Moving beyond remittances

Posted on October 29, 2014 by Sumita Kale

While Kenya's MPesa has been lauded for its role in bringing the poor and unbanked into the digital payments sphere, in Tanzania now the poor are saving through mobile banking with a differenceA recent article in Bloomberg explains how Tanzanians are linking banks to the poor, through a telco-led model.

Introduced in May by carrier Vodacom Group Ltd(VOD), M-Pawa is effectively a bank account that Adam can access with his phoneHe deposits cash and earns about 5 percent interest on any balance he carriesAnd he can build up a credit history that someday might help him secure a loan.M-Pawa offers an alternative for customers without a formal source of income, who are typically shunned by banks, according to VodacomTanzania Managing Director Rene MezaOpening an M-Pawa account requires only an M-Pesa account, a phone and an identity card, while banks demand pay stubs or some other proof of salary.

"Tanzania has leapfrogged the need for credit cards and debit cards, said Diego Gutierrez, general manager of Tigo Tanzania"Mobile financial services are becoming an essential part of people’s livesIt’s a mainstream product.

With the increasing competition, phones are used for about half of all cash transfers for bill payment in Tanzania, versus none six years ago, according to the GSM Association, a trade group of mobile carriersAbout 17 percent of Tanzanians bank with a formal financial institution, the country’s central bank says, while more than a third of households have one or more mobile money users, GSMA estimates.

Putting the telcos at the front of the chain clearly gives good dividends to banks as well!

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New legislation in Colombia marks the shift from the bank-led model

Posted on October 29, 2014 by Sumita Kale

Colombia is the latest entrant in expanding the inclusion space by specifically allowing non-banks to operateIn an interview to GSMA, Felipe Lega, the Deputy Director of Market Integrity at the Colombian Financial Regulation Agency explains why the country chose to make the shift from the bank-led model and what they hope to achieve now.  

The following excerpt from the interview can give valuable lessons to India, where banks are still being given targets for inclusion and urged to look into new business models:

GSMAWhat is the main innovation introduced by the Financial Inclusion Bill in the area of digital financial services?

Felipe Lega: The Financial Inclusion Bill, which was approved by the Congress a few weeks ago and is now awaiting the President’s enactment, creates a new financial licence to allow new players, including non-banks such as mobile operators, to enter the low-cost electronic deposits market, with the aim to expand financial access and increase the use of digital financial services in the country.

GSMA: What is the rationale for Colombia to make the shift from a conservative approach that allowed only banks to provide digital financial services to the vision held in the new Law?

Felipe Lega: Colombia used to have a financial framework that reflected a bank-led financial inclusion policyIn fact, the Colombian legal framework has been offering a full range of rules facilitating the offering of low-cost products such as electronic deposits and other kinds of simplified accounts for many yearsSome banks have been taking advantage of these regulations and have been offering those productsNevertheless, evidence has shown that the success of these initiatives has been limited to the public social programs of welfare transfers.

These programs have been critical for expanding the financial access levels of low-income population, however according to the analysis of the URF the transaction levels of these products are lowTherefore, the challenge for policymakers in fostering financial inclusion is to increase transactional activityFor instance, customers are using financial products only to receive money that they immediately withdrawMobile banking has worked as a means for welfare transfers, but this has not matched our expectations to become a driver for more efficient usage of formal financial servicesThis is one of the factors that did not work out in the bank-led model as we had anticipated.

When we started developing our financial inclusion national strategy, we understood that  increased geographical coverage (something we have been relatively successful at within Colombia through mobile banking and banking agents) and digitalisation of welfare transfers through banks were not enough to unleash the benefits of financial inclusion if the users kept relying on cash, and therefore that increasing usage was our major priority.

With the banks, we achieved important levels of geographic coverage using agentsNevertheless, the majority of their points of sale are concentrated in urban areasIn the smaller municipalities, the transaction levels are still below our target.

When we researched international examples, we found that other countries had greatly benefited from the participation of non-bank mobile money providers in the market, an approach supported by regulatory frameworks that are similar to our new Bill and had proved successful in increasing outreach, lowering the costs of financial services and creating more convenience for the customersFor instance we realised that mobile operators have been able to successfully leverage the ubiquity of their pre-existing networks and their experience in managing thousands of retail agentsIn addition, the postal service has an extensive distribution network that is widely used in Colombia for domestic remittances.

The body of evidence that we gathered supported the idea that the bank-led model was not completely successful in increasing transactions, and that other players (all of whom have shown interest in using the new licence) had great potential in helping Colombia to achieve financial inclusionThese considerations were critical to establish the rationale that is behind the new BillLuckily, the legislators understood the need for increased competition through the creation of a new window to allow qualified non-banks to be granted a license as Sociedades Especializadas en Depósitos y Pagos Electrónicos (Companies Specialized in Electronic Deposits and Payments).


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