Victor Ngeny – FrontlineSMS:Credit from Africa Gathering on Vimeo.

How did embee mobile start and what market failure does it aim to address?

Embee Mobile started in September 2008, looking at the mobile payment space and how over the past 20 years, learning from the failures of the past. The company is focus on enabling e-Commerce for Prepaid Mobile Users Worldwide.

Who is your target audience?

Our initial target audience has been the prepaid mobile users in the United States. At present, 19.2 percent of the roughly 280 million mobile subscribers are prepaid. In relative terms, that means there are 7x more prepaid users than iPhone users in the United States. IDC, during the first part of 2009, the top 10 carriers in the United States added just under 3.5 million retail net subscribers. Out of these, 75 percent were prepaid users. In 2010, we will expand beyond the United States and begin to offer our services to the over 2.5 billion prepaid mobile subscribers worldwide.

What prompted you to focus on prepaid, closed loop systems? Generally speaking, does a service like yours need to dis-intermediate mobile network operators (MNOs)?

After looking at being an MSB (Money Service Business), like Western Union, we felt that the type of regulations and oversight was not something a small startup could afford, both in time and resources. This is because an MSB processes open loop systems (credit cards, bank accounts) and a lot of regulations are required to stay in compliance. The benefit of closed-loop systems is the fact that they are independent from the Financial System and allows us to start servicing our customer right away. If we had gone the other route, we probably would have been operational today, in comparison to already generating revenue and in operation for 9 months.

Why Facebook? Any other social networks in the pipes?

Using a social network like Facebook allowed us to quickly develop an application and target the place where lots of people “hang out” on the Internet. The destination makes it easy for people to find us and a lot of the cumbersome infrastructure of putting together your own portal, was made simpler and quicker by using the Facebook interface. In 2010, we do plan on offering our application on other platforms.

Where will embee mobile be five years from now?

We hope that in 5 years, we will have significant reach Internationally and be able to offer our service all the way down to the handset. We also expect to grow in two ways. The first is to offer a variety of methods for users to earn points for products and services. The second is to offer a wider range of products beyond mobile top up, such as real goods and services.

Eric Chan has worked in the social media, mobile and enterprise software technology. Prior to Mobileslate Consulting, he founded Caboodle Networks, where he filed two patents in semantic search technology; the company was eventually sold to Mobile Content Networks. In addition, Eric is also an Adjunct Professor in the School of Computer Science at Carnegie Mellon University, and in the past has been the Education Director for the Robotics Academy at NASA Ames. Eric previously started an Internet Consulting Firm, Unique Net Solutions, building ecommerce portals and interactive sites. He is currently the Chief Operations Officer of embee mobile. Follow on Twitter at @embeemobile and @mobileslate.

In July 2008 I was sitting in eBay Leadership training and was asked to tell the group what inspired me about my work. I got up and immediately began telling the story of the Masai tribe I had visited just a week before while on holiday. These people had no running water, no electricity… they dressed in traditional outfits, beautiful red and purple blankets. They carried sticks. Their shoes were made of old tires. They had little to no modern-day luxuries, but they did have one device… mobile phones.

At the time, I had been driving PayPal Mobile’s business development efforts in North America for nearly two years and realized there was no reason why these Masai shouldn’t be able to participate in the global economy any longer, selling their wares on eBay or receiving remittances from abroad using their mobile phones. The only limiting factor was our imagination, our desire, our ability to connect the dots, and our know-how to make it happen. It was at that moment that I painted a vision that I would make this happen, that I would help build mobile payments systems to move money from those who have it to those who need it, getting these people closer to long-term financial stability and connecting the global market. I would use the knowledge I had gained over the past three years in mobile payments and mobile banking to do so. After leaving PayPal soon thereafter, I started my mobile payments consulting practice, www.mpayconnect.com and have been working with clients to realize that vision.

During this time, a friend told me about Ken Banks and introduced us over email. After communicating for nearly 6 months in cyberspace, Ken and I met in person in San Francisco. As I learned more about FrontlineSMS, I remembered my work with open source back in 2000-2003 and knew that the disruptive power it had with servers could be used for mobile payments. I asked him how I could help build a payments vertical on top of his platform. He looked at me puzzled and said, “You don’t know Ben?”

When I heard what Ben Lyon and his team of nearly twenty committed volunteers were doing with Frontline SMS:Credit, I felt compelled to help them bring their efforts to market. Ben and I met in NYC at the Yale Club one afternoon with another African colleague. As we sat at that club discussing informal financial systems in Africa, the power of mobile payments, and the need for interoperability, I decided to make a donation to his efforts.

We need organizations like FrontlineSMS and FrontlineSMS:Credit to realize the vision of financial inclusion world-wide. Rather than citing all the reasons why mobile payments and interoperability are difficult or can’t happen, Ben and his team have been pushing it forward. Efforts like theirs cater to the needs of the people who need it most which, at the end of the day, are the most important constituents to consider. My hope is that the small donation that we made will help realize the vision of moving money from those who have it to those who are in need of it, getting these people closer to long-term financial stability.

