Presentation during the 2nd annual Kenya Bankers Association conference. Extending banking through crossing of borders.

1. September 23rd
– 24th, 2013
Sarova Stanley, Nairobi
Dr. Tonny K. Omwansa
Prof. Timothy M. Waema
School of Computing and Informatics
University of Nairobi
September 23rd
– 24th, 2013
Sarova Stanley, Nairobi
Dr. Tonny K. Omwansa
Prof. Timothy M. Waema
School of Computing and Informatics
University of Nairobi
Deepening Financial Inclusion
through collaboration to create innovative
and appropriate financial products for the
poor
2nd
Annual Kenya Bankers Association
Banking Research Conference

2. OutlineOutline
1. Introduction
2. Review of related literature
3. Description of data
4. Lessons and conclusions

3. BackgroundBackground
• World
– Almost 1/2 live on less than $2 a day
– About 1/2 don’t have a bank account
• Kenya
– 2009, about 59% adult population completely excluded/informal methods.
– financial inclusion is at the core of vision 2030
– numerous achievements make Kenya a world example
– we must stay ahead: innovate further
• Financial access
– increase in formal financial services has effect on poverty traps.
– Conventional: reduce costs, mobilize savings & encourage investments
– to the poor: make appropriate & affordable

4. BackgroundBackground
• ‘Innovative modes of financial services delivery can have a
transformative effect on poor households’
• Innovation
– ability to identify good ideas
– thought leadership skills to
• enhance
• drive the relevant change
• Facilitate collaboration and
– ability to drive to tangible economic, academic, social or political results
• Financial Inclusion:
– Ability of an individual, household, or group to access appropriate financial
services or products.

5. ObjectivesObjectives
Demonstrate that one promising strategy to
deepen financial inclusion at BoP is through
collaboration between strategic partners who
would develop and execute innovative and
appropriate financial solutions to this segment.
Discuss some challenges to achieving appropriate
financial products

6. Financial sector transformationFinancial sector transformation
• Transformation from 2005
– Within 3 years, deposit accounts grew by152%
– Branch network expanded by 60%,
– ATM network grew from 323 units to 1,325
– 2006-2009, access to formal financial services
rose from 26.3% to 40.3%
– Agency banking commissioned April 2010
rapidly grew to 17,000 by March 2013 FinAccess

7. Innovation for Financial InclusionInnovation for Financial Inclusion
– Reaching BoP using mobile technology generates enthusiasm
– Financial services outside conventional branches now common
– 10% growth is undoubtedly attributed to M-Pesa
Choice of remittance channel between 2006
and 2009, FinAccess 2011
Use of money transfer options in 2006 and
2009, FinAccess 2011

8. Journey to Cash-LiteJourney to Cash-Lite
Better than Cash AllianceOur opportunity

9. Cash-Lite BarriersCash-Lite Barriers
Our opportunity

10. Low adoption at rural and BoPLow adoption at rural and BoP
• Characteristics: Lower literacy levels & Lower access to information
• Income is low, irregular & unpredictable
• Late and slower adopters of technological innovations
Access strands by Finaccess

11. The poor and their financial livesThe poor and their financial lives
• They live sophisticated financial lives
– save, borrow, lend & prepare for rainy days
• USD 2 per day is an average
– some days they earn USD 5, other days no income
• Their level of uncertainty is high
• Live less healthy lives, stay in less secure places
& face income volatility
Poor are not
stupid, they are
just poor.

12. Lack appropriate financial toolsLack appropriate financial tools
• Money management could be more crucial at BoP
than elsewhere
– Save low irregular income into dependable source for
daily living
– Cope with risk particularly emergencies
– raise lump sums by reliably accumulating meaningful bits
• They use informal tools are expensive, unreliable
and at times unsafe because of poor quality
• MFIs have attempted, but fail in several ways
• Mobile money is a reliable channel, but not a
sophisticated and appropriate financial tool

13. Appropriate financial tools for BoPAppropriate financial tools for BoP
• reliable – Delivery of services
– at promised time
– in the promised amount
– at the promised price
• convenient – ability to access
– quickly,
– nearby,
– privately
– unobtrusively
• flexible – ease with which
– transactions are reconcilable with cash flows
• structure – regularities
– to promote self-discipline

14. How close are we to appropriateness?How close are we to appropriateness?
•Agent banking improves convenience of banks
•Costs must come down for all channels
•How to improve the combination of structure and flexibility?
Johnson et al. (2012)
Innovate!!!

15. Emerging business modelsEmerging business models
• ‘Pay-as-you-use’:
– Consumers pay lower costs for every single use of a
facility, product, or service;
• ‘No Frills’:
– Services/products that meet basic needs of the poor
at very low price but still profitable to supplier
• ‘Shared Channels’:
– Enables piggybacking products and services on
existing customer supply chains, to enable poor
people to access and afford goods and services
valuable to them.
OTHER TERMS
‘Pay-as-you-go’,
‘Lease-to-own’,
‘Layaway
programs’
OTHER TERMS
‘Pay-as-you-go’,
‘Lease-to-own’,
‘Layaway
programs’

16. Data setsData sets
• Impact of M-Pesa
– 89 in-depth qualitative interviews from a
variety of respondents
– New developments of using MM as a channel
– Between January 2011 and August 2011.
• Adoption of mobile money at the base of the
pyramid
– 283 respondents in Nairobi’s poor areas
– Several constructs were investigated
• In-depth study of BoP financial product (pure
mobile-based micro-financing)
– 245 respondents participated

