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Thoughts on DFS in “Europe Minus Infrastructure” – DRC!

Posted on by MSC

“Europe minus infrastructure”? This was the term that James Mwangi, CEO of Equity Group, used in an Equity Group briefing when describing and explaining Equity Banks’ move into DRC by purchasing ProCredit Bank Congo.

I have been thinking about which country might be the following some of the leading digital financial services (DFS) countries like Tanzania, Uganda, Zimbabwe, or Somalia, to offer transactions via nation-wide agent networks and thus provide financial services to hitherto unbanked populations.  For me, it is the Democratic Republic of Congo (DRC). In the DRC it is a matter of survival for many financial institutions. In a country 80 times bigger than Belgium, with 35 people per sq km, you either go for DFS, or you can leave the playing field all together.

With a population of around 67million and the country covering an area as large as Europe, the DRC clearly requires a DFS model. The population is growing at quickly and will probably reach 100 million in 2025. And only 4% of the Congolese population currently has access to financial services – from no less than 20 banks. Competition is harsh between these financial institutions, and the one discovering a real comparative advantage (DFS could be one) will be the one to win. At the same time, the country’s GDP is growing at 9% annually (as much as one can trust these numbers). Mobile network coverage is estimated to reach 50 to 60% of the population already and the country had around 22million subscribers by Q1 2014.

Evidently there are also big challenges. Infrastructure is definitely one and might even be the biggest: only 5% of roads are paved, many branches depend on generators, etc. Many banks have used the infrastructure-excuse to explain not developing a branch network – particularly in the east of the country. The infrastructure challenge also comprises the missing payment system: inter-bank reconciliation and compensation is still performed manually every evening at the Central Bank. In addition, DRC ranks as 154 on the Transparency International Corruption Index out of 175 countries. Not an easy nut to crack!

The challenges continue when looking at the client profile: A bank will have to deliver financial services to people speaking 4 languages and with a literacy rate of 61.2% (2008-2012, UNICEF).  Furthermore, providers will probably struggle to replicate the usual anchor products/value propositions from other markets. National money transfer companies, such as Amis Fideles, already offer affordable prices and, in the short run at least, people might not switch to mobile transfers. The utility companies, (i.e. electricity and water), are fairly badly managed and the MIS (often excel!) cannot interface with any bill payment platform. (At least when we tried to offer bill payments as ProCredit this was considered to be a utopic idea). The unreliable GSM network described in the GSMA on the DRC report is clearly also a major risk for a DFS market – as it will directly influence both feasibility and customer trust.

However, the different actors are clearly getting their ducks in a row:

–   In December 2011, the central bank has released a new regulatory framework on electronic money allowing non-bank e-money issuers to offer financial services. A few months later, four mobile operators received licenses and three launched their operations.

–  The Central Bank has granted a waiver for agent network development to FINCA DRC and is learning from that experience. The banking agent regulation was promised to be launched soon.

–   FINCA DRC is already very successfully developing a rapidly growing agent network.

–  Procredit Bank Congo has launched their “L’AR Phone” service with which one can transfer between accounts at Procredit Bank.

–  TMB Bank launched a mobile banking service called “Pepele mobile” which is compatible with all kinds of phones (i.e. IVR, SMS, app) and also supports cash-in and cash-out transactions.

–  Other commercial banks are already preparing to also get a license to launch agent networks.

–  Already 700,000 state employees are being paid by bank transfer.  There have been numerous issues around these payments, and when I was still in DRC, the Ministry refused to pay people via transfers since the people doing the cash handouts would lose their job (no kidding!) and since electronic transfers would shed light on around 30% of government officials receiving salaries without actually having a job with a Ministry. But these issues seem to have been resolved – progress!

