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IT: stimulating structural growth in developing countries


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Hansonwade conference Technology Innovation for Banks in Growth Economies
November 29-30, 2011, London

  • interesting presentation, we know how to connect the SACCO's, table top banking, Credit unions, AgriCooperatives, PO's, Schools, Churches etc.

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IT: stimulating structural growth in developing countries

  1. 1. IT: stimulating structural growth Technology Innovation for Banks in Growth EconomiesNovember 29 2011 Harrie Vollaard and Henk Doorenspleet Rabobank
  2. 2. Agenda1. Introduction to Rabobank2. Importance of IT in emerging market activities3. Case study Rwanda4. IT hurdles for SACCO‟s and PO‟s5. Conclusions Rabobank
  3. 3. 1 Introduction Rabobank Rabobank
  4. 4. Rabobank is a cooperative bankRabobank does not have shareholders, but 1.5 mio members. Not maximizing profitability is being pursued, but the delivery of „customer value‟.Members of the 143 local banks appoint their board and are represented in CKV („Rabobank parliament‟), which meets quarterly with the executive board to decide on major issues.Rabobank is now a large, international bank with EUR 612 billion of assets and highly rated privately owned bank. Rabobank 4
  5. 5. Roots and MissionRabobank was Today, more than 4 It is our mission tofounded 110 years billion people world- support financialago by poor farmers wide do not have sector developmentwho did not have access to financial in developingaccess to financial services economiesservices Rabobank
  6. 6. AmbitionTo replicate the success of Rabobank inNetherlands, meaning that through providingfinancial services a substantial contribution willbe made to the economic development of, inparticular, the rural areas in selecteddeveloping countries Rabobank
  7. 7. 35Goal of Rabobank FoundationIn line with the cooperative roots and community involvement ofthe Rabobank organisation, the Rabobank Foundation helpsunderprivileged and disadvantaged people to becomeeconomically active and independentFocus: Member based producer organisations andsavings / credit cooperatives Rabobank
  8. 8. Rabobank Foundation in Africa Burkina Faso Uganda Mali Ethiopia Senegal Rwanda Côte „d Ivoire Kenya Ghana Cameroon Tanzania Burundi Mozambique ZambiaRabobank Foundation Rabobank Development RI Terrafina Progreso Rabobank
  9. 9. Rabo Development Partnership Proposition• Equity participation (minority position) in a bank that remains local• Board will be strengthened by Rabobank professionals• Rabobank will provide managers for Executive Board to complement local managers• A comprehensive technical assistance program will be executed through the deployment of Rabobank banking specialistsFor Rabobank this is a long term commitment, in which the developmentinto a leading rural bank prevails over short term profitability Rabobank
  10. 10. Partner Banks Rabo Development in Africa Rwanda Tanzania BPR NMB Zambia Mozambique Zanaco Banco Terra Rabobank
  11. 11. 2 Importance of IT inemerging markets activities Rabobank
  12. 12. More and more IT drivenFrom: To: IT developments: Mobile Cloud Rabobank
  13. 13. Serving the bottom of the pyramid requires IT innovation Global Banking Pyramid Daily Income* Type of Service vs. Daily Income Current Private Banking US$ 500 model in traditional banking Traditional Banking ~ 2 Billion People US$ 10 Microfinance innovation +Unbanked Segments technology required to lower the cost of this high-touch model ~ 4 Billion People Inappropriate US$ 1 microfinance distribution model Personalized, high Low touch touch† Type of Service * Log Scale Source: IBM † Service includes origination, management and collection Rabobank
