Technology Changing the Face of Microfinance John V. Owens Inter-Pacific Bar Association April 30, 2009

New Technologies Personal Digital Assistants (PDAs) Point-of-Sale (POS)/Smart Cards Automated Teller Machines (ATMs) Online Funding Platforms Mobile Phone Banking & Mobile Money

Personal Digital Assistants (PDAs)

Point-of-Sale (POS)/Smart Cards

Automated Teller Machines (ATMs)

Online Funding Platforms

Mobile Phone Banking & Mobile Money

Personal Digital Assistants (PDAs)

Personal Digital Assistants 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. 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.

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.

Advantages of using PDAs Improve productivity and efficiency of field staff Plan and Set Client Visits Handle Loan Applications Credit Scoring Online Consultations Field-based collections Example of Banco Solidario in Ecuador which developed a new PDA application, “SiCredito Movil”

Improve productivity and efficiency of field staff

Plan and Set Client Visits

Handle Loan Applications

Credit Scoring

Online Consultations

Field-based collections

Example of Banco Solidario in Ecuador which developed a new PDA application, “SiCredito Movil”

Cost of Supplies RECEIPT AMT. PDA AMT. OR (300 pcs/day) 7, 920 OR (3 pcs/day) 79 Deposit Slip 112 Continuous Paper (8.5” x 15”) 930 Continuous Paper 420 Ballpen (9 pcs) 45 Ballpen (6 pcs) 30 Printer Ribbon 280 Printer Ribbon 140 Palm Pilot (3 units; amortized over 12 mos) 2,500 PDA Batteries 162 Sub-Total PhP 9,287 Sub-Total PhP 3,331

OR (300 pcs/day)

OR (3 pcs/day)

Deposit Slip

Continuous Paper (8.5” x 15”)

Continuous Paper

Ballpen (9 pcs)

Ballpen (6 pcs)

Printer Ribbon

Printer Ribbon

Palm Pilot (3 units; amortized over 12 mos)

PDA Batteries

Cost of Salaries and Wages RECEIPT based AMT. PDA based AMT. Tellers Encoding Time (20% of Salary) 1,440 Teller Encoding Time (5% of Salary) 360 AO Time Allotted to Filling Up of Collection List & Deposit Slips (25% of Salary) 3, 825 AO Time Allotted Generating of Tickets, Proof Sheets, Abstract of Collection (5% of Salary 765 Sub-Total 5,265 Sub-Total 1,125 GRAND TOTAL PhP 14,552 GRAND TOTAL PhP 4, 456

Tellers Encoding Time (20% of Salary)

Teller Encoding Time (5% of Salary)

AO Time Allotted to Filling Up of Collection List & Deposit Slips (25% of Salary)

AO Time Allotted Generating of Tickets, Proof Sheets, Abstract of Collection (5% of Salary

Point of Sale Devices

Point-of-Sale Devices Branchless Banking Models in Latin America, Africa & Asia Use networks of local agents – supermarkets, gas stations, convenience stores, lottery outlets, post offices Takes advantage of the acceptance of card-based transactions with PIN protection Combination of POS terminals and magnetic strip cards or smart cards

Branchless Banking Models in Latin America, Africa & Asia

Use networks of local agents – supermarkets, gas stations, convenience stores, lottery outlets, post offices

Takes advantage of the acceptance of card-based transactions with PIN protection

Combination of POS terminals and magnetic strip cards or smart cards

Point-of-Sale Devices Relatively low infrastructure requirements – electrical power and telecom, wireless, or satellite connection

Relatively low infrastructure requirements – electrical power and telecom, wireless, or satellite connection

Deposits in savings or current accounts (if regulation permits) Payments for services and products Transfers between accounts of the same institution and accounts of different institutions Cardless transactions – clients enter their account number and PIN directly into the POS TYPES OF TRANSACTIONS Point-of-Sale Devices

Deposits in savings or current accounts (if regulation permits)

Payments for services and products

Transfers between accounts of the same institution and accounts of different institutions

Cardless transactions – clients enter their account number and PIN directly into the POS

A cost-effective distribution channel for reaching lower-income clients in rural areas Selection and training of agents is essential Client education required to gain trust Correspondent Agent Model to let clients deposit, withdraw, and transfer funds pay their bills or an insurance plan inquire about an account balance receive government benefits or a direct deposit from their employer KEY FINDINGS Point-of-Sale Devices

A cost-effective distribution channel for reaching lower-income clients in rural areas

Selection and training of agents is essential

Client education required to gain trust

Correspondent Agent Model to let clients

deposit, withdraw, and transfer funds

pay their bills or an insurance plan

inquire about an account balance

receive government benefits or a direct deposit from their employer

COST COMPARISON: BRANCH, ATM, CA IN PERU Source: Superintendence of Bank of Peru

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

Smart Cards

Technology: Smart Cards A microprocessor embedded in the card stores client information including: Fingerprint Personal data Transaction records Updated account balances

A microprocessor embedded in the card stores client information including:

Fingerprint

Personal data

Transaction records

Updated account balances

Smart Cards PRODEM Case Study Increased security Manages two accounts simultaneously (foreign and local currency) Does not have to be an on-line system Flexible to incorporate multiple applications and adapt additional services

Increased security

Manages two accounts simultaneously (foreign and local currency)

Does not have to be an on-line system

Flexible to incorporate multiple applications and adapt additional services

Automated Teller Machines (ATMs)

Smart ATMs PRODEM Case Study Multimedia system Color coded graphical touch Screen Guiding sound system in native languages Spanish Quechua Aymara Security and reliability through fingerprint recognition