Menekse Gencer is Principal of mPay Connect, a consulting service for clients seeking to launch mobile payments. mPay Connect specializes in providing assistance in Strategy, Business Development and Product Planning. Prior to founding mPay Connect, Menekse led PayPal Mobile’s Business Development efforts. During this time, she secured PayPal’s first Mobile Network Operator deal and launched PayPal Send Money on Sprint’s mobile wallet. Previously, she ran Gateway’s Product Planning Division for Enterprise Software. mPay Connect is the first official sponsor of FrontlineSMS:Credit.

The TED India conference was a great jumping off point to begin my need finding research in India. I continued traveling around the country for the month researching opportunities after the conference meeting people and organizations in Bangalore, Mysore, Ahmedebad, Udaipur and Rajasthani villages, Delhi, Bombay and Ludhiana. I came only with the intention to find something I could contribute to, holistically of course – through both my agency and its offerings as well as on a personal level. During all my time on trains, planes, cars and autorickshaws here are the main themes and realizations culled from my travel:

Design Poverty: Indian light switches, the irregular height of stairs and floors, the chaos in visual communications, the accepting of shoddy industrial design as the norm, the total lack of accessible design, the general cacophony of any public or private space and in 80% of instances user experience so bad it will give you a headache. Not to mention the encouragment of noise pollution in every corner of India. I know no outsider, or insider can really change India – in fact Indian culture will never change – and I hope it doesn’t. However small changes that heighten the quality and experience of life, with the right education of India’s designers and the right demand from its increasingly educated consumers could make a massive difference to India overall. Methods for ending poverty could be designed into this education as well.

Reverse Diaspora: Many Indians like myself, that are brought up abroad are returning to India to join the “wild, wild east”. At TED it felt as though 1/3 of the people were from Silicon Valley- and though the convection between India and Silicon Valley is well established for technology talent, I am excited to see how my generation uses it for the social good and designing a better world.

Contradictory Space: India is a giant contradiction, and Indians work and live in this contradictory space daily, and are comfortable and balanced within this space. This would help explain a bit about the clash that sometimes occurs when foreign companies come to India expecting a smooth transition. Devdutt Pattanaik outlined this in his talk explaining the fundamental cultural differences between the East and the West and how they play out in business and why.

Jugaad: finding a workaround. Jugaad literally means an arrangement or a work around, which have to be used because of lack of resources. Indians have always employed Jugaad, which is in essence not doing things the formal way, but rather maneuvering one’s way and finding loopholes around the answer ‘no’. Indians do not like to hear or say no. There’s almost always a way, which is a great mentality to live in.

Indigenous Inventions: financial and physical products that are invented by the end users are more valuable to them than the one’s we design down to them. The Honeybee Network and their inventions and the Chit Fund are great examples of this.

Disruptive Everything: disruptive business models, disruptive design, thinking, talking – all of it -is being embraced more and more in India and the world as a more attractive option than the tried and tested. Disruption not only stems from innovation, but more importantly serves to keep the playing field democratic. I absolutely subscribe to this theme.

Philanthrocapitalism: Or, compassion based business as I like to call it, is often baked into many Indian companies. Culturally, social responsibility is part of daily life, so its much less of an afterthought in India than elsewhere.

Corruption: No one thing has halted India’s progress more than this. Until things are done in a more transparent way, and the bribes vanish, its going to be very difficult for India to become the world leader it ought to be. I wish Shaffi Mather lots of luck with his anti-corruption campaign.

The Kids: It is known that the true change in India and the world will be with the next generation, and education in India needs a revolution, now. Many people are doing that including Kiran Sethi of the Riverside School and Deepti Doshi who is bringing La Escuela Nueva to India. With the right type of responsibility baked into their education, be it for sustainability or social change or design thinking, the next generation is where change lives. That said, having the largest, youngest economy in the world, might turn one of India’s greatest criticisms into its greatest boon.

Mobile Truths: Everyone knows its vital to banking the unbanked and setting up payment systems. I see lots of places where it hasn’t been used yet to its full potential, like in the education sector, in food, in advertising and public service – which could really prove to be the best tool to solve mass scale problems in India.

More to come as I process and digest this incredible month of research.

This post was contributed by Raina Kumra, Director of Communications for FrontlineSMS:Credit.

To contact Raina, email
raina@credit.frontlinesms.com.

Imagine waking up tomorrow to find that the value of every liquid asset you owned had been replaced by $1 bills. That credit card with the $500 limit? It just burst the seams of your wallet with 500 $1s. Your $30,000 retirement account? Good luck even finding your desk under that mountain of cash. But before you settle down in the study to count it out, you might want to lock the back door, because I wouldn’t put it past your neighbors to help themselves to a few handfuls of money. (After all, stealing cash is easier than cracking someone’s online bank account.) Financial management has a new and alarmingly literal twist in this world.