  14. 14. Current solutions not applicable for SACCO‟s Annualized cost per account Costs vs. Functionality $20 Cost Per Client Per Year Costs per Size of MFIs client* $15 Majority of MFIs globally, high costsVery Large MFIs (+250,000 accounts) $50-$60 Cloud Solution and lack of flexibility limit Cloud solutionLarge MFIs (50,000 –2 50,000 accounts) $20-$30 $10 reaches cost growthMedium MFIs (10,000 – 50,000 accounts) $15-$25 efficiencies of Small MFIs but traditionalSmall MFIs (2,000-10,000 accounts) $5-$12 $5 still common in banks some marketsVery Small MFIs (less than 2,000 accounts) $2-$5Source IBM: Based on a sample of 25 MFIs Pen and Off-the-shelf or Full support of MF paper, custom built requirements, access to Spreadsheet traditional Core international payments Banking with high networks, automated costs and very limited reporting, flexibility and support of MF cost efficiency of requirements traditional banks * Includes initial license investment † Indicative price, not actual Functionality Spectrum Rabobank
  15. 15. Three possible areas to address There are three primary pools of cost that can be addressed through innovation Emerging markets example Key value chain components to address: Processing: Shared services hubs are emerging which provide a radically lower cost banking platform to a community of MFIs Distribution: M-commerce (village phones) and other services are enabling radical reductions in distribution costs 21,00% 2,90% Credit / Risk: New credit assessment methods are emerging to lower credit/compliance costs 100,00% 40,00% 1,80% 31,60% 2,80% Total Operating Processing Manufacturing Distribution Insights Credit/Risk Infrastructure Costs Key Banking Value Chain Components Source: Presentation by Peter Bladin, Grameen Technology Center and CGAP; IBM analysis Rabobank
  16. 16. ObjectiveEnhance the Saving Credit COperatives (SACCO) and ProducerOrganizations (PO) operational and governance processesused to record and report management information:• Improves transparency• Facilitates internal governance• Reduces monitoring costsIn order to:• Better comply with stakeholders‟ reporting requirements• Easier access to additional external funds.Earlier independency of the SACCO or PO Rabobank
  17. 17. Challenges on SACCOs• Inadequate knowledge by SACCOs leaders and staff in microfinance• Lack of relevant backoffice software for SACCOs operations• Weak and inadequate internal controls and financial systems (thus creating opportunities for mismanagement of resources)• Inability to maintain adequate liquidity to meet savings withdrawals• Low membership leading to very slow growth of savings (most SACCOs have < 500 members)• Poor portfolio quality and low capital base Rabobank
  18. 18. Conditions• The Management Information System must be accessible for inexperienced and non-tech-savvy users.• The solution must be able to deal with remote areas and poor technical facilities and knowledge.• The solution must be easy to implement and limit the need for supporting activities such as travel, set-up and training as much as possible. Rabobank
  19. 19. Experience India Ethiopia Rwanda Key RIAS & Rabo Development Saving Credit Cooperatives Rabobank Foundation Producer Organisations Rabobank
  20. 20. 3 Case study Rwanda Rabobank
  21. 21. Rwanda missionField mission to investigate collaboration between Rabobank Foundation (Terrafina) & Rabo Development (BPR) in Rwanda en lessons learned van Musoni (Kenia) on: – Processing (MIS) – Distribution (Mobile Money)• BPR: Banque Populaire du Rwanda (Ownership: 65% local members, 35% Rabobank)• Terrafina: Financial en technical support for MFI‟s through Oikocredit, ICCO and Rabobank Foundation Rabobank
  22. 22. BPR• Peoples bank 1st office 1975• Since 1986 a union of BPRs: UBPR• Since 2008 commercial bank• Largest retail bank – Branches: 18 – Sub-Branches: 109 BPR – Outlets: 61 (individual – Staff Number:1460 – Launched BPR mobile banking 2010 liability) – Enhancing IT capabilities ~€1000• Aim: People‟s bank of Rwanda SACCO/Unions – Urban & Rural (joint liability)• Significant portfolio of small loans – High NPL-rate – Not equipped to manage• Looking for Cooperation with MFIs/SACCOs – Mobile banking, IT, funding Rabobank
