Opportunities for Rural Banks to Expand Microfinance Banking Services


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This presentation was given during the Confederation of Southern Tagalog Rural Bankers Management Conference entitled "Gearing Up: Striking the Balance between Regulation and the Biz" on February 24, 2011. The overall theme was to explore new business opportunities that now exist in light of recent regulations in the Philippines. These new regulations will make it easier for rural banks to expand and offer new microfinance products and services in 2011.

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  • Prior to C683, only UBs and KBs can cross-sell the financial products (i.e. insurance) of their affiliate and subsidiaries
  • Branchless banking is a distribution channel strategy used for delivering financial services without relying on bank branches. While the strategy may complement an existing bank branch network for giving customers a broader range of channels through which they can access financial services, branchless banking can also be used as a separate channel strategy that entirely forgoes bank branches.
  • A recent example would be the partnership model by Telenor Pakistan (the second largest cellular provider in Pakistan) and Tameer MicroFinance Bank (a Branchless Banking license holder from the State Bank of Pakistan). These two organizations came together with Telenor serving as an agent to Tameer and providing 2,500 of its 175,000 retail shops across the country as sub-agents for Branchless Banking services. The brand was named 'easypaisa' and launched in Oct 2009. In a year from launch, easypaisa has more than 11,000 shops all over Pakistan and has moved over PKR 11 billion (USD 120 million) through 6 million transactions. Likewise, rural banks that have teamed up with Globe’s G-Xchange utilizing GCASH have processed more than 1.5 million transactions totaling more than PhP 7.5 billion (over $160 million). This year alone, rural banks will have processed over 630,000 transactions via GCASH totaling more than 3.7 billion.
  • For Client: It is convenient for clients to get emoney within their area (at least 1 km radius) of residence or business. The closer and easier the better it is to do banking without traveling and lining up at the lobby of the bank and without leaving the business closed. It avoids opportunity losses. For Merchants: It definitely increases customer traffic and increases revenues from fees on reselling Gcash to micro-client (for payment of loans or utility bills, or money transfers). It allows use of e-money in exchange for goods and services which saves the merchant from cash handling issues (fraud and robbery). For Banks: 1) Increase Deposit Levels Ecosystem Rollout (merchant clients) Text-A-Deposit (Clients sending e-money for deposit to their account in the Bank) Text-A-BillPay (Utility Bills Company’s ADB) 2) Convenience Text-A-Withdrawal- mobile ATM Unclogging lobby and reduces transaction costs Text-A-Salary = Paying salary via mobile wallets 3) Cost Savings Text-A-Payment = saves on collection cost; more time for portfolio management Reduce over the counter processing and paper works 4) Increase Profits (from fee-based transactions) Fee-based income (GCash2Load, Cash-In/Out, Advise and Pay) Opportunity for cross-selling and from referrals Improve loan portfolio and management, cost savings on loan payment through GCash
  • With the rise of SMS and social networking sites like Friendster, Multiply, Flickr, and now Twitter and Facebook, Filipinos are increasingly using their social networks to gain access to information to share more about who they are, what you stand for, as well as to provide updates and share  photos. They are more likely to find out and choose everything from where the shop and even where to bank from their friends/neighbors and even the local grocer or pharmacist.
  • Many low income and poor clients still struggle to obtain basic forms of proper photo identification.
  • Increasingly clients are more mobile today than ever before and are demanding access to ATMs. Third-party ATMs are cropping up at rural banks but these banks often are not able to issue ATM cards to their own customers.
  • with a full photo id that can be customized to the "face" of the client for them to share who is important in their lives or there motto to live by.
