Figure 15: Numbers of Registered and Active Customer Accounts by Region
Source: J. Frydrych et al., 2014, “2014 State of the Industry: Mobile Financial Services for the Unbanked,” fig. 7 (London: GSMA), 27, http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/03/SOTIR_2014.pdf. Used with permission of GSMA.
2015 Musoni Services Campaign Commitment
“The Musoni System gives MFIs the infrastructure they need to reduce their costs, improve their efficiency, and drive financial inclusion into rural areas where the majority of the unbanked live. End-clients benefit from increased security and flexibility and, in-time, lower interest rates…”
— Cameron Goldie-Scot, CEO, Musoni Services, UK
The Campaign Commitment from Musoni includes:
- integrating PPI scorecards into the system, allowing field officers to capture data remotely, and enabling MFIs to easily capture and analyze social performance data; and
- encouraging users of the Musoni system to start capturing PPI data from more than 150,000 entrepreneurs.
A map of the locations of people using mobile money to make payments and conduct other financial transactions, such as in figure 15, shows that the largest penetration of mobile accounts occurs in some of the world’s poorest countries. They also tell another story: in all regions of the world, the number of people with mobile money accounts far exceeds the number that uses them regularly.
Mobile banking, or m-banking, is one of the most promising tools for achieving a cost-effective pathway to digital financial inclusion at scale, now that billions of low-income people own mobile phones. Many practitioners have recognized and harnessed this potential through a variety of mobile banking tools: some allow previously unreachable clients to make digital payments via their phone and others can send clients SMS payment reminders. Through mobile banking, transactions can be conducted more securely—and at lower cost—than with traditional platforms, making it possible for financial services to reach lower-income and more-remote customers.
Effective digital finance systems that provide a full range of services require a mobile network channel, a financial institution that can hold deposits, vendors that can accept digital payments, and a network of agents that can convert physical cash to digital cash and vice versa. Many digital finance systems also include payment providers, such as MasterCard or Visa, that provide a set of business processes, rules, safeguards, and enforcement mechanisms that allow for interoperability between payers, payees, and channels.
Variations in regulations and the size and strength of various businesses in the chain have led to a wide variety of relationships and structures for providing the set of services needed for digital finance, such as:
- a mobile network operator (MNO) owning a microfinance bank (Tameer Bank in Pakistan, owned by Telenor),
- a microfinance bank owning a mobile payment platform (bKash created by BRAC Bank in Bangladesh),
- a joint venture between a commercial bank and an MNO to create a mobile microfinance bank (BPI Globe BanKO in the Philippines), and
- an MFI working as an agent for digital savings accounts provided by a commercial bank (Cashpor and ICICI Bank in India).
The GSMA Global Mobile Economy Report 2015 noted, at the end of 2014, some significant positive evidence of progress:
- Half of the world’s population, 3.6 billion people, had at least one mobile subscription.
- 255 mobile money services operated across 89 markets, with over half of these in sub-Saharan Africa.
- There are 299 million registered mobile money accounts, but only 103 million of these accounts, just over one-third, were active.
- In East Africa, half of all mobile subscribers have signed up with a mobile money account.
- 32 mobile services in 15 countries offered mobile credit and 100 services offered mobile insurance, providing 17 million policies.
Urban males with higher incomes and bank accounts make up the largest proportion of early mobile-money adopters. As adoption expands, mobile money services will reach more unbanked and low-income people. According to Tavneet Suri and Billy Jack, the share of the unbanked who used M-PESA in Kenya rose from 21 percent in 2008 to 75 percent in 2011. Over the same time period, the share of those living on less than $1.90 a day grew from 20 to 70 percent. On the other hand, the 2014 Global Findex reports more mixed results for mobile account usage by women. Uganda and Tanzania show significant gender gaps in those who have a mobile money account and no bank account, while Kenya and Cote d’Ivoire showed no significant gender gaps in this area.
Due to the fixed fee structure of many mobile-money transactions, fees for small transactions make up a larger percentage of the transaction amount than larger transactions. As a result, a study by Research ICT Africa of income expenditures in 17 African countries found that many of the poorest participants in their study spent more than 16 percent of their income on mobile services.