In fact, if you happened to live in Kinshasa, the capital of the Democratic Republic of the Congo, the above scenario would be a drearily familiar scene instead of an interesting thought experiment. Most formal financial services, such as savings, checking, and credit cards, are virtually non-existent in the DRC, and the largest bill in the local currency is the 500-franc note – worth about $0.55 at the time of writing. For the typical Congolese businessperson – say a woman selling cassava flour for 150 francs ($0.17) a cup at Makala market – a good day’s sales will mean quite the inconvenient pile of francs to carry around. The alternative is paying a price to convert those francs into American dollars, the DRC’s unofficial second currency, which come with higher denominations and lower inflation rates – and leave one a bit poorer as a result.

Despite the obvious hassle of dealing with mounds of tiny bills, however, it’s arguably not even the most serious problem posed by the DRC’s cash-only economy. When I was interviewing microfinance clients in Kinshasa earlier this year, what struck me most was the number of people who said they had cash stolen from them – whether in the street, in their homes, or even coming out of the microfinance bank with their newly received loan funds tied neatly into the corners of their pagnes, and clever thieves waiting to meet them. This is the hidden side of cash, the one that leaves the already-vulnerable poor more exposed to theft, and less able to conduct any type of financial transaction in privacy. And this is why, if the microfinance industry is genuinely committed to serving the poor, it needs to leave cash behind and embrace mobile banking.

In countries like the DRC, mobile microfinance may very well offer the first and only opportunity most people have to conduct financial transactions that are convenient, private, and safe – the types of transactions that have been taken for granted for decades in the West. The impact of this switch from cash to mobile really can’t be overstated. After all, where would you rather be – conveniently managing your bank account from your laptop or mobile phone, or standing guard over the $1 bills that make up your life’s savings, now stuffed under your (newly lumpy) mattress?

I thought so.

This post was contributed by Rachel Strohm, Sub-Saharan Africa Regional Coordinator for FrontlineSMS:Credit.

To contact Rachel, email
rachel@credit.frontlinesms.com.

Soon the rural populations of Latin America and the Caribbean (LAC) will have access to microloans, savings and insurance against the unexpected …… and all through their mobile phones. This is indicated by trends in microfinance institutions (MFIs), increasingly advanced mobile payment systems and the emergence of open source programs that serve as a bridge between the two.

This post will briefly explain how MFIs and mobile payments work, how open source software can facilitate financial inclusion and what challenges face this process.

Introduction

According to The World Bank, only 35% of the LAC population has access to financial services. It’s a situation that reduces their options for payments, savings and credit and limits their financial channels to the less efficient and more expensive.

Access to savings, credit, insurance and other financial services are necessary to improve your position and overcome unforeseen financial emergencies (medical expenses, education fees, occasional unemployment …). Moreover, proper financial planning enables families and entrepreneurs to increase the chances of growing their businesses, reduce the volatility of income (i.e. consumption smoothing), amass savings and property and, ultimately, improve their ability to respond to economic shocks.

Recent studies show that banked individuals and families are economically better off than those who lack access to formal financial services. To the extent that income and savings grow, banked individuals are less vulnerable to financial crises and can go from simple everyday survival to medium and long term planning.

These circumstances are especially important in rural areas, underdeveloped urban zones and, generally speaking, in those places dominated by the informal sector, which may only be accessible by cell phones.

MFIs

Micro-credit and -finance came to rise in the 1970s, when social entrepreneurs began to provide microloans and other financial services to poor microentrepreneurs who had no access to formal finances due to a lack of collateral.

Some poor countries of LAC were pioneers in the development of microfinance. This has never stopped developing and has reached such an extent that the 2009 Global Microscope study, prepared by the prestigious financial publication The Economist, listed Peru, Bolivia, Ecuador and Colombia (in that order) in the top ten countries worldwide with the better business environment for microfinance.

Most MFIs started as non-governmental non-profit organizations (NGOs), rural banks or other financial cooperatives, or national development banks. Over time, many of the MFIs became for-profit institutions, as this is a requirement for licensing and offering savings services. The for-profit MFIs can be grouped into non-bank financial institutions, commercial banks specialized in microfinance or finance departments of a bank that offers various types of services.

Mobile Payment

Mobile payment is a system that allows users to deposit money into a mobile wallet and distribute it via text messages (SMS). Mobile payments are faster and cheaper than sending money through banks, post offices or intercity bus drivers. By using this type of payment, rural people can forgo traveling to a bank or post office to access transferred money and, consequently, can devote their time to more productive activities.

Mobile payments are also a means through which to introduce financially disempowered communities to formal financial services.

The pioneers of mobile payments, like microfinance, were entrepreneurs in poor countries who realized that they could make money by selling services to the base of the economic pyramid (BOP). There are two reasons for this: the sheer size of this market and the high rate of mobile phone penetration among its population.