  • Opportunities for Rural Banks to Expand Microfinance Banking Services

    1. 1. Gearing Up: Striking the Balance between Regulation and the Biz Opportunities for Rural Banks to Expand Microfinance Banking Services Confederation of Southern Tagalog Rural Bankers Management Conference February 24-25, 2010
    2. 2. What is the MABS Program? <ul><li>The Microenterprise Access to Banking Services ( MABS) Program is a program of RBAP that provides technical assistance and training to rural banks in microfinance best practices. </li></ul><ul><li>The program is designed to develop the capability of rural banks to profitably provide financial services (loans, deposits, insurance, and money transfers) for microenterprise clients. </li></ul>
    3. 5. Opportunities in 2011 <ul><li>NEW REGULATIONS & OPPORTUNITIES FOR BANKS </li></ul><ul><ul><li>Microinsurance Circular </li></ul></ul><ul><ul><li>Micro-Deposits </li></ul></ul><ul><ul><li>OBOs & MBOs </li></ul></ul><ul><ul><li>EMNSP Circular </li></ul></ul><ul><ul><li>AMLA Circular </li></ul></ul><ul><ul><li>Branchless Banking Opportunities </li></ul></ul>
    4. 6. Circular 683 - Microinsurance <ul><li>Provision of insurance, insurance-like and similar products/services that meet the need of the low-income </li></ul><ul><li>Allows RBs & Coop Banks to </li></ul><ul><ul><li>Partner with licensed microinsurance providers </li></ul></ul><ul><ul><li>Market, sell and service licensed microinsurance products to their microfinance clients </li></ul></ul><ul><ul><li>Collect premiums and pay claims for licensed microinsurance products </li></ul></ul>
    5. 7. <ul><li>BANK CLIENTS </li></ul><ul><li>Mitigate against common risks </li></ul><ul><li>Provide protection </li></ul><ul><li>Respond to the market demand for quality insurance </li></ul><ul><li>RURAL BANKS </li></ul><ul><li>Strategically positioned for micro insurance services </li></ul><ul><li>Fee Income </li></ul><ul><li>Quality financial services = customer satisfaction & loyalty </li></ul>Microinsurance Services
    6. 8. Microinsurance Services <ul><li>LIFE INSURANCE </li></ul><ul><ul><li>Not only credit guarantee but also coverage client and dependents </li></ul></ul><ul><li>ACCIDENTAL DEATH & DISMEMBERMENT (AD&D) </li></ul><ul><ul><li>Protection against sudden loss of income of the client </li></ul></ul><ul><li>HOSPITALIZATION INSURANCE </li></ul><ul><ul><li>Simplified medical coverage at affordable premiums, with coverage for family members </li></ul></ul><ul><li>PROPERTY / ASSETS INSURANCE </li></ul><ul><ul><li>Covering property, personal assets, and livestock </li></ul></ul>Key Products
    7. 9. RBAP Partner-Insurers Insurance Companies CARD MRI Insurance Agency
    8. 10. Microinsurance: 2010 Milestones <ul><li>Policy advocacy efforts thru RBAP contributed to the issuance of BSP 683: Marketing, Sale and Servicing of Microinsurance Products and new Microfinance Definition </li></ul><ul><ul><li>Microinsurance access now extended to both micro-borrowers and micro-DEPOSITORS </li></ul></ul><ul><li>Partnerships established with 8 insurance companies and 3 insurance intermediaries to promote access to Microinsurance services via the partner-agent approach </li></ul>
    9. 11. Microinsurance: 2010 Milestones <ul><li>Partner-banks assisted through enhanced regulatory compliance & formalization </li></ul><ul><ul><li>Over 71,000 rural bank clients purchasing formal microinsurance services from MI partner-insurers </li></ul></ul><ul><ul><li>Development of cost-efficient procedures and step-by-step guides for accreditation & licensing of MI Agent banks </li></ul></ul><ul><li>Basic Microinsurance Training Course developed for rural banks that wish to qualify for Microinsurance Agent licensing and accreditation </li></ul><ul><ul><li>9 rural banks trained during the pilot launch of the Training Program </li></ul></ul><ul><ul><li>2-day training conforms to training design prescribed under Insurance Memo Circular 06-2011 </li></ul></ul><ul><ul><li>Partnerships established with various federations for nationwide launch </li></ul></ul>