Multimedia system

Color coded graphical touch Screen

Guiding sound system in native languages

Spanish

Quechua

Aymara

Security and reliability through fingerprint recognition

Third-Party ATM Networks Independent ATM Deployers Privately-owned ATMs located in remote areas in partnership with MFIs Allow users to perform ATM withdrawals under a convenience fee, revenue-sharing arrangement Rapid deployment in several countries

Independent ATM Deployers

Privately-owned ATMs located in remote areas in partnership with MFIs

Allow users to perform ATM withdrawals under a convenience fee, revenue-sharing arrangement

Rapid deployment in several countries

Online Funding Platform

Online Funding Platforms Online platforms are changing the way we engage with the world Web sites like Facebook, Friendster, Ebay, and platforms like PayPal link people, products, services and markets New online funding platforms Kiva.Org & MicroPlace.Com are also changing the nature and availability of funding for microfinance

Online platforms are changing the way we engage with the world

Web sites like Facebook, Friendster, Ebay, and platforms like PayPal link people, products, services and markets

New online funding platforms Kiva.Org & MicroPlace.Com are also changing the nature and availability of funding for microfinance

Online Lending Platforms

Success of Online Lending & Investing These platforms lend money raised from Internet users to MFIs MFIs onled funds to microentrepreneurs listed on the platform’s Web site Kiva has used this model to raise over US$49 million since its launch in 2005 Due to this success online lending platforms for microfinance are growing

These platforms lend money raised from Internet users to MFIs

MFIs onled funds to microentrepreneurs listed on the platform’s Web site

Kiva has used this model to raise over US$49 million since its launch in 2005

Due to this success online lending platforms for microfinance are growing

What this means for MFIs Online lending platforms can seem like a terrific bet for an MFI in search of loan capital Platforms can: deliver substantial funds in very short periods of time can generate valuable positive publicity But what risks do MFIs face when borrowing online?

Online lending platforms can seem like a terrific bet for an MFI in search of loan capital

Platforms can:

deliver substantial funds in very short periods of time

can generate valuable positive publicity

But what risks do MFIs face when borrowing online?

Issues with Online Lending Platforms Many different business models Varying legal forms Range of home country jurisdictions with varying regulatory and legal requirements Widely divergent business and social objectives Online platforms are very new, so they do not have a meaningful track record of experience

Many different business models

Varying legal forms

Range of home country jurisdictions with varying regulatory and legal requirements

Widely divergent business and social objectives

Online platforms are very new, so they do not have a meaningful track record of experience

Technology Solution: Mobile Phone Banking

Challenges for Banks to reach Rural Clients High Transaction Costs Transportation Cost Travel time Loss of business opportunity Security risk  E-Money  E-Money E-Money Creating Opportunities to meet the Challenge No transportation cost Reduce time Fast and convenient Secure no cash in transit

High Transaction Costs

Transportation Cost

Travel time

Loss of business opportunity

Security risk

No transportation cost

Reduce time

Fast and convenient

Secure no cash in transit

Microenterprise Access to Banking Services www.rbapmabs.org

The Case for Mobile Phone Banking Internet Banking 7,408 ATMs nationwide (only 200 are rural bank ATMS) Concentration in urban centers. Only a small & have access and use the internet. Where communication/ internet services are not an issue, computer/ literacy is still an issue. More than 60% of the population own a mobile phone. Potential of reaching the poor and un-served market. ATMs Mobile Phone Banking

7,408 ATMs nationwide (only 200 are rural bank ATMS)

Concentration in urban centers.

Only a small & have access and use the internet.

Where communication/ internet services are not an issue, computer/ literacy is still an issue.

More than 60% of the population own a mobile phone.

Potential of reaching the poor and un-served market.

Why Choose this Technology? External Factors: Rapid Expansion of Mobile Phone Subscribers Dramatic Improvement in Coverage Enhanced Mobile Phone Services Existence of Mobile Money Platforms which: - Are safe, secure, easy to use, & fast - No monthly charges – fees charged per transaction

External Factors:

Rapid Expansion of Mobile Phone Subscribers

Dramatic Improvement in Coverage

Enhanced Mobile Phone Services

Existence of Mobile Money Platforms which:

- Are safe, secure, easy to use, & fast

- No monthly charges – fees charged per transaction

M-Banking & M-Money Services Environment Product Testing Customer Perspective Regulatory Issues Institutional perspective Launch Services – Customer Adoption Product Development

Launch Proposition SJL -WWB 19-06-07

Mobile Money in the Philippines Microenterprise Access to Banking Services Program www.rbapmabs.org

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)

GREEN BANK GREEN BANK www.greenbank.com.ph Green Bank’s Mobile Phone Banking

Mobile Phone Banking Clients Paying less through Text GREEN BANK GREEN BANK GREEN BANK www.greenbank.com.ph

Benefits of M-Banking & M-Commerce For the Clients/Merchants Cost Savings Time savings and convenience Improve cash management Increase sales For the Bank/MFI Increase revenues Improve client satisfaction Reducing costs Faster service

For the Clients/Merchants

Cost Savings

Time savings and convenience

Improve cash management

Increase sales

For the Bank/MFI

Increase revenues

Improve client satisfaction

Reducing costs

Faster service

Future Direction for the Microfinance Industry Commercial approach to microfinance will be the dominate model – Private Capital Investments and further developments will expand via technology, institutional development, and a solid legal framework Understanding customers’ needs and financial possibilities are essential to create viable products and services

Commercial approach to microfinance will be the dominate model – Private Capital

Investments and further developments will expand via technology, institutional development, and a solid legal framework

Understanding customers’ needs and financial possibilities are essential to create viable products and services

Thank You [email_address] Websites: www.rbapmabs.org www.mobilephonebanking.rbap.org www.youtube.com/RBAPMABS