Safaricom M-PESA (Kenya), SMART Money (Philippines), Globe G-Cash (Philippines) were among the pioneers. SMART Money & G-Cash alone bring roughly 275 million dollars per month to The Philippines! To learn more about how the typical mobile payment system works, see the information on Cash Splash (Sierra Leone), Obopay (India) and Paypal (USA).

How open source software facilitates financial inclusion

Consider the following example: A farmer needs money to rent a stall in the marketplace to sell his produce. Currently he has few options to get it. Most likely, he will have to go to the nearest MFI and apply for a micro-credit loan (with interest rates that can reach 28% annually, according to the Consultative Group to Assist the Poor). He needs to travel long distances to the MFI to pay weekly loan payments.

With a mobile payment system, the farmer in our example should be able to avoid the opportunity costs of both time (transit time) and money (transport cost) by accessing credit via his mobile phone. Theoretically, such a transaction should be simple.

In practice, however, MFIs have difficulty offering such services, even in the countries of Africa and Asia that have mobile payment channels. And why? MFIs lack a software that seamlessly integrates mobile payments with their management information system.

The development of free and open source software with the ability to process payments would help solve the problem above. This software would provide a bridge between mobile payment systems and MFIs, enabling MFIs to use mobile payments to distributed mass payments, automatically generate client credit histories and maintain robust auditing trails.

Challenges

Frontlinesms:Credit is an initiative that aims to bring formal financial services to rural and disconnected populations via simple text message (SMS). By merging free and open source software like Frontlinesms, which turns a computer into a mass-SMS communication hub, with the ability to process prominent mobile payment systems and integrate with common microfinance management systems, FrontlineSMS:Credit will facilitate financial inclusion in LAC.

The task that FrontlineSMS:Credit faces is not easy. On one side are the regulatory environments that enable mobile phone use as a tool for financial inclusion. While some countries are well advanced in the field, specifically Peru and Mexico (see América Latina en contexto: el entorno para los servicios financieros móviles), governments in LAC are still far away from creating enabling environments.

On the other hand is the development of mobile payment systems in the region. Fortunately, several systems have already emerged: Tigo Cash in Paraguay, Pago Móvil in Perú, Nipper in México and Oi Paggo in Brazil are a few.

And do not forget also the distribution networks, interoperability of mobile payment systems, marketing, security of transactions, customer trust, the accessibility of mobile phone platforms, transparency, etc..

FrontlineSMS: Credit has been working since October to produce a range of open source tools to expand the functionality of mobile payments. One of its modules will be ready for field testing and free download by the Spring, whether in Africa or Asia, where as we saw, mobile payment systems are well developed. In LAC we have it in early 2011, or earlier if circumstances permit.

The short history of development is fraught with false promises and failed benchmarks, says Ben Lyon, Executive Director of FrontlineSMS: Credit, and neither mobile payments nor microfinance should be exalted as the next ’silver bullet.’ Nevertheless, the rapid emergence of mobile payment systems across the developing world presents a tremendous and exciting opportunity for billions of people… we must seize this opportunity!

[Read this post in Spanish at Jorge's blog]

This post was contributed by Jorge L. Alonso G., Central & South America Regional Coordinator for FrontlineSMS:Credit.

To contact Jorge, email
jorge@credit.frontlinesms.com.

____________________
Sources Consulted:
1. Fundación para el Desarrollo de las Microfinanzas, Andares
2. MicroRate: The Rating Agency for Microfinance
3. Telefonía Móvil y Acceso a Servicios Financieros en América Latina y Caribe

Information communication technology for development, or ICT4D, is an increasingly hot topic in the development space. For better or worse, it may even be turning into the next fad – the default response to a world of unique challenges and circumstances. If sixty years of development history suggest anything, it is that mission drift and waste are the likely byproducts of hype, an outcome which neither beneficiaries nor practitioners of ICT4D can afford. In order to avoid such an outcome, the ICT4D community must accept its growing fame with humility, caution, patience, and self-scrutiny.

Humility

Most fundamentally, we have to acknowledge that technology is a not a solution, but rather one tool in the toolkit. Whatever solutions result from technology are largely a consequence of user uptake and ingenuity. End users leveraged mobile technology, for instance, to create the airtime transfer and ‘flash’, much like Twitter users, not only created the @ reply and hash tag, but altered its very purpose from “What are you doing?” to “Share and discover what’s happening right now, anywhere in the world”. That more than 1/3 of M-PESA clients in Kenya hold informal savings in their ‘mobile wallet’ and that Iranians used Twitter to compel coverage by the mainstream media (remember #CNNfail?) is further proof. Technology providers are facilitators, not White Knights.