Having spent 3 years in Kinshasa with Procredit Bank Congo, I clearly see that the country offers some of the ingredients for rapid progress towards DFS in the near future. As the GSMA report on the DRC points out, mobile banking might have more success in the DRC than the usual bill payment or national transfer strategies. And hopefully with the arrival of Equity Bank, financial service providers will have to wake up under the pressure of competition. Furthermore, Equity Bank comes with a wealth of experience, not only with difficult markets (including Southern Sudan), but also in developing a strong banking agent channel with today 14,000 active agents (30-day basis). In DRC, Equity will benefit from its existing partnership with Airtel, the largest MNO in DRC (market share: 28.4%). In addition, Helios Investment Partners, a shareholder of Equity holds a participation in the MNO towers in the DRC.

So there are great opportunities – and many, many challenges! However let’s look back in a year’s time and hopefully we will be able to see a real acceleration of DFS uptake and many more people will be banked. For those interested in more information on mobile banking and mobile money in the DRC, please have a look at the GSMA report “Enabling mobile money policies in the Democratic Republic of Congo“.

Source: GSMA

Building MIS Capacity for Social Performance Reporting

Posted on by Parul Tandon

Alalay sa Kaunlaran, Inc. (ASKI), a Philippine microfinance institution (MFI) and staunch advocate of Social Performance Management, embarked on a project ‘Towards SPM Excellence’ with Opportunity International Australia and MicroSave to strengthen its capacity to use social performance information in decision making and thereby intensify its accountability to the mission. In 2014, ASKI received technical assistance and embarked on translating its mission and social goals into social objectives with a set of SP indicators and targets.

This Briefing Note describes the processes that ASKI followed to determine MIS requirements and the initial steps that were taken in 2014 to improve the MIS so that Social Performance reporting was brought into balance with Financial Performance reporting. This BN describes the way in which ASKI arrived at which indicators to track, the frequency of reporting and the co-ordination / role which the departments played so as to report using a Social Performance Dashboard.

Using “Behavioural Sciences” to Make Consumers “Give It Up” – The Case of LPG Subsidy

Posted on by MSC

“The Government of India’s Modified Direct Benefit Transfer (MDBTL) scheme for liquefied petroleum gas (LPG), more popularly known as Pahal, has achieved remarkable success. However, it has not replicated this success, with the ‘Give It Up’ campaign. Despite the fact that the campaign has been running for several months, www.mylpg.in shows that around 1,000,000 LPG customers, or 0.8 per cent of LPG connections, have given up their subsidies as on July 21, 2015. There are clearly huge potential gains for the government, if they are able to motivate customers to give up their LPG subsidies. This, though, requires sincere efforts in terms of communication and process modifications. However, looking at the potential savings these efforts are worthwhile!

Reinforcing the Role of the Board in Social Performance Management

Posted on by Parul Tandon

Alalay sa Kaunlaran, Inc. (ASKI), a Philippine microfinance institution (MFI) and staunch advocate of Social Performance Management, embarked on a project ‘Towards SPM Excellence’ with Opportunity International Australia and MicroSave to strengthen its capacity to use social performance information in decision making and thereby intensify its accountability to the mission. In 2014, ASKI received technical assistance and embarked on translating its mission and social goals into social objectives with a set of SP indicators and targets.

This second Briefing Note from this project describes the work done with the Board at ASKI. (please read the first BN here – http://bit.ly/1IQKCcE)

Having a Board that is committed to the social mission facilitates the implementation of SPM at all levels of the organization. While few MFIs have benefited from a Board-driven social agenda, it is extremely important to convince the Board members of the value of SPM in order to yield its full potential. Even if we agree with the fact that Board members come with a diverse rich background in their respective fields, Social Performance Management (SPM) can be new to many. Hence it is imperative on the part of the MFI to introduce their Board members to the concepts and importance of SPM.

The Board needs have a clear idea of key things such as:

• Its mandate and role in the SPM process?
• How to read social data and use it in decision making?
• How can the MFI’s leadership coordinate the SPM process?

This BN speaks of how ASKI brought their Board on board!

Over The Counter (OTC) Transaction. In Whose Interest? Part 1

Posted on by MSC

Dr. Pawan Bakhshi (now of the Bill & Melinda Gates Foundation) and Graham A.N. Wright (Group Managing Director of MSC) discuss the growing prevalence of over the counter (OTC), agent assisted transactions. In this the first of three videos they discuss: 1. Why do digital financial services (DFS) providers default to OTC? 2. What are the drawbacks of OTC for DFS providers? and 3. Why are OTC services so popular with customers?

More Sophisticated Agent Networks Signal a Maturing Digital Finance Industry

Posted on by MSC

Agents are critical to the customer experience of digital money services because they represent the first and most tangible service touch points for most end users. Agent networks are also probably the most operationally burdensome and costly element of the digital financial service value chain, typically costing anywhere between 40 and 80 percent of revenues generated from the business. Providers therefore need to approach agent network development and operation with a high degree of strategic clarity to drive a sufficiently tight operational focus.

The importance of agent networks is only rising. The MMU´s State of the Industry reports shows that since 2011 the amount of active agents providing digital finance services has grown by almost 800%, while the average number of agents per provider has increased by over 260%. Further, this has not just been happening in East Africa, but in regions around the world, like South Asia where bKash in Bangladesh and MobiCash in Pakistan have scaled much faster than any network in East Africa ever could have dreamed.

The successful design of an agent network must ensure that it is structured appropriately to deliver a specific value proposition to a chosen target market, while making business sense for the provider.  In a new paper, (Designing Successful Distribution Strategies for Digital Money), we document the variety of ways in which digital finance service providers (including banks, telecoms and third parties) have gone about assembling and then managing networks of third-party retail agents. We start our analysis with some strategic decisions involved with choosing stylized agent management models. However, based on seven case studies included in the report, and additional ones published on the Helix Institute website, we found that providers often evolved and especially hybridized their agent network strategies over time. We identified several core reasons behind the increasing diversity of models employed by the more mature providers.

Some providers who initially relied heavily on flat, centralized channel structures feel they need to embrace more scalable models to grow faster and avoid overly burdensome operations. For instance, Airtel Uganda evolved from a centralized build model to a master agent model to better manage growth, and UCB in Bangladesh opportunistically partnered with a third party specialist (MobiCash) that was building its own agent network.

Once they have successfully built a strong proprietary agent network, some providers have tended to feel safe in bringing in partners to complement their own agent network. For instance, both UCB in Bangladesh and Equity Bank in Kenya have been opening up to partnerships with retail chains.

But the trend is not always towards more outsourcing and partnering. Some providers who initially relied heavily on retail chain partners to roll-out their agent network may feel they need to regain some control over geographical coverage. For instance, BBVA Bancomer in Mexico and Eko in India added a centralized channel build to areas in their network with low coverage, while M-Sente in Uganda implemented master agents, to better extend their coverage into specific rural areas.

A related situation is where providers who were initially happy to work with non-exclusive channel partners or share retail agents with other providers in order to grow faster feel they need more control over the customer experience and bring back some differentiating elements. For instance, BBVA Bancomer in Mexico needed a direct, exclusive channel that could focus on customer acquisition (rather than merely cash in/cash out) and recruited agents directly that could do this to complement their retailor partnerships. Islami Bank (IBBL) in Bangladesh found that it had to provider better liquidity management services for agents, and brought in master agents for support. In the case of Easypaisa in Pakistan, an increasing level of competition in the market meant that more control was needed over at least part of the network, therefore increasing the strength of the direct relationships they have with the agents.

A change in the agent network model may also be required when a new service is added that puts pressure on the existing agent network, either because the new service requires a higher touch sale and service model or because it is targeted at a demographic that is not adequately served by the existing agents. This has been observed with banks that agree to distribute Government-to-Person (G2P) benefits and suddenly need to build a denser network in rural areas.

Sometimes the changes in agent network structure and operations happen organically over time, as the agent channel itself differentiates and it becomes clear to providers that certain agents are better at registering customers, or tend to have more float and do substantially more transactions. It becomes evident that not all agents are equal, and it does not make sense to treat them as such. In this case, providers usually implement systems to start segmenting their agent network and offering different levels of support based on performance or other salient criteria. These trends all seem to be natural progressions that channels make as they become larger and more sophisticated overtime, and are certainly a sign of a continually maturing industry.