Technology Changing The Face Of Microfinance


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Technology is now changing the face of microfinance by providing new ways to provide financial services to low income households.

This presentation was given at the InterPacific Bar Association Annual Conference in Manila, Philippines on April 30, 2009.

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  • Technology Changing The Face Of Microfinance

    1. 1. Technology Changing the Face of Microfinance John V. Owens Inter-Pacific Bar Association April 30, 2009
    2. 2. New Technologies <ul><li>Personal Digital Assistants (PDAs) </li></ul><ul><li>Point-of-Sale (POS)/Smart Cards </li></ul><ul><li>Automated Teller Machines (ATMs) </li></ul><ul><li>Online Funding Platforms </li></ul><ul><li>Mobile Phone Banking & Mobile Money </li></ul>
    3. 3. Personal Digital Assistants (PDAs)
    4. 4. Personal Digital Assistants <ul><ul><li>Personal Digital Assistants (PDAs) are small handheld computers that take advantage of portability and the ability to store and process large amounts of information and data. </li></ul></ul>Several microfinance institutions (MFIs) worldwide are now using PDAs in their operations. In 2000, a MABS participant bank in Mindanao piloted the use of PDA for their daily and weekly collections.
    5. 5. Advantages of using PDAs <ul><ul><li>Improve productivity and efficiency of field staff </li></ul></ul><ul><li>Plan and Set Client Visits </li></ul><ul><li>Handle Loan Applications </li></ul><ul><li>Credit Scoring </li></ul><ul><li>Online Consultations </li></ul><ul><li>Field-based collections </li></ul><ul><ul><li>Example of Banco Solidario in Ecuador which developed a new PDA application, “SiCredito Movil” </li></ul></ul>
    6. 6. Cost of Supplies RECEIPT AMT. PDA AMT. <ul><li>OR (300 pcs/day) </li></ul>7, 920 <ul><li>OR (3 pcs/day) </li></ul>79 <ul><li>Deposit Slip </li></ul>112 <ul><li>Continuous Paper (8.5” x 15”) </li></ul>930 <ul><li>Continuous Paper </li></ul>420 <ul><li>Ballpen (9 pcs) </li></ul>45 <ul><li>Ballpen (6 pcs) </li></ul>30 <ul><li>Printer Ribbon </li></ul>280 <ul><li>Printer Ribbon </li></ul>140 <ul><li>Palm Pilot (3 units; amortized over 12 mos) </li></ul>2,500 <ul><li>PDA Batteries </li></ul>162 Sub-Total PhP 9,287 Sub-Total PhP 3,331
    7. 7. Cost of Salaries and Wages RECEIPT based AMT. PDA based AMT. <ul><li>Tellers Encoding Time (20% of Salary) </li></ul>1,440 <ul><li>Teller Encoding Time (5% of Salary) </li></ul>360 <ul><li>AO Time Allotted to Filling Up of Collection List & Deposit Slips (25% of Salary) </li></ul>3, 825 <ul><li>AO Time Allotted Generating of Tickets, Proof Sheets, Abstract of Collection (5% of Salary </li></ul>765 Sub-Total 5,265 Sub-Total 1,125 GRAND TOTAL PhP 14,552 GRAND TOTAL PhP 4, 456
    8. 8. Point of Sale Devices
    9. 9. Point-of-Sale Devices <ul><li>Branchless Banking Models in Latin America, Africa & Asia </li></ul><ul><li>Use networks of local agents – supermarkets, gas stations, convenience stores, lottery outlets, post offices </li></ul><ul><li>Takes advantage of the acceptance of card-based transactions with PIN protection </li></ul><ul><ul><li>Combination of POS terminals and magnetic strip cards or smart cards </li></ul></ul>
    10. 10. Point-of-Sale Devices <ul><li>Relatively low infrastructure requirements – electrical power and telecom, wireless, or satellite connection </li></ul>
    11. 11. <ul><li>Deposits in savings or current accounts (if regulation permits) </li></ul><ul><li>Payments for services and products </li></ul><ul><li>Transfers between accounts of the same institution and accounts of different institutions </li></ul><ul><li>Cardless transactions – clients enter their account number and PIN directly into the POS </li></ul>TYPES OF TRANSACTIONS Point-of-Sale Devices
