Using 3rd party agents to service customers provides a potentially low cost distribution channel for financial service providers. Noting the two basic models being followed – branchless banking servicing and mobile commerce provider models – this note examines the key factors that affect the willingness of the agents to provide m-banking services. The factors being complexity of services, expected volume of transactions, impact on the agent’s primary business, and fee generated per transaction. The role of 3rd party agents is one of the most important issues for those undertaking branchless banking initiatives. The key is to develop a straightforward system that provides enough of a value proposition for the 3rd party agents while properly controlling costs for the branchless banking operator. Critically, the importance of local conditions requires managers undertaking a branchless banking initiative to: investigate international experiences, adapt to local market conditions, balance the timing and deployment of agents vs. potential clients, and balance the amount and types of incentives in order to ensure that there are no “incentive incompatibility” issues.
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Institutional Risks
In this video, Martin Holtmann, Head of the Microfinance Unit in the IFC’s Global Financial Markets Department, discusses the kind of risks MFIs face. Elaborating on the risk factor, Martin says liquidity risk and interest rate risk is low for MFIs that are only into lending business. He further explains the risks that are important for MFIs, namely, credit risk, portfolio risk and operational risk. Martin further adds that MIS and banking software have become a necessity to deal with large amount of outstanding arrears, an area where MFIs are lagging behind.
Credit Administration and Credit Controls
In this video, Robert Dressen, Vice President, Economics, Business and Finance, DAI, begins with the importance of credit administration and credit control. He goes on to explain the difference between credit administration and credit control. Robert further talks about the principle functions of credit administration such as Reporting and Record keeping, Monitoring the portfolio and Compliance checking. He also lists the various methods of credit administration and credit control tools which financial institutions must apply to mitigate credit risk.
The Role of Partnerships and Strategic Alliances to Promote Mobile Phone Banking at the Bottom of the Pyramid
This note looks at the role of partnerships and alliances in m-banking, drawing some of the existing examples represented at the MicroSave-CGAP M-banking Dialogue held in 2008. It examines the importance and the different configurations/types of partnerships necessary to bring mass m-banking to the low income market, as well as the options for microfinance institutions. It specifically focuses on opportunities and benefits that may accrue to the small banks and networks of MFIs interested in offering mobile phone banking services as they collaborate and share a mobile banking platform. The note also predicts that third-party mobile phone banking service providers will also continue to play a role for banks as well as small MFIs who would prefer to outsource certain banking functions and turn over much of the technical development and management of an agent network to a third party.
Risk Management Credit Scoring Part 2
In this video series-2, Mark Schreiner, Director, Microfinance Risk Management, talks in detail how credit scoring system works. In rich countries, lenders often rely on credit scoring— formula to predict risk based on the performance of past loans with characteristics similar to current loans—to inform decisions. Can credit scoring do the same for microfinance lenders in poor countries? Does scoring have a place in microfinance? Answering these questions, Mark outlines the importance of MIS in a scoring system. Mark also explains what kind of MFIs should opt for Credit Scoring System.
Risk Management Credit Scoring Part 3
In this video series-3, Mark Schreiner, Director of Microfinance Risk Management, talks about the cost of installing and testing credit scoring system in an organisation. Mark further says that the pilot test runs till the organisation smooths all problems arising in due course and it usually takes about year and half. Later he discusses the future of scoring in microfinance. He says that the future of credit scoring depends on credit bureaus adding that Poverty Scoring will be a part of microfinance in future.