    10. 12. Microinsurance: 2010 Milestones <ul><li>Collaboration with MICRA Phils. resulted in conduct of “Developing Successful Microinsurance Products Workshop” by industry expert Michael McCord of Microinsurance Center </li></ul><ul><li>RBAP-MABS participation in international microinsurance conferences: </li></ul><ul><ul><li>Microinsurance Summit Asia 2010, Singapore (presenter & workshop facilitator) </li></ul></ul><ul><ul><li>6th Microinsurance International Conference, Manila </li></ul></ul><ul><li>MABS developed a project for RBAP-RBRDFI ultimately awarded a grant by the ILO Microinsurance Innovation Facility with support from the Gates Foundation to assist all member rural banks </li></ul>
    11. 13. Circular 694 - Micro-Deposits <ul><li>Savings account designed to fit the capacity and serve the needs of basic sectors </li></ul><ul><li>Features of a Micro-Deposit </li></ul><ul><ul><li>Minimum maintaining balance not exceeding P100 </li></ul></ul><ul><ul><li>Not subject to dormancy charges </li></ul></ul><ul><ul><li>Only for individual clients whose average daily savings account balance does not exceed P15,000 </li></ul></ul><ul><ul><li>No frills account” to address access to basic deposit account and increase savings consciousness of the low-income population </li></ul></ul>
    12. 14. Circular 694 – Establishing OBO/MBO <ul><li>Highlights: </li></ul><ul><ul><li>No longer need to be attached to a microfinance-oriented bank/branch </li></ul></ul><ul><ul><li>Fully expanded the suite of services available for microfinance clients and OFW beneficiaries </li></ul></ul><ul><ul><li>Can be applied in batches </li></ul></ul><ul><ul><li>Two types of “other banking offices” </li></ul></ul><ul><ul><ul><li>Regular OBO for non-transactional services (marketing bank products, accept loan applications, customer care, onsite ATM, account opening facilitation) Microfinance OBOs or Micro-banking Offices (MBOs) for transactional services </li></ul></ul></ul>
    13. 15. Establishing MBOs <ul><li>MBO Activities </li></ul><ul><ul><li>Accept micro-deposits including initial deposit </li></ul></ul><ul><ul><li>Accept deposits of MF clients </li></ul></ul><ul><ul><li>Release micro-loans proceeds and collect loan amortizations/ related charges </li></ul></ul><ul><ul><li>Present, market, sell and service microinsurance products </li></ul></ul><ul><ul><li>Receive/pay-out funds for authorized remittance transactions </li></ul></ul><ul><ul><li>Act as cash in/out for e-money transactions </li></ul></ul><ul><ul><li>Collect premiums/pay out benefits from/to members of GSIS, SSS, PhilHealth, ECC, other government authorized pension and benefit systems </li></ul></ul>
    14. 16. Establishing MBOs <ul><li>MBO Activities (continued...) </li></ul><ul><ul><li>Pay out benefits under government-sponsored conditional cash transfer schemes </li></ul></ul><ul><ul><li>Accept utilities payments </li></ul></ul><ul><ul><li>Purchase foreign currencies up to maximum equivalent of USD300 per client per day for credit to micro-deposit accounts </li></ul></ul><ul><ul><li>General Pre-Qualifying Requirements </li></ul></ul><ul><ul><ul><li>Safety and soundness considerations </li></ul></ul></ul><ul><ul><ul><li>Capacity/ capability considerations </li></ul></ul></ul><ul><ul><ul><li>Presence of a coherent strategy in utilizing MBOs </li></ul></ul></ul>
    15. 17. Circular 704 – EMNSPs <ul><li>An Electronic Money Network Service Provider (EMNSP) shall refer to a non-financial institution that enables Electronic Money Issuer (EMI) to: </li></ul><ul><ul><li>Convert cash to e-money and monetize e-money </li></ul></ul><ul><ul><li>Transfer funds from one e-wallet to another </li></ul></ul><ul><ul><li>Use e-money as a means for payment </li></ul></ul>
    16. 18. Circular 706 – Updated AMLA <ul><li>Updated AMLA regulations facilitate the opening of micro-deposit accounts and serving low risk clients </li></ul><ul><li>Low risk clients </li></ul><ul><ul><li>Regular employment or identified micro/small business </li></ul></ul><ul><ul><li>Small account balance/transactions </li></ul></ul><ul><ul><li>Resident in the area covered by the bank </li></ul></ul><ul><ul><li>Bank allowed to apply reduced due diligence </li></ul></ul>
    17. 19. Circular 706 – Updated AMLA <ul><li>Reduced Due Diligence </li></ul><ul><ul><li>For individuals – account can be opened under the true and full name </li></ul></ul><ul><ul><li>Deference of some required information (up to 90 days) </li></ul></ul><ul><ul><li>For corporate, partnership, or sole partnership – account can be opened with name, address, nature of work </li></ul></ul><ul><li>Outsourcing of KYC and document gathering by a trustee, agent, nominee, intermediary </li></ul>
    18. 20. Expanding Outreach through Branchless Banking
    19. 21. RBs Offer the Following Mobile Phone Banking Services… Microenterprise Access to Banking Services Program www.mobilephonebanking.rbap.org
    20. 22. Mobile Phone Banking <ul><li>PERFORMANCE & ACCOMPLISHMENTS </li></ul><ul><li>No. of Accredited Rural Bank Outlets = 975 </li></ul><ul><li>RBs registered over 100,000 clients & processed over 8 Billion in GCASH transactions </li></ul>
    21. 23. <ul><li>Branchless banking is a </li></ul><ul><li>“ distribution channel strategy used for delivering financial services without relying on bank branches. While the strategy may complement an existing bank branch network for giving customers a broader range of channels through which they can access financial services, branchless banking can also be used as a separate channel strategy that entirely forgoes bank branches.” CGAP </li></ul>
    22. 24. Branchless Banking <ul><li>Some examples of branchless banking technologies include: </li></ul><ul><li>Automated teller machines (ATMs) </li></ul><ul><li>Third-Party Merchants with Point of Sale (POS) devices or via other electronic/mobile platforms </li></ul><ul><li>Mobile Phones (M-Banking) </li></ul><ul><li>Mobile Money Platforms linked to banks </li></ul>
    23. 25. Bill Gates on Mobile Technology to Facilitate Banking for the Poor
    24. 26. FINO – Branchless Banking in India
    25. 27. Mobile Payments in the Philippines via GCASH
    26. 29. Developing Merchant Partners for Mobile Phone Banking Key Lessons Learned in the RBAP-MABS Channel Management Initiative
    27. 30. ‘ Channel management’ supports third parties (Merchants/CICOs) that are providing financial facilitation services to end customers. Financial Facilitation Support Services <ul><li>Payment acceptance </li></ul><ul><li>Sales and referral </li></ul><ul><li>Marketing support </li></ul><ul><li>Customer support </li></ul><ul><li>Market research and development </li></ul><ul><li>Sign-up, accreditation </li></ul><ul><li>Training of third party staff </li></ul><ul><li>Information, MIS </li></ul><ul><li>Liquidity </li></ul>Examples Bank Third party (Merchant-CICO) partner Customer
    28. 31. Benefits to Rural Banks <ul><li>What are the benefits to Rural Banks? </li></ul><ul><ul><li>By working with merchant partners, Rural Banks can offer m-banking services as well as promote banking services </li></ul></ul><ul><ul><li>This reduces transaction costs for the clients and the banks </li></ul></ul><ul><ul><li>Allows banks to serve more clients in more areas </li></ul></ul><ul><ul><li>Merchant-Partners can also be provided with liquidity services and credit opportunities </li></ul></ul><ul><ul><li>Word-of-mouth marketing support </li></ul></ul><ul><ul><li>KYC processing for new accounts </li></ul></ul><ul><li>What do Rural Banks need to do to get these benefits? </li></ul><ul><ul><li>Train existing Merchant-Partners how to market the bank’s services </li></ul></ul><ul><ul><li>Process requests for cash and e-money liquidity </li></ul></ul><ul><ul><li>Invest in low cost scalable solutions (POS/Digital Pens) </li></ul></ul><ul><ul><li>Manage the cross-sell – via relationship management </li></ul></ul>
    29. 32. General Benefits of Mobile Phone Banking (along the Value Chain) Merchant-Partners Increase walk-in traffic (cross-selling opportunities) Decrease cash-on hand, minimize fraud/risks Revenue from fees, commissions and incentives Client Convenient & more secure than cash Comfort of dealing with corner merchant or Merchant-Partner neighbors Reduced transaction costs for accessing banking services (no lines, no travel time/costs) Bank Leverage Merchants-Partners and Mobile Phone subscribers to expand client base and maximize revenue. Increase efficiency and save on transaction costs Increase deposit levels Cross selling opportunities through Merchant- Partners’ referrals Significant image building opportunity
    30. 33. What benefits can Merchant-Partners provide to banks ? <ul><li>Expand geographic coverage without building additional infrastructure </li></ul><ul><li>Decongest branches </li></ul><ul><li>Refer new customer segments </li></ul><ul><li>Promote the bank services & perform KYC for new accounts </li></ul>SESSION 6
    31. 34. Merchant-Partner Selection Criteria
    32. 35. Social Networks Have you heard you can bank via your phone?