Caution

As with development in general, this isn’t a game. Real lives and livelihoods are on the line and mistakes can have dire consequences. Technologies must therefore be accessible, affordable, durable and intuitive. Without foresight and commitment to long-run sustainability, providers may be creating user bases only to rip the floor out from underneath them when the business model fails. By way of example, imagine how millions of Filipinos would be impacted if either SMART Money or GCASH went under.

Patience

In the world of semi-conductors and fiber optics, it’s difficult to imagine progress in non-exponential terms. In the developing world, however, Murphy and Maslow are far more relevant than Moore. Despite incredible bursts of growth – leapfrogging – in telecommunications and gradual gains in internet penetration, a tremendous amount of work remains unfinished. Consequently, some technologies are more appropriate than others insofar as they respond to current market failures and user needs. Cloud computing and Android, for example, will dramatically alter the development landscape in the future, but remain largely inappropriate in the present. ICT4D practitioners should therefore be driven by ‘pull’ instead of attempting to ‘push’ the ‘next big thing’. More simply, supply is driven by demand, not vice versa.

Self-Scrutiny

Everyone comes to the table with pride and predispositions, especially in development. One of the biggest assets of the ICT industry is its focus on engineering, a science driven by the simple question: How do I make process X more efficient? Once we add “4D” to the equation, however, we introduce a host of conflicting ideologies and practices that shift the focus from quantitative to qualitative. As ICT4D continues to grow, we must constantly ask ourselves: What biases and blinders are we bringing to the table?

In Closing…

We cannot let ICT4D become a victim of its own success. In order to help mitigate the varied challenges and circumstances in our areas of operation, it is critical that we constantly revisit the following four questions:

1. How are we facilitating organic solutions to local problems?
2. How will the user be impacted if we fail?
3. Are we basing our strategy on push or pull?
4. Are we driven by efficiency or ego?

Started in Africa in 1998, MicroSave (www.MicroSave.org) is now a team of nearly 80 experienced professionals that has been operating for over a decade and is routinely described by clients as “the most reliable consulting firm for financial service providers”. With offices in Nairobi, Kampala, Lucknow and Hyderabad, MicroSave works throughout Asia and Africa with a strong focus on putting the clients at the centre of the business, and making products and delivery systems client responsive or “market-led”.

MicroSave is particularly well known for its field-level research, which entails extensive interviews with poor people (including microfinance clients) to better understand their financial behaviour and risk profile. MicroSave’s action research assists MFIs to better listen to clients and design appropriate financial products based on better market information. Both research activities complement each other and directly feed into the toolkit/curriculum development and dissemination efforts.

The combined experience of its core research and close work with a wide variety of partners in Asia and Africa has allowed MicroSave to develop and test a series of practice-based and practitioner-focused, training curricula and workshops – its “toolkits”. MicroSave uses a structured approach based on its internationally acclaimed toolkits to deliver its services to clients. These toolkits have been widely acclaimed, and have been translated into over 20 different languages. MicroSave toolkits are now used across the globe. The toolkit-based approach ensures a step-by-step process for field assignments, which yields consistency and unparalleled quality.

For more see MicroSave History

For several years now, MicroSave has been closely involved with several e- and m-banking initiatives in Africa and Asia, in particular working on the “soft side” of e/m-banking where the technology interfaces with the customer. Thus MicroSave has worked closely with a variety of providers including Vodafone’s M-Pesa, Kenya Post Office Savings Bank’s Cash Xpress and Eko-Airtel-State Bank of India, Drishtee – HDFC Bank, mChek and many others to provide support/conduct market research, process mapping and analysis, pilot-testing, customer interface and satisfaction, channel development, brand/marketing and financial education etc. In addition, MicroSave holds annual “M-banking Dialogues”, to bring together a select group of providers that are actually implementing m-banking solutions. The Dialogues allow practitioners to discuss some of the nitty-gritty details and challenges involved with developing, testing and rolling out e/m-banking solutions. The Dialogues have proved immensely valuable for participants, who leave with significant learning through the peer-to-peer exchanges. For more on our experience with or findings on m-banking, see http://www.microsave.org/mobile_banking.

Describe the microfinance ecosystem in India? Do any challenges stand out?

Microfinance in India has evolved over the past two decades since its inception in early 1990s. The SHG-bank linkage model, its first prototype, was an offspring from an unlikely marriage between the social intermediation role of the civil society and the financial intermediation of banks, with RBI and NABARD acting as more than willing midwives.

As the business potential of microfinance dawned on many, microfinance institutions (MFIs) took on the task of both the social and financial intermediation. Thus an alternate channel for microfinance arrived (somewhat belatedly by comparison to elsewhere in the world). This was second generation microfinance for India. Most of the MFIs adopted the Joint Liability Groups (JLGs) methodology, which is essentially the original Grameen peer group lending model, and standardisation became the new mantra for achieving rapid growth. Over the past 2-3 years, NBFC-MFIs operating under predominantly JLG-based methodology have emerged as a significant and rapidly growing force.