    12. 12. <ul><li>A cost-effective distribution channel for reaching lower-income clients in rural areas </li></ul><ul><li>Selection and training of agents is essential </li></ul><ul><li>Client education required to gain trust </li></ul><ul><li>Correspondent Agent Model to let clients </li></ul><ul><ul><li>deposit, withdraw, and transfer funds </li></ul></ul><ul><ul><li>pay their bills or an insurance plan </li></ul></ul><ul><ul><li>inquire about an account balance </li></ul></ul><ul><ul><li>receive government benefits or a direct deposit from their employer </li></ul></ul>KEY FINDINGS Point-of-Sale Devices
    13. 13. COST COMPARISON: BRANCH, ATM, CA IN PERU Source: Superintendence of Bank of Peru
    14. 14. BRANCH VS. AGENT COST COMPARISON Remote Transaction System (RTS) at Uganda Microfinance Limited Source: Alice Lu USAID/Washington Presentation Branch RTS Agent Model Set-up costs [1] $40,000–$60,000 $1,500 Monthly operating expenses [2] $7,000–$10,000 $3,550 Other expenses [3] $2,000 $100
    15. 15. Smart Cards
    16. 16. Technology: Smart Cards <ul><li>A microprocessor embedded in the card stores client information including: </li></ul><ul><ul><li>Fingerprint </li></ul></ul><ul><ul><li>Personal data </li></ul></ul><ul><ul><li>Transaction records </li></ul></ul><ul><ul><li>Updated account balances </li></ul></ul>
    17. 17. Smart Cards PRODEM Case Study <ul><li>Increased security </li></ul><ul><li>Manages two accounts simultaneously (foreign and local currency) </li></ul><ul><li>Does not have to be an on-line system </li></ul><ul><li>Flexible to incorporate multiple applications and adapt additional services </li></ul>
    18. 18. Automated Teller Machines (ATMs)
    19. 19. Smart ATMs PRODEM Case Study <ul><li>Multimedia system </li></ul><ul><li>Color coded graphical touch Screen </li></ul><ul><li>Guiding sound system in native languages </li></ul><ul><ul><ul><li>Spanish </li></ul></ul></ul><ul><ul><ul><li>Quechua </li></ul></ul></ul><ul><ul><ul><li>Aymara </li></ul></ul></ul><ul><ul><ul><li>Security and reliability through fingerprint recognition </li></ul></ul></ul>
    20. 20. Third-Party ATM Networks <ul><li>Independent ATM Deployers </li></ul><ul><li>Privately-owned ATMs located in remote areas in partnership with MFIs </li></ul><ul><li>Allow users to perform ATM withdrawals under a convenience fee, revenue-sharing arrangement </li></ul><ul><li>Rapid deployment in several countries </li></ul>
    21. 21. Online Funding Platform
    22. 22. Online Funding Platforms <ul><li>Online platforms are changing the way we engage with the world </li></ul><ul><li>Web sites like Facebook, Friendster, Ebay, and platforms like PayPal link people, products, services and markets </li></ul><ul><li>New online funding platforms Kiva.Org & MicroPlace.Com are also changing the nature and availability of funding for microfinance </li></ul>
    23. 23. Online Lending Platforms
    24. 24. Success of Online Lending & Investing <ul><li>These platforms lend money raised from Internet users to MFIs </li></ul><ul><li>MFIs onled funds to microentrepreneurs listed on the platform’s Web site </li></ul><ul><li>Kiva has used this model to raise over US$49 million since its launch in 2005 </li></ul><ul><li>Due to this success online lending platforms for microfinance are growing </li></ul>
    25. 25. What this means for MFIs <ul><li>Online lending platforms can seem like a terrific bet for an MFI in search of loan capital </li></ul><ul><li>Platforms can: </li></ul><ul><ul><li>deliver substantial funds in very short periods of time </li></ul></ul><ul><ul><li>can generate valuable positive publicity </li></ul></ul><ul><ul><li>But what risks do MFIs face when borrowing online? </li></ul></ul>