Despite the higher proportional costs, those living in poverty experience significant benefits from being connected to mobile financial services. Jack and Suri measured the effect of M-PESA use in reducing the impact of negative shocks (such as an illness or losses due to weather) to a household. They found that those without an M-PESA account suffered an average income loss of 7 percent with a negative shock, while those with an M-PESA account saw no loss in income. Those with an account were more likely to be able to receive payments from friends and family, located outside the village, and were not affected by the shock. In 2009, CGAP reported that new rural participants in M-PESA saw their incomes rise between 5 and 30 percent as a result of an increase in the number of remittances and lower costs to receive them.
The Commercial Bank of Africa (CBA) has partnered with Safaricom to use the M-PESA mobile-money platform to deliver a bundled savings and credit service called M-Shwari. (Shwari means calm in Kiswahili.) Since November 2012, when CBA launched M-Shwari, 7.2 million Kenyans have established 9.2 million M-Shwari accounts, with 4.7 million of these accounts having activity in the last 90 days. Account holders have cumulatively deposited over $1.5 billion in these accounts, with $45 million on balance at the end of 2014. They have borrowed $277 million, with $17 million outstanding at the end of 2014. This makes M-Shwari one of the first mobile savings and credit products to go to scale.
CBA developed the M-Shwari product in consultation with FSD Kenya, which used its Kenya Financial Diaries research and additional surveys to determine the needs of low income Kenyans. The product as these key features:
- Ease of use: Clients with a phone and an M-PESA account can set up their M-Shwari account in less than one minute using a set of simple text menus. The minimum deposit to set up an account is 1 Kenyan Shilling (US$0.01, 1 cent). One they have set up the account, clients can also deposit and withdraw money quickly, using a similar menu-based system.
- Interest-earning savings with no minimum balance: Savings deposits earn between 2 and 5 percent interest, paid quarterly, based on the average daily balance. Clients can earn more interest by moving funds into a locked savings account for one to six months.
- Access to short term loans: M-Shwari savers can qualify for one month loans, based on an algorithm that uses their savings and M-PESA transaction history and other factors. CBA charges no interest on the loans, but does charge a 7.5 percent origination fee. Loans must be repaid in 30 days, but can be rolled over for another month with the payment of another 7.5 percent fee.
Many Kenyans find this product valuable because it allows them to address two often-competing financial needs at the same time. They can make deposits when they have surpluses and allow their savings to accumulate to the point that they can pay large expected expenses (such as school fees or wedding expenses) or purchase important assets (such as a refrigerator or a sewing machine). At the same time, they have fast access to short-term loans that allow them to address unexpected shortfalls without depleting their savings.
M-Shwari customers value its simplicity, safety, easy access to the account (anytime and everywhere over the phone), and quick access to credit. On the other hand, the product’s simplicity means that clients often do not understand how credit decisions get made or what the true costs of their loans are. Many customers would also like longer-term loans that they could use for their business activities.
In Nigeria, Women’s World Banking (WWB) worked with Diamond Bank to develop mobile savings products designed for the women who work in traditional open-air markets. A WWB research team interviewed potential clients in the market to understand their cash flows and financial needs, and then helped design what Diamond calls the BETA savings account. The bank deploys agents who are linked to the bank’s mobile platform, called “BETA Friends,” to the markets; this allows women to do their banking without leaving their place of work. BETA Friends help new clients through the simple account opening procedures. They provide training with materials that feature market women and use the language and terminology of the market. The bank also disaggregates the data it collects by gender, using WWB’s Gender Performance Indicators, to help them understand how women are using this product and what other products they might need. Diamond Bank launched BETA Savings in 2013 and now serves more than 200,000 clients with this service.
The Grameen Foundation, in partnership with the MasterCard Center for Inclusive Growth, carried out user-experience research in Nigeria to understand what factors may inhibit the use of mobile money, especially for those living in poverty. They found that the way mobile money services market their products, the agents they employ, and the simplicity of the products and their use were key drivers of whether people excluded from the financial system sign up for and use mobile money services. Their report recommends that mobile money providers that want to reach the excluded and those living in poverty should:
- Target their marketing to their audience: They should use local languages, word of mouth networks, and pictorial guides that demonstrate how the service is used.