The burgeoning number of MFIs, and the relatively narrow focus of their products, has meant that intense competition has emerged, particularly in the southern states and in some limited areas of the east. This has provided microfinance borrowers with unprecedented access to credit. This has been a boon for them, but not without the concomitant vices of competition. Many of the larger MFIs are now responding to the demands of their commercial equity investors for very rapid expansion by adopting a “sales” driven approach for increasing outreach. The dash for growth has also seen several MFIs over-stretch their management capabilities and systems, resulting in significant portfolio problems.

To respond to the cut-throat competition MFIs are trying out different approaches that range from the desperate to the deliberate. The desperate measures have bordered on the unethical like “poaching” both credit officers and even groups from rival MFIs. Other more deliberate attempts have included offering individual lending (IL) products to their old clients. But the design of many MFIs’ IL product is little different from their group loans – except that the group guarantee is replaced by a single guarantor. Basic evaluation of the enterprise is usually performed, but the product is rarely customised to respond to cash flows, or even the financing needs, and reflects a pre-defined stepped loan schedule. And few MFIs invest in the skill sets required for a successful IL programme.

Given the saturation in a growing number of geographic markets, it is imperative for the MFIs to shift from a “product centric” to a “client centric” approach. The product-centric approach worked in uncompetitive markets with a huge demand-supply gap, and when the imperative was for rapid expansion. But as the number and outreach of MFIs has grown, supply is no more a constraint in many regions. Clients are in a position to pick-and-choose the MFI that offers them the most value. 3rd Generation MFIs will be quick to sense this “tectonic shift” in the dynamics of the highly competitive markets, and do everything they can to put the client back at the centre of their business. This focus will translate into a respect for client’s time and dignity, and into making the entire spectrum of financial services for her livelihood available to her – a welcome prospect for both clients and those who believe in microfinance as a service for development and poverty eradication.

3rd Generation MFIs will operationalise the strategy of deepening engagement by:

1. Offering clients a suite of financial services in response to their full spectrum of financial needs – credit, savings, remittances, insurance etc.
2. Focusing on convenience for all clients – so that products respond to clients’ needs, and not just those of the institution.
3. Leverage technology, particularly e-/m-banking to increase transaction efficiency and reduce costs.
4. Add supplementary services, such as the “livelihood” services or education/food security services or possibly even health services.

For more see http://bit.ly/M7rOW and http://bit.ly/2Sihm

The Reserve Bank of India (RBI) has a reputation for maintaining strict regulations for both microfinance and mobile payments. With those regulations beginning to lessen, what opportunities and challenges do you see on the horizon?

The Reserve Bank of India (RBI) brought out the Banking Correspondent circular in January 2006 to enable banks to establish correspondent relationships for delivery of basic financial services to the un-banked and under banked segments of the society in areas without bank branches nearby. Another circular was subsequently issued, restricting correspondents to not-for-profit entities. Despite the obvious limitations imposed by the regulator, perhaps in a bid to test the waters, the banks launched major initiatives for financial inclusion in underserved geographies. Some of the large public sector banks managed good outreach and in a period of less than two years, more than a million clients were ‘banked’. However, by the own admission of the banks and the technology providers, more than 85% of the accounts opened under the correspondent model are “dormant”. This has brought banks to a stage where the thought is, “Are initiatives under the banking correspondent channel a business proposition or is it a corporate social responsibility initiative?” The evidence so far is that banks have concluded that under the current regulations, it is a CSR activity. Accordingly accounts are opened and reported to the RBI but transactions are not encouraged.

The Working Group established to review the Banking Correspondent Model under P. Vijaya Bhaskar in its report submitted on 18 August, 2009, made a series of recommendations, many of which were endorsed by Dr. D. Subbarao, Governor, Reserve Bank of India in the Second Quarter Review of Monetary Policy for the Year 2009-10. In the Review, the Governor noted, “Based on the Group’s recommendations, it is proposed:

• to allow banks to appoint the following entities as BCs in addition to those permitted already: (i) individual kirana [small retail]/medical/fair price shop owners; (ii) individual public call office (PCO) operators; (iii) agents of small savings schemes of Government of India/insurance companies; (iv) individuals who own petrol pumps; (v) retired teachers; and (vi) authorised functionaries of well-run self-help groups (SHGs) linked to banks; and
• to allow banks to collect reasonable service charges from the customer in a transparent manner under their Board- approved policy for delivering the services through BC. This should be clearly explained to the customer.