    26. 26. Issues with Online Lending Platforms <ul><li>Many different business models </li></ul><ul><li>Varying legal forms </li></ul><ul><li>Range of home country jurisdictions with varying regulatory and legal requirements </li></ul><ul><li>Widely divergent business and social objectives </li></ul><ul><li>Online platforms are very new, so they do not have a meaningful track record of experience </li></ul>
    27. 27. Technology Solution: Mobile Phone Banking
    28. 28. Challenges for Banks to reach Rural Clients <ul><li>High Transaction Costs </li></ul><ul><ul><li>Transportation Cost </li></ul></ul><ul><ul><li>Travel time </li></ul></ul><ul><ul><li>Loss of business opportunity </li></ul></ul><ul><ul><li>Security risk </li></ul></ul> E-Money  E-Money E-Money Creating Opportunities to meet the Challenge <ul><li>No transportation cost </li></ul><ul><li>Reduce time </li></ul><ul><li>Fast and convenient </li></ul><ul><li>Secure no cash in transit </li></ul>
    29. 29. Microenterprise Access to Banking Services
    30. 30. The Case for Mobile Phone Banking Internet Banking <ul><li>7,408 ATMs nationwide (only 200 are rural bank ATMS) </li></ul><ul><li>Concentration in urban centers. </li></ul><ul><li>Only a small & have access and use the internet. </li></ul><ul><li>Where communication/ internet services are not an issue, computer/ literacy is still an issue. </li></ul><ul><li>More than 60% of the population own a mobile phone. </li></ul><ul><li>Potential of reaching the poor and un-served market. </li></ul>ATMs Mobile Phone Banking
    31. 31. Why Choose this Technology? <ul><li>External Factors: </li></ul><ul><li>Rapid Expansion of Mobile Phone Subscribers </li></ul><ul><li>Dramatic Improvement in Coverage </li></ul><ul><li>Enhanced Mobile Phone Services </li></ul><ul><li>Existence of Mobile Money Platforms which: </li></ul><ul><ul><ul><li> - Are safe, secure, easy to use, & fast </li></ul></ul></ul><ul><ul><ul><ul><li>- No monthly charges – fees charged per transaction </li></ul></ul></ul></ul>
    32. 32. M-Banking & M-Money Services Environment Product Testing Customer Perspective Regulatory Issues Institutional perspective Launch Services – Customer Adoption Product Development
    33. 33. Launch Proposition SJL -WWB 19-06-07
    34. 34. Mobile Money in the Philippines Microenterprise Access to Banking Services Program
    35. 35. Rural Bank M-Banking & M-Commerce Ecosystem via GCash Text-A-Sweldo (Salary Disbursement) Text-A-Remittance Cash-in/Cash-out (Face-to-Face Wallet Funding) Text-A-Credit (Loan / Credit Disbursement) Text-A-Withdrawal (Withdrawal from Bank Account to GCash Wallet) P2P (Purchase of Goods /Services) Text-a- BillPay (Bills Payment) P2P (Domestic Remittance) GCash2Load (Airtime Credit Purchase) Text-A-Payment (Loan payment) Rural Bank Intl. / Dom Remco’s P Text-A-Deposit (Deposit to Bank Account)
    36. 36. GREEN BANK GREEN BANK Green Bank’s Mobile Phone Banking
    37. 37. Mobile Phone Banking Clients Paying less through Text GREEN BANK GREEN BANK GREEN BANK
    38. 38. Benefits of M-Banking & M-Commerce <ul><li>For the Clients/Merchants </li></ul><ul><ul><li>Cost Savings </li></ul></ul><ul><ul><li>Time savings and convenience </li></ul></ul><ul><ul><li>Improve cash management </li></ul></ul><ul><ul><li>Increase sales </li></ul></ul><ul><li>For the Bank/MFI </li></ul><ul><ul><li>Increase revenues </li></ul></ul><ul><ul><li>Improve client satisfaction </li></ul></ul><ul><ul><li>Reducing costs </li></ul></ul><ul><ul><li>Faster service </li></ul></ul>
    39. 39. Future Direction for the Microfinance Industry <ul><li>Commercial approach to microfinance will be the dominate model – Private Capital </li></ul><ul><li>Investments and further developments will expand via technology, institutional development, and a solid legal framework </li></ul><ul><li>Understanding customers’ needs and financial possibilities are essential to create viable products and services </li></ul>
    40. 40. Thank You [email_address] Websites: