Including everyone

As a chap named Bill Gates wrote recently,

Technology can be a major force to advance financial inclusion, which can help improve the lives of the poor in the developing world.

[From Untitled]

He’s absolutely right, of course. People who are trapped in the cash economy are the ones who are most vulnerable to theft and extortion, most likely to lose their hard-earned notes and coins or have them destroyed by monetary policies, pay the highest transaction costs, lack credit ratings or references and (in an example I heard from Elizabeth Berthe of Grameen at the Digital Money Forum this year) most likely to have their life savings eaten by rats. So what should be done? Well, having governments take the problem seriously and set targets is a good start.

the RBI target of ensuring 100% financial inclusion in villages of 2,000 plus population in the state by March 2010… banks could adopt the RBI’s advice of making use of the business correpondent-BF model, as per the guidelines, to extend the banking services.

This was in keeping with the RBI’s decision to launch a renewed drive for opening up of no-frills accounts in respect of families who do not have a bank account, on the basis of the data relating to the public distribution system.

[From Banks urged to take steps to ensure 100% financial inclusion – dnaindia.com]

To continue with this specific case, it has proved very difficult to translate these targets into action in the heavily-regulated Indian market.

Adding to their presence, the cost of operating a bank account and the cost of transaction for banking services —which includes deposits, withdrawals, credit and other banking products — is not only high for the consumers but also for the banks. This leads to little penetration and reduced delivery of services in order to bring the large number of potential un-banked/under banked population under the mainstream banking system.

[From Financial Inclusion In India]

As far as I can see, banking is a really expensive and really inflexible way to obtain inclusion, and as we all know, there are better ways to obtain inclusion with new technology. In particular, new technology when combined with the business correspondent model mentioned in connection with the RBI guidelines above ought to be delivering more transformation.

A Wharton School study pegs the cost of a transaction at a bank branch at around $1 (Rs. 45). At an automated teller machine, it goes down to about $0.40. And done through business correspondents, the cost drops even lower to $0.10.

[From Banking on technology to bridge financial inclusion gap – Economy and Politics – livemint.com]

Another way forward might be to treat mobile payments as a first step on the ladder to inclusion and try to find a way to bring mobile payments to the mass market and then use the mobile payment platform to deliver other financial services. Naturally, give our work on the project, I can’t resist highlight M-PESA in this context.

This is why, I believe, that the success that Vodafone (through its subsidiary Vodacom) achieved in Tanzania is so important. It was reported that more than a million subscribers have signed up on the service (Read here), but indications at the Congress were that this number has now more than doubled. The fact that Vodafone has demonstrated that they can duplicate the success of mPesa in other countries, is of significant importance. This means that the Kenya experience was not a fluke, and that Vodafone has learned what it takes to make these roll-outs work.

[From Mobile Banking: Vodafone prove mPesa repeatability]

I hate to keep going on about M-PESA, but our experiences advising Vodafone in the early days of this project contain a number of useful lessons, in particular about the relationship between new entrants and regulators. But I wanted to make a different point.

A couple of years ago we were doing some work for a client who was thinking of developing something like M-PESA. I won’t name them, obviously, but I hope no-one will mind if I mention one of our recommendations. Our Head of Mobile Money, Paul Makin, who worked on M-PESA when it was still whiteboard scribble, was asked what he would have changed in the original specification if he had had the wisdom of hindsights, and his top priority was APIs for MIS access. This is why I wasn’t surprised to see this in a report from the front line.

Data from M-PESA cannot directly be imported into the management information systems (MIS) at MFIs. For KADET, this means all payments made through M-PESA have to be manually input into their MIS, another opportunity for human error to affect the process.

[From Mobile Payments: the Devil is in the Details « Kiva Stories from the Field]

(I strongly urge you to read this short and fascinating article about real experiences linking to M-PESA in the field, by the way.) Taking the mobile payments transactional data and providing corporate access is, I think, a key plank in the inclusion strategy. In Kenya, financial institutions have already started to use M-PESA transaction data as a substitute for a credit rating when looking at providing loans and I’m sure that new opportunities will arise due course: with the wisdom of hindsight, better corporate interfaces would have accelerated this process.

This is the short of thing I expect to discuss more when I’m on the panel on Financial Inclusion at the forthcoming Mobile Money and Migrant Remittances conference in London on 16th-18th May 2011. They’ve got a great set of speakers, including Forum friend Elizabeth Berthe from Grameen and John Maynard from Vodafone, and I’m really looking forward to it.

In an act of astonishing charity, the wonderful people at ICBI have given me a two-day delegate pass for the conference — worth an amazing ONE THOUSAND FOUR HUNDRED AND NINETY NINE POUNDS — to give away on this blog as a competition prize. So if you are going to be in London on those dates and you’d like to come along to meet some of the global leaders in the mobile and remittance space, all you have to do is be the first person to respond to this post telling me when Western Union, the founders of the electronic money business in 1871, finally shut down their telegraph service.

In the traditional fashion, this competition is open to all except for employees of Consult Hyperion and members of my immediate family, is void where prohibited and has been risk-assessed under all relevant guidelines. The prize must be claimed within three months. Oh, and no-one can win more than one of the Digital Money Blog prizes per calendar year.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]