    33. 36. Voter’s ID Driver’s License NBI Clearance
    34. 38. Rural Banks Face Card ATM Powered by GCASH GXI
    35. 39. Rural Bank FaceCard Powered by GCASH <ul><ul><li>An ATM Card linked to your GCASH Wallet </li></ul></ul><ul><ul><li>Customers can now withdraw funds from their bank account to their GCASH wallet and then use their FaceCard at any ATM nationwide </li></ul></ul>
    36. 40. GXI – RURAL BANK SYNERGY <ul><li>Rural Banks can offer & encourage clients to use Rural Bank FaceCard powered by GCASH </li></ul><ul><ul><li>Considered a valid I.D. for KYC </li></ul></ul><ul><ul><li>since it includes a photo ID and </li></ul></ul><ul><ul><li>signature of the customer </li></ul></ul>
    37. 42. GXI – RURAL BANK SYNERGY <ul><li>GXI has set-up a free dedicated GCASH-Rural Bank-FaceCard online portal for the application of the Cards </li></ul>https://www.gcashonline.net/gcashcard/rbap <ul><li>Application will be done online </li></ul><ul><ul><li>Do-It-Yourself Experience at a Rural Bank Branch or Internet Cafe </li></ul></ul>
    38. 44. Rural Bank Assisted Application Process <ul><li>Customer visits the GCASH-Rural Bank FaceCard dedicated area in the branch </li></ul><ul><li>- Rural Bank to provide: </li></ul><ul><li>a. Personal Computer w/ internet connection </li></ul><ul><li>b. Webcam (or cell with camera) </li></ul><ul><li>c. Designated frontliner </li></ul><ul><li>Customer provides necessary information to the bank frontliner </li></ul><ul><li>Frontliner encodes information, takes picture and uploads photos of the customer on the dedicated portal (completes all KYC requirements) </li></ul><ul><li>Customer confirms payment for the card using his/her registered GCASH mobile number </li></ul><ul><li>Frontliner provides Application No. to the customer and advises target date of card pick-up at the branch </li></ul>Note: Customer picks up the card from the RB branch
    39. 45. Rural Bank customized designs Special Design per Bank Back Lay-out Design Options Example : PR Bank Card Design Personalized Card Design
    40. 46. Mobile Phone Banking <ul><li>PLANS & FUTURE DEVELOPMENTS </li></ul><ul><ul><li>Continuing support and promotion of SMS Alerts service for rural banks </li></ul></ul><ul><ul><li>To support financial education for mobile phone banking </li></ul></ul><ul><ul><li>Incentive programs to drive registration and active usage of mobile phone banking services </li></ul></ul><ul><ul><li>Digital Pen testing </li></ul></ul>
    41. 47. <ul><li>MARAMING SALAMAT! </li></ul>Email: [email_address] Websites: www.rbapmabs.org www.mobilephonebanking.rbap.org www.youtube.com/RBAPMABS Facebook: MABS Phil