The ThinkChange India staff is committed to providing our readers with interviews with people we believe are at the brink of something special but have for the most part been overlooked by the mainstream media. Readers will be able to see other conversations under our TC-I Changemakers tag.
This week, Vinay sat down (over the phone) with Gautam Ivatury of the global microfinance center CGAP, which works to expand poor people’s access to financial services. Such services include but are not limited to microcredit and branchless banking. This interview is a follow up to one conducted on May 4, 2008, which you can read here.
Vinay Ganti: Could you please review yourself on the following topics, which we discussed in our last conversation?
- Reaching beyond MFIs:
Gautam Ivatury: This still continues to be a major focus of CGAP’s mission. Across all of CGAP’s work we continue to look for ways to partner with a range of institutions and providers, including but not limited to MFIs, to be able to massively expand financial services for poor people.
- Branchless Banking (see on right hand side of page)
GI: With regard to branchless banking, we set out to accomplish a number of goals. Overall we have been happy with the results of CGAP’s work in this area over the last six months, despite the fact that it has taken longer than expected for our project partners (in countries like Pakistan, Kenya, Mongolia, South Africa and elsewhere) to roll-out the branchless banking channels we helped design and finance.
Since our last talk, CGAP has expanded its policy and regulatory diagnostic work in branchless banking. New markets analyzed have included Colombia, Argentina and Indonesia, and we’ve continued to maintain close dialogue with the Reserve Bank of India and regulators elsewhere.
Also, the actual awareness of mobile banking in the field, i.e. what is and how it can work, has increased dramatically in the past. Last May we co-organized the first major annual event on “Mobile Money” for the unbanked in Cairo with the GSM Association (the industry body for the world’s 700+ mobile operators), IFC and DFID. That event got more than 500 paid attendees, most from private industry. And this week at the GSM World Congress in Barcelona, GSMA and other private sector players will announce additional activities in the space. DFID announced its new FAST program to encourage branchless banking this week. Initiatives like these are critical to get widespread adoption of the concept and to achieve scale. Moreover, major consulting and research outfits like Aite, Monitor and McKinsey have started research and published reports on the topic.
At the same time, our seven branchless banking projects have been slower to launch than we all expected two years ago. There have been some notable achievements — our Philippines partner has entered three new rural provinces and signed up about 80,000 new mobile banking clients, and Telenor bought 51 percent of Tameer Bank (our partner in Pakistan) to jumpstart its mobile banking initiatives. But in general the implementation of mobile / branchless banking has been slower than anticipated.
VG: Why do you think this is?
GI: In my view, the major reason for delay is the sheer complexity of all the moving parts required to successfully build out mobile banking in each market. The nuts and bolts of actually creating an operating infrastructure –building or implementing a tech platform, negotiating deals among banks and mobile operators, dealing with shifting regulatory conditions, etc. — extends timelines. In addition, many of our partners started with a general sense of what they wanted to achieve (a low-cost ubiquitous channel for basic banking transactions) and took some time to test and throw out various solutions and approaches, to end up with what they have now — a clearer operational plan that is well underway.
VG: Have the recent economic downturn, credit crunch and liquidity crises contributed to this?
GI: I wouldn’t say that these were major contributing factors. I think we now understand that even if one organization (a bank, let’s say) is pursuing mobile banking, this is still inherently a multi-party endeavor. The financial institution, mobile operator(s), cash-handling agents and any agent managers — all of these parties must be aligned operationally, commercially and technologically before the new business can get off the ground. Assuming you want scale, you cannot really do mobile banking on your own.
But finally, one major plus is that there is now a second wave of countries now starting to talk and think about branchless banking. CGAP will continue to informally advise, and selectively support, additional branchless banking projects.
- Graduation Programs/Ultrapoor Programs
GI: These are still a big part of our work, and we have several pilots ongoing — at SKS Microfinance and Bandhan in India, in Peru, and elsewhere. These programs are very interesting in and of themselves, and may be better suited to their own post. (Editor’s note: We will do a follow up piece on these programs in the near future so stay tuned).
- Creating Technology for MFIs and others
GI: For a while we have been interested about the possibility of “outsourcing” technology from MFIs and offering it on a pay-per-use basis. This is sometimes referred to as a shared platform or software-as-a-service model. In the Philippines, our partners NationLink and Opportunity International are testing a shared ATM network for small MFIs. In Ecuador, we are assisting Red Financiera Rural (the leading association of MFIs and credit unions) in finding ways to outsource technology to a 3rd party.
VG: Have you heard of new ventures like CashNxt? What is your and CGAP’s opinion on such technologies? What other novel technologies with regard to mobile phones excite you the most?
GI: Any technology choice must be secure, cheap and ubiquitous, which is why CGAP has focused so much on the cell phone. To me, the cell phone is that thing that is not going away and will only become more practical as an access device for poor people over time. Other instruments, like smart cards, have special utility in certain markets but not the same general potential.
From what I understand, CashNxt is similar to another solution called TagAttitude from France where the real advantage lies in authenticating face-to-face transactions. So if a person is going to pick up a remittance at a nearby agent, they can verify identity and the transaction can be settled. Similarly I can put my phone next to the merchant’s and authenticate using the secure audible message to pay for a hamburger. However, my impression has been that these technologies are not suited for ‘remote’ transactions — that is, to send money across the country just by punching digits into my phone or selecting the option from a menu. So I think these solutions are useful in specific applications but probably are not the universal authentication method for all mobile banking applications. I think the basic PIN, despite its limitations, still probably has general value.
VG: Where do you see the next step to be beyond branchless banking? How would social entrepreneurs best prepare for this movement?
GI: Mobile banking/branchless banking is still a very new idea and right now the biggest concern some observers have is that it is getting a lot of hype; ultimately that may be counterproductive. I believe that we are still 3-5 years away from seeing a relatively large number of successful mobile banking services at scale in developing countries. So for these next few years, my hunch is that most of the energy and money will still focus on getting “bread-and-butter” mobile payments into users’ hands. New ideas like extending credit via mobile banking or using it to improve procurement and inventory management for agents (to name innovations we are starting to see) will emerge slowly over the next 3-5 years.
VG: Well I want to thank you for taking the time to speak with us today. We hope you and CGAP all the best in your endeavor, and TC-I will be closely following all of its great work.
GI: Thank you, Vinay!
- social entrepreneurship
- Financial services
- mobile phones
- Mobile phone
- social entrepreneur
- Mobile banking
- smart card
- SKS Microfinance
- Gautam Ivatury
- social entrepreneurs
- NGOs and Non-profits
- developing countries
- Bill and Melinda Gates Foundation
- branchless banking
- TC-I Changemakers
- credit crunch
- New Ventures
- software for MFIs