indicators, The Little Data Book on Financial Inclusion, 2012
Collins, Morduch, Rutherford and Ruthven, Portfolios of the Poor: How the World’s Poor Live on $2 a Day,
Princeton University Press, 2009.
Rutherford and Arora, The Poor and Their Money: Microfinance from a 21st Century Consumer’s
Perspective, Practical Action Publishing Ltd, 2009
Asli Demirguc-Kunt and Leora Klapper, Measuring Financial Inclusion: The Global Findex Database, World
Bank Policy Research Working Paper 6025, April 2012
CGAP and CGAP/DFID Focus Notes and papers:
‐ Does Facebook Represent the Future of International Remittances, 2013
‐ Advancing Financial Inclusion through use of Market Archetypes
‐ AML/CFT: Strengthening Financial Inclusion and Integrity
‐ Scenarios for Branchless Banking 2020
‐ Banking the Poor via G2P Payments
‐ Microfinance and Mobile Banking: The Story So Far
‐ Nonbank E-Money Issuers: Regulatory Approaches to Protecting Consumer Funds
FSD Kenya, The Role of Informal Financial Groups in Extending Access in Kenya, April 2009
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Useful websites
CGAP
http://www.cgap.org
IMF Financial Access Survey data
http://fas.imf.org/
World Savings Banks Institute (WSBI)
http://www.wsbi.org/
Banking for Tomorrow
http://www.banking4tomorrow.com/blog
Boston University, Financial Inclusion Guide
http://www.bu.edu/bucflp/initiatives/financial-inclusion-guide/
36. CONTACT DETAILS AND FURTHER
INFORMATION
Johnny Rizq, Director
You can find out more about GBRW
Consulting by visiting our website on
http://www.gbrw.com
Visit my LinkedIn profile at
http://www.linkedin.com/in/johnnyrizq
Email us at mail@gbrw.com
Notas del editor
My interest in financial inclusionStarted in 2009 – became involved in a programme funded by the BMGF, working with WSBI – savings and postal banks in over 30 countriesTen project went ahead – in Africa, Latin America and AsiaNow chair the Programme Steering Committee, overseeing progress of those projects.Also worked with PostBank Uganda to help in their implementation of a financial inclusion strategy. In particular developed a financial model to compare the economics of different delivery options for pro-poor banking. Some of the insights gained from that model influence the content of today’s presentation.
So those are the statistical correlations for financial exclusion, but what reasons do the excluded give for not having bank accounts?
These responses help us to understand what levers financial institutions and policy-makers might have to pull in order to increase levels of financial inclusion.
These types of financial transactions:Are highly prone to fraud and lossRely on the limited resources available locally
ROSCA – Rotating Savings and Credit AssociationASCA – Accumulating Savings and Credit AssociationVSLA – Village Savings and Loan Association
Reliance on social and communal pressure to repayAlso depended on an intimate knowledge of the community
We will talk later about the huge growth in mobile money services offered by MNOs. Inevitably the pricing of those services is now seen as the benchmark for bank services, even though banks’ offering is qualitatively different.
POS – Bank in a BoxCosts less than $1000Simple to useCan perform all the main transactional tasks – deposits, withdrawals, transfers, bill payments, balance enquiriesSwipe card, CHIP & PIN, or biometricCan run on battery or solar panelLinked to mobile data networks
USSD: Unstructured Supplementary Service DataThe two steps shown at the bottom of the page are of course not essential. The sender may already have credit in his e-wallet, and the recipient may choose to keep the credit in his e-wallet to use for other purposes (buying airtime, paying bills, transferring funds to another person etc.)
Regulators usually require MNOs to hold all MM user funds in a designated client account. Some require a separate sub-account for each user.Savings: M-PESA allows users to hold up to KSH 100,000 (about £700) in their e-wallet.For G2P payments MNOs often enter into agreements with banks to help manage their cash floats.