  23. 23. Rabobank Foundation / Terrafina partnersin RwandaSACCO‟s• Wizigara cooperative Union • 125 registered MFI’s and• Ejoheza cooperative Union Cooperatives• Umurimo cooperative Union • ~700k clients• Iti cooperative • Differences in sophistication• Inkunga cooperative • Processes • IT-supportMFI‟s • Availability of connections• Duterimbere MFI and electricity• Amaseserano MFI• Caf Isonga MFI• Vision Finance MFI• Swoft MFI Rabobank
  24. 24. Current situation Rwandese SACCOs• Review of IT solutions by CGAP 2009 commissioned by AMIR; research report available• CGAP process standardization pilot – 7 SACCO/Unions (10 locations) – 7 tools, evaluation report available – Implementation finalized 2011• NGO‟s starting to computerize SACCO‟s• Government and central bank stresses importance of computerizationConclusion: A lot of momentum for computerization• CGAP: Consultancy Group for Assisting the Poor (Development agencies & world bank)• Amir: Association of MFI Rwanda Rabobank
  25. 25. Two possibilities to connect BPR andSACCO‟s gives advantages for bothpartiesTwo possiblities to deliver IT services:• Distribution: Mobile Banking• Processing: MISAdvantages: SACCO BPR • Up to date loan admin • Rural network • Cashless • Local Liability group • Funding • Leverage IT • Fraud detection• Disadvantage: – Competitive position between BPR and SACCOs /MFIs – New practise Rabobank Groep ICT
  26. 26. Distribution part: Mobile Banking• Too expensive to develop by SACCO‟s• Current BPR mobile banking solution can be offered as white label or BPR label• Mobile Banking works only with computerized SACCO‟s• Offset account BPR, connected to MIS SACCO• Alternative: – DYI and cooperate with the mobile operators Rabobank
  27. 27. Processing part; differentIT solutions • Local implemented stand alone system – This appears the most common way currently • Centralized consolidation Computerization prerequisites – For multi site operations – Central aggregation (import) of • Settled processes (CGAP method) local exported data • Business casus – AD Banking as „bench mark‟ – Physical data carriers or email • Trained staff or FTP – On processes – On IT • Centralized model: – Basic computer skills – SaaS/Cloud model – MIS skills • Electricity • Connectivity for SaaS approach Rabobank
  28. 28. Ways to connect the SACCO‟s ADBanking SACCO ADBanking ADBanking BPR Non Connected Branches BPR Connected Branches Internet Internet SACCO T24 BPR Headoffice Rabobank
  29. 29. Outline Distribution (40%)ModularIntegratedDYI approach approach(~ currentdirection) Processing (21%) Credit/risk (32%) See sheet15 for operating cost %‟s Rabobank
  30. 30. Strategic options for SACCO‟s• Standalone MIS e.g. AD • Identifying core task Banking MFI/SACCO – Current practice @advanced – Joint Liability group MFIs management & building – Also for multi site operations • Recognizing cash in/out in – Extend with mobile banking Rwanda – Branches, ATMs, agents – Add on is consolidation T24 – POS network – Coop with Mobile operator• SaaS MIS with T24 • Adding mobile disbursements & depositing – Powered by BPR – Powered by a JV or third party – Connected to BPR mobile banking• Do nothing Rabobank
  31. 31. Pro‟s and con‟s per SaaS MIS versusMIS Standalone– Pro‟s: – Pro‟s: – Opex model – Re use existing MIS – Limited maintenance – Leveraging BPR – Better quality investments (availability, backup) – Credit Risk Rating – Con‟s: possibilities – Limited experience and knowledge available– Con‟s: – Connectivity Rabobank
  32. 32. 4 IT hurdles for Sacco‟s &PO‟s Rabobank
  33. 33. Rabobank