- Employ agents that people know and trust: Agents form the connection point between the service and the client. Trust in the agent quickly leads to learning and trying the new product.
- Make sure services are easy to use and reliable: New clients quickly give up if they get confused and can’t get an answer to their questions.
- Provide entry level products with low costs and few restrictions: People in poverty must deal with unpredictable and irregular income. They find little value in accounts with large minimum balances or high transactions fees.
Last year, India set a Guinness world record for the most bank accounts opened in one week, while carrying out Prime Minister Narendra Modi’s scheme to ensure financial inclusion for every household in India in 2015. His government announced a series of initiatives to accomplish this goal, which were built on the work of previous governments to improve financial infrastructure. Finance Minister Arun Jaitley has labeled the key components of India’s financial inclusion strategy the “JAM Trinity,” which stands for Jan Dhan Yojana (people’s wealth scheme), Aardhar, and Mobile.
- Jan Dhan Yojana (JDY): The government gave banks a strong incentive to open JDY, no-frills bank accounts linked to a debit card, an overdraft facility, accident and life insurance, a pension plan, and a network of banking agents. The government intends to make all social benefits payments through these accounts and began the process of doing so this year.
- Aardhaar: This national identification system provides an identity number for every Indian resident verified with biometric data.
- Mobile: The government makes its payments to these accounts electronically.
Since its roll-out last year, banks have set up more than 175 million new accounts. Over $2 billion has been deposited in these accounts, though 46 percent of the accounts have zero balances, meaning that the clients of those accounts withdrew money from the account as soon as they received it. MicroSave carried out a review of the implementation of the new account system and found that 86 percent of those signed up for JDY accounts reported this as their first bank account. The report also found challenges in the availability and connectivity of banking agents.
In addition to establishing new accounts, the government and the Reserve Bank of India (RBI) have taken many additional steps to make sure that the financial systems can provide a range of products and services to everyone in the country:
- Providing a commercial banking license to Bandhan, the largest microfinance provider in the country
- Approving eight MFIs to receive small bank licenses (of the 10 total issued), allowing them to accept deposits and lend to microenterprises, farmers, and small industries
- Creating the category of payments banks, which can establish mobile accounts and accept deposits, but not make loans (RBI licensed 11 payment banks, primarily to mobile network operators and technologically-based financial service providers. )
- Creating the Micro Units Development Refinance Agency Bank with a capital allocation of $3 billion to refinance the portfolios of those providing loans to micro and small businesses
- Simplifying know-your-customer (KYC) requirements to make it easier for low-income people to open accounts
So far, this set of actions has proven very successful in attracting and setting up new accounts. The challenge moving forward will be to make sure these accounts provide products and services that help low-income clients reduce their vulnerability, take advantage of opportunities, and build assets.
Governments: Create a national strategy for digital financial inclusion that coordinates the work of government agencies, the central bank, financial service providers (FSPs), and mobile network operators. Give FSPs incentives to establish accounts for the excluded. Use government social-benefit payments as a key driver for establishing accounts and mobile channels for every recipient.
Regulators: Create a regulatory environment that promotes financial inclusion. Create regulatory structures that allow FSPs that focus on reaching the excluded to take deposits and make loans. Create clear guidelines for establishing mobile accounts. Use risk-based approaches to KYC and anti-money-laundering, easing restrictions for small-balance accounts and small transactions.
Financial service providers: Redesign the microfinance business model to make use of digital technology, defining key comparative advantages and niches within the mobile financial channel. Use knowledge of clients’ needs, cash flows, and aspirations to design appropriate products and delivery systems. Build strategic alliances and partnerships with others in the digital-finance value chain to deliver these products at lower cost and on a much larger scale.
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Table of Contents
- Executive Summary
- Where’s the Map?
- Global Data Show Diverging Paths
- Integrated Health and Microfinance
- Saving Groups
- Graduation Programs
- Agricultural Value Chains
- Conditional Cash-Transfer Programs
- Digital Finance
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