MicroSave is absolutely convinced that with these and a few additional relaxations of the regulatory regime, India could have close to 100% coverage within a matter of 5-10 years – with a potential un-served market of 400 million, this represents a huge business opportunity. Three challenges remain:

1. The requirement that banks involved in delivering e- or m-banking services are currently required to have branches within 30kms (or 15kms in urban areas) of potential customers/agents – which in many areas effectively limits the service provider to a few public sector banks.
2. Restrictions on who can act as agents have meant that banks are struggling in their search for large numbers of organised/aggregated agents. In most countries, mobile operator networks’ agents or chains of supermarkets, petrol stations or pharmacies are typically used. These chains allow banks to recruit/train and manage agents en masse rather than individually – the latter is a very expensive proposition.
3. For remote areas, for example the north east of India, it may be necessary to ask for the current requirement that all transactions be recorded in the books of the bank within 24 hours, to be put into abeyance.

If these issues were addressed, the opportunities for banks and other financial institutions to leverage technology are extraordinary – there is a domestic remittance market estimated to be “Rs.26,000-40,000 crore” (see http://bit.ly/2jbYnj); huge latent demand for a variety of insurance services (if they are appropriately tailored for the low income market); and of course, as has been shown across the globe, the potential for deposit mobilisation given the right products and delivery channels is startling (see for example http://bit.ly/1rT0×0).

How can interested parties help?

As the regulatory environment becomes more conducive for e- and m-banking, we will all need to work together to develop robust, customer-responsive products and channels and to understand the costs and revenues underlying them – thus allowing the development of successful business models that create real value for the poor. Too much of e-/m-banking for the poor remains rhetoric, but the potential is clear – a clearer focus on understanding the needs and behaviour of the poor, and a real commitment by the banks to extending services deep into the rural areas could change not just the endemic financial exclusion, but also much of the development challenges that face the world today.

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Graham A.N. Wright helped design and establish the MicroSave programme and is currently Programme Director for India. Graham pioneered much of the core of market-led approach used by MicroSave – in particular the Market Research for MicroFinance tools. He has had a career of two decades of development experience underpinned by five years of experience in management consultancy, training and audit with a leading accounting firm in Europe. He is a reformed Chartered Accountant.

Graham has provided training and technical assistance to a variety of microfinance institutions in Bangladesh, India, the Philippines and throughout Africa. He helped develop, test and implement a sustainable rural savings and credit programme for BURO, now an influential microfinance institution in Bangladesh. He provided long-term technical assistance to develop a rural finance system, using self-help “Savings and Loan Groups” linked to strong cooperatives in a remote mountainous area of the Philippines. He has also worked on training, systems design, research and evaluation for the usual alphabet soup of donors.

Graham has authored over 14 training toolkits and 25 papers, including a book entitled “MicroFinance Systems: Designing Quality Financial Services for the Poor” (University Press Ltd, Dhaka and Zed Books, London and New York, 2000). He was also chair of the CGAP Savings Mobilisation Working and a member of the Product Development Groups and is a Research Associate at the Institute of Development Policy and Management, University of Manchester, UK.

Mobile banking’s potential to leapfrog existing mainstream banking is apparent in countries with large populations without access to traditional banks and financial services. In these cases, mobile banking streamlines existing financial transactions which might take months and cost an exorbitant percentage of the value being exchanged. Instead the instant, low cost money transfer makes these affordable, and even permits transactions which would otherwise be impractical. Another functionality which mobile banking provides, however, that is easy to group together with these streamlined transactions, are transactions which could not have taken place before, not because they were unaffordable or impractical, but because of conflict and forced migration.

With significant personal experience among forced migrants from Darfur, Palestine, Iraq, Western Sahara, and Somalia, I have heard firsthand of the economic isolation which cuts ordinary people off from financial transactions which others rely on the world over, even those without access to banks. These conflict zones may lack not only traditional banking infrastructure, but even, at times, access to financial instruments depended upon in the most economically isolated countries. In these situations, when cash may be unavailable or unreliable (because of hyperinflation, or counterfeiting), and other assets not liquid enough to be protected or transported in the face of conflict, the necessity of communication remains paramount, and mobile phone infrastructures continue to be maintained, and to provide a foundational infrastructure for mobile banking. Even in Darfur where the Sudanese government would cut all cell phone service during offensives against rebels, satellite phones could be used in the most isolated areas to transfer credit and maintain lines of communication. Likewise, in Somalia, where widespread violence and anarchy have eroded most confidence in mainstream financial institutions, mobile phone networks are among the better ones in Africa1, and The Economist claims that: “A call from a Somali mobile phone is generally cheaper and clearer than a call from anywhere else in Africa.”2

We can see how this potential is actually being exploited a bit more, albeit informally, in Iraq, where “reluctant to risk their lives by visiting a bank, many [Iraqi phone] subscribers transferred money to each other by passing on the serial numbers of scratch cards charged with credit, like gift vouchers.”3 The unique combination of security, liquidity and discreetness allows mobile credit to perform a role which could not be filled by any traditional financial instruments, regardless of time scale or cost. Having recognized the significance to Iraqi communities, “the UN says it has plans to deliver aid to Iraqi refugees in Syria in the same way.”4 This institutional turn to mobile financial transactions underscores the unique place of mobile money in conflict contexts, as no other means is really accessible. One US government intern describes a pilot program for paying Iraqi soldiers with mobile money, because a quarter of them were on leave at any one time because they couldn’t receive their pay.5 If even these large, bureaucratic organizations have found a way to incorporate mobile money into their structures, how much more potential could there be for agile and flexible local NGO’s working on the ground.