  34. 34. Mobile phone penetration 5000 Users/lines (mn), after 100 years Telecom Fixed tel 4000 Cellular phone Internet users operator operator penetation Cable country rank 1 3000 rank 2 rate BroadbandCameroon MTN Orange 29,87 2000Egypt Mobinil Vodafone 58,85Ethiopia ETHMTN 1000 1,45Ghana MTN Ghana Tigo 43,81Ivory Coast MTN Orange 0 40,28Kenya Safaricom Airtel 55,00 00 20 40 52 56 60 68 72 76 80 88 92 96 00 03 05 07 09 64 84 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 19 19Mali Orange Sotelma 30,00Mozambique mCel Vodacom 36,00Rwanda MTN Tigo 31,70Senegal Orange Tigo 51,60Tanzania Vodacom Airtel 33,00Uganda MTN Airtel 25,00Zambia Airtel MTN 22,17 Rabobank
  35. 35. IT & financial infrastructure holdings• IT supply issues • Availability of mobile – Hardware & services money – Local support & partners for foreign • Availability of inter bank suppliers – General IT knowledge systems• IT application issues • Teller machines – Implementation & maintenance of • Savety issues surrounding hard & software physical transport of – Reliability & continuity money – Education / tech savvyness of staff – Lack of busines processes – Urban – Rural gap Rabobank
  36. 36. Urban and rural differences• Not only difference between different parts of the world• Significant differences within countries• Sacco‟s tend on the „thin‟ end of the infrastructure – Electricity – Connectvity – IT Knowledge & skills Kigali center of town Somewhere else… Rabobank
  37. 37. 5 Conclusions Rabobank
  38. 38. Bringing IT in the world of SACCOsand POs• The changes and needs are obvious• The wins enormous – Reach – Transparency – Governance – Cost• To route to implementation has many hurdles – IT knowledge infrastructure – Electricity – Connectivity – Current practices and knowledge – Availability of IT infrastructure – Availability of financial infrastructure – How to organize (JV…) Rabobank
  39. 39. Solution requirements• The Management Information System must be accessible for inexperienced and non-tech-savvy users.• The solution must be able to deal with remote areas and poor technical facilities and knowledge.• The solution must be easy to implement and limit the need for supporting activities such as travel, set-up and training as much as possible. Rabobank
  40. 40. Solution (mandatory) wish list• The system has to be managed (and hosted) at Union level• First things first: Unions to be equipped with processes and a general accounting package• “Open architecture” is key: capacity to allow upload / download of spreadsheet files, to be interfaced later on with mobile banking, etc.• Don‟t try an “integrated system”: only solutions that can be easily interfaced• Adaptability to internal processes (when in place)• Capacity to allow “back-dated” transactions - meaning to work “off- line”42 Rabobank
  41. 41. IT solution development stage SACCO‟s and PO‟s 5 – 10 years 2– 5 years Mobile Banking 0– 2 years Mobile MoneyVisibility Cloud solutions PC Stand alone Maturity Rabobank
  42. 42. 44Implementation steps Phase Goal Characteristics Administration skills, office tools, ? Knowledge & !! basic computer skills for union staff Now @Union Skills To be repeated after 6 months Preparation: Quick Wins Pilot: Simplified processes, printed templates, Union in the Lead, Quick Standardized manual recording @Sacco, Wins Processes & forms automated accounting & consolidating @Union, PoCs Preparation: Next Phase Automated Automated recording @Sacco, 1–2 Core MF Solution @Union, rollout Recording Years QWs beyond pilot & MIS Preparation: Next Phase Simple mobile banking (given an Mobile / 3–5 adequate infrastructure), product Branchless differentiation, partnerships Years growth market share, customer Banking differentiation Rabobank
  43. 43. IT infrastructure building:do it together• Inmature solutions and market• Many organisations cope with the same issues• Many organisations trying to find the same solution• Prepare for IT and real IT innovation• Develop building blocks as a generic serviceSACCO‟s and PO‟s: very eligible for SaaS / cloud computing! Rabobank
  44. 44. Henk Doorenspleet, Henk.Doorenspleet@rabobank.comHarrie Vollaard, Rabobank