As emerging economies grapple with the need for speed in achieving their financial inclusion objectives, there are various models evolving across countries. In India, while the RBI has moved ahead on differentiated banking by recently releasing draft guidelines on licensing Payments Banks, Deputy Governor H R Khan has noted the intent to keep the payments space also open to non-banks, “With the cloud over Aadhar based unique identity being cleared, the pilots sponsored by the Reserve Bank for remittance related cash-outs using pre-paid instruments are expected to gather momentum and could turn out to be a major initiative in financial inclusion without the necessity of having bank accounts.” With the RBI keeping a balance between innovation and risk, experiences in regulation and industry operations from other countries give interesting learnings for India to choose from. This month’s newsletter has two lead stories to highlight such innovative experiences: a) The changes in Paraguay where new mobile money regulation has some unique provisions e.g. balances on accounts that have been inactive for 90-days or more must be automatically transferred to a savings account at a formal financial institution and b) The experiences of bKash in Bangladesh, a bank subsidiary that has become the fastest growing mobile money service provider in the world last year.
In this blog post Miraya Almazan highlights the main points in the regulatory changes in Paraguay enabling mobile money. Under Resolution 6, mobile operators in Paraguay can become licensed e-money issuers, or Entidades de Medios de Pagos Electrónicos (EMPEs). EMPEs are subject to international best practices that mitigate risk and protect consumer funds e.g. a trust account equal in value to the amount of money issued electronically must be set up, and EMPEs are not allowed to intermediate funds. All transactions must be online, in real-time, and maximum caps are set on mobile money account balances. There are also some very unique provisions that have not been tested elsewhere yet e.g. balances on accounts that have been inactive for 90-days or more must be automatically transferred to a savings account at a formal financial institution. Further, if the mobile money account holder does not already have a bank account, the EMPE must facilitate seamless account opening for that customer at a partner bank. Unlike Brazil, the regulation here mandates account-to-account interoperability, though it leaves open the commercial and technical specifications for the industry to define.
Contrary to all expectations, the fastest growing mobile money service provider in 2013 was not a telco, but a bank subsidiary- bKash in Bangladesh. Further, bKash did not have an existing customer base to which it added mobile financial services, it acquired each client on its own. This CGAP brief puts together the factors behind bKash’s success: 1) A specialized organization built to deliver mobile financial services: Although other banks in Bangladesh offer mobile financial services, BRAC Bank is the only one to set up a special-purpose company for this purpose. This allows the firm to focus on mobile financial services alone, rather than as an adjunct to other bank business. 2) A shared vision for scale among a diverse investor group: The need for scale has driven all strategies, making changes appropriately with experience. 3) An enabling and flexible regulatory environment: Apart from the regulation that allowed banks to set up special-purpose companies for mobile financial services, the bank and telecom regulators have worked together to push all telcos to give access to unstructured supplementary service data (USSD) channel, thus enabling bKash to enter into revenue-sharing agreements with the four largest telcos, gaining access to 98% of the country’s mobile subscribers.
Section I: Policy – the latest from India’s policymakers
The Indicus Centre for Financial Inclusion was launched in 2011 to distil and disseminate information on accelerating the poor’s access to high-quality financial services. The Centre is supported by the Bill & Melinda Gates Foundation. http://www.indicus.net/icfi