The need for mobile financial transactions in countries from Iraq to Mauritania is not limited to situations of crisis, conflict and forced migration. However the ingenuity and resilience of some of the populations in these countries in the face of these challenges is teaching us how mobile money can solve financial problems that previously could not be addressed at all. In working with FrontlineSMS:Credit as the regional coordinator for the Middle East and North Africa region, I am eager to learn more about the different ways that mobile phone users in these regions are leveraging technology to make a difference in times of conflict and peace.

This post was contributed by Joel Mitchell, North Africa & Middle East Regional Coordinator for FrontlineSMS:Credit.

To contact Joel, email joel@credit.frontlinesms.com or follow him on Twitter at @jdmitchjoel.

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1. Ford, Nowrasteh, Powell; 2006. “Somalia After State Collapse: Chaos or Improvement?” Independent Institute Working Paper Number 64. November 30, 2006. Oakland, CA. http://www.independent.org.
2. Economist Editors. “Mobile Phones” The Economist. December 20-24, 2005.
3. Economist Editors. “Iraq’s Mobile Phone Revolution: Better than Freedom?” The Economist. November 14-20, 2009.
4. Op. Cit.
5. http://a517dogg.blogspot.com/2007/07/mobile-banking-and-poverty-part-1.html

In response to a lively debate on “the cloud” and “appropriate technology”, Ken Banks of kiwanja.net recently wrote a blog post titled “Our ‘social mobile’ line in the sand”. The purpose of the post was to articulate where FrontlineSMS stands with regard to five key mobile tools for development. In the spirit of openness and precision, we felt it necessary to write a similar post to outline where FrontlineSMS and FrontlineSMS:Credit are both similar and different.

First, to echo Ken, our primary goal is to provide the end user with a tool that is appropriate and intuitive. Although the levels of sophistication in the mobile space vary, especially when it comes to mobile payments and finance, our aim is to construct a tool that utilizes as many pre-existing channels and competencies as possible. Why reinvent the wheel?

1. Who is your target audience?

Our ideal target audience is Tier 3 and Tier 4 microfinance institutions (MFIs) whose clients have access to some form of mobile payment system. FrontlineSMS:Credit may also benefit institutions that need to send mobile payments en masse. Payroll, compensation, crisis relief, and incentive-based programs are good examples of the latter.

In the long run, we plan to provide a comparable tool to Tier 1 and Tier 2 MFIs. Doing so, however, will require a more sophisticated, web-based approach and is therefore not a current priority. Further, Tier 3 and Tier 4 MFIs, which typically spring from and align themselves with grassroots needs, are likely to have greater access to rural populations that are un- or under-served in the status quo.

2. What is your position on scaling?

We support scaling and centralization as long as it’s user-driven and practical. Nevertheless, we are hesitant to promote centralized approaches where regulatory and infrastructural ecosystems are weak or ill-defined. To put it simply, it would be imprudent to subject the finances of the unbanked poor to a single point of failure.

With horizontal scaling, which we prefer, risk is evenly spread across implementing institutions. Any failure is therefore isolated to a particular hub instead of the system as a whole.

3. How does it replicate and grow?

Like FrontlineSMS and FrontlineSMS:Medic, we are driven by “pull” from interested organizations. 100% of our upcoming pilot and beta partners, for instance, initiated contact to collaborate. As a result of time saved from not seeking partners, we can commit the majority of our efforts to getting feedback from potential users and adjusting our designs accordingly. The FrontlineSMS:Credit team is large and geographically scattered for precisely this reason.

4. What is your position on open sourcing?

We consider open sourcing essential for improvement and continued innovation. Unlike FrontlineSMS, however, we will need to closely monitor and scrutinize changes to the source code in order to protect end users from fraud (e.g. a developer could build a back door into the system to access financial data and PIN numbers). Since economic shocks at the bottom of the pyramid can be a matter of life or death, we will have to ensure that any modifications to the code are both secure and made in good faith.

5. Does access to the Internet matter?

No. By providing the data bridge necessary to take full advantage of mobile payment systems, MFIs will be able to provide a range of financial services via the cellular network. Although an internet connection will allow MFIs to backup user data (which could also be achieved with a simple thumb drive), one won’t be necessary for FrontlineSMS:Credit to function.

Note: FrontlineSMS:Credit is currently under development and will be available for free download this Spring. It is being designed to function as middleware that will enable any mobile payment system and any management information system (MIS) to communicate in real time. As a result, implementing MFIs will be able to distribute loans, receive repayments and generate robust auditing trails and client credit histories directly from their MIS.