17. Adoption FrameworkAdoption Framework
Constructs:
• Performance expectancy
• Social Influence
• Perceived Trust
• Facilitating Conditions
• Transaction Cost
Adoption Drivers

18. Adoption drivers to design principlesAdoption drivers to design principles
Performance
Expectancy
Reliability
Social Influence Convenience
Perceived Trust Missing
Transaction Cost Cost
Facilitating
Conditions
Flexibility & Structure
Omwansa, T. (2012)
Johnson et al. (2012)

19. Provider willingnessDesign of the solutions by
third party enterprises
Design/adoption features are barriers?Design/adoption features are barriers?
Flexibility Structure Cost
Performance
Expectancy
Social
Influence
Facilitating
Conditions
Facilitating
Conditions
Cost

20. Partnerships/Business models for BoPPartnerships/Business models for BoP
financial
Institution
(custodian)
Mobile Money
Provider
(channel)
Social
Entrepreneurs
(solutions for BoP)
Appropriate
financial
product
BoP Consumer
Interacts with
consumers
through agents
No one partner is
Going to do it
all well alone
Research
organizations,
Universities etc.
Findings and Discussions

21. Flexibility and StructureFlexibility and Structure
Incubation of business ideas
Collaboration with research & academic institutions
Platforms facilitating collaboration between start-ups, MNOs,
Financial Institutions etc
Taskforces on financial inclusion for BoP.

22. Transaction CostTransaction Cost
• Ability to pay: Costs are high for low value transactions
• Willingness to pay: For ‘lack’ of options, they will pay
• Every transfer, however small attracts fees
Amount (KSHs) To subscriber &
withdraw
% of total amount To non subscriber
& withdraw
% of total
amount
50 15 30 NA NA
100 15 15 NA NA
200 54 27 93 46.5
500 54 10.8 93 18.6
700 60 8.6 93 13.2
1000 60 6 93 9.3

23. • 150,000 new businesses
• 740,000 people moved out of poverty
• Over 200,000 pumps sold
• M-Pesa mobile layaway program
reduces payment period (12 to 3
months)
• Uses sales agents, SMS reminders
and SMS updates to keep customers
close
M-Shwari, KickStart Mobile Layaway, M-Kesho, Mbao Pension,
Angaza Design, M-Bima, Indigo pay-as-you-go solar, M-Kopa,
Bridge International Academies, Grundfos Lifelink, Musoni...
Mobile layaway program to
purchase a water pump

24. Provides high quality primary
education at low cost
•KShs. 320 per month per
child
•20,000+ school children
•Fees paid by MM, service
providers paid by MM
•Largest single M-Pesa client

25. Cash-less micro finance
(‘M’ for Mobile and ‘Usoni’ for future)
Uses 100% mobile money (M-Pesa) for loan disbursement and repayments
•Enables cash-less microfinance operations
•1st
loan in May 2010, 160M+ lent with 100M+ outstanding loan balance,
500,000+ borrowers, over 10,000 loans
•To clients: Faster turn around, zero paper work, more convenience
•To Musoni: Lower risk, less paper work, better customer service, easier and
more accurate transaction tracking

26. We are focused on innovating, incubating and creating new
opportunities for its membership.
Prepaid (MM) off-grid energy
Make life-changing energy solutions affordable to low income customers
•Embedded micro-payments to the solar technology
•Piloted from October 2010.
•Commercial sales started 8th
June 2012
•Roll out considered a success

28. Lessons from the synergiesLessons from the synergies
• BoP are accumulating savings
• Meaningful sums to acquire assets/services
• Technology is an enabler
• Innovation is 1% inspiration, 99% perspiration – execution is key
• Structure:
• targets are clear
• regular progress updates by SMS
• Reminders not to default by SMS
• Phone call & face to face follow ups
• Flexibility:
• Ability to pay whatever amount at whatever time
• Negotiations allowed when customer likely to default
• Transaction cost:
• Absorbed by 3rd
party &/or consumer

29. Lessons from the synergiesLessons from the synergies
• Current partnerships
• Mostly between MNOs and 3rd
parties
• Each party focuses on their strengths
• 3rd
party is the face of the product
• Savings translate to specific service/product that BoP need
• Consumers
• Appreciate the value of MM more when bundled with other
relevant product
• Appreciate convenience more than security
• Trust plays a key role, especially in the 3rd
party who is the face
• Face to face interactions, personalized reminders were greatly
appreciated
• Challenges of water, energy, education, agriculture, housing,
transport, healthcare etc form a basis for collaborations

30. ConclusionConclusion
• Partnership key for reaching BoP
• Providing appropriate and innovative financial products
• Not likely to be achieved by one player
• Partnerships challenges:
• technology
• competition
• trust
• interoperability etc
• BoP financial solution must be appropriate
• Design features must be incorporated
• Trust must be developed and sustained
• Transaction costs need to come down
• Innovating is hard work and the price has to be paid
• BoP users need MM
• More importantly as a means not an end
• MM then becomes a platform
• Likely to increase savings & change behaviour towards cash-lite

31. Thank you!
Dr. Tonny K. Omwansa
School of computing and informatics
University of Nairobi
@tomwansa