European Microfinance Week 2015

PRESENTATIONS

Philippe BREUL introduced the speakers and the topic of Digital Financial Services (DFS) by showing what we have learned so far in digital field application, agency banking and mobile banking based on well documented cases: 1) Musoni Kenya plummeting loan turnaround time from 72 to 6 hours; 2) Indian MFI Ujjivan increasing loan officers’ caseloads by 134 percent; and 3) Opportunity Bank Serbia, providing instant credit decisions in response to 80 percent of loan applications. For clients, it leads to lower barriers and faster loan disbursement, while institutions benefit from increased revenue from enhanced loan officer, field-staff and back-office efficiency, and they save costs by eliminating physical files, reducing fraud and improving client service. 

Fatoumata CAMARA presented the case of the Tanzania Postal Bank (TPB). The bank, together with WSBI and the Bill and Melinda Gates Foundation had the goal to “double the number of savings accounts” in the period 2008-2015 and chose a mobile banking platform to serve excluded and poor customers. In order to reach this goal, TPB used a segmented approach targeting VICOBA (Village Community Banks) apexes, VSLAs (Village Savings and Loan Associations) and Youth sports clubs. Each segment was served with specific, tailored products to ensure user convenience, accessibility and affordability. Camara then highlighted the business model for VSLAs and VICOBA. Members are able to access their member account through multiple channels, including digital financial services such as Airtel Money, Tigo Pesa and M-Pesa. Their member accounts are, at the same time, directly related to the VSLA/VICOBA deposit account. The approach of the bank resulted in 47 percent higher profit, asset growth of 48 percent, an increase in savings deposits of 41 percent and an increase in lending of 59 percent with a non-performing loan ratio of 3.2 percent.

Breul asked the audience to react to the presentation. Based on a question on whether TPB or WSBI brought in the technical knowledge, Camara replied that WSBI was involved in the technical assistance. On a question on how the new technical infrastructure influences the partnership between VICOBAs and their members, she mentioned that VICOBAs will keep their members and meeting infrastructure. However, TPB provides them with digital structures to facilitate payments and loan repayments.

The session continued with Bram PETERS presenting the DFS of FINCA Tanzania. He showed a video to set the stage and show the opportunities that their services can provide. Peters explained how FINCA rolled out its DFS until 2015 with mobile payments and agency banking services. He further explained that these DFS have led to a reduction in costs for FINCA as agency banking lowers funding costs funding by mobilising deposits, while mobile banking reduces operational costs. Moreover, DFS have led to an increased customer experience in the markets where FINCA operates by increasing outreach through deeper penetration and a denser coverage. Peters compared FINCA’s model with the business case of MNOs which looked to protect their existing business and increase revenue through transaction fees. MNOs often look for additional revenue streams, for example by charging fees for transactions. However, Peters stressed that, as a bank or MFI, you should look at the total costs benefits of an agency or mobile payments model, which is significantly cheaper compared to a full banking branch.

The main lessons highlighted by Peters were that the head office should ensure business ownership of the delivery channel right from the start. Next, MFIs and banks have to start with the learning process and should have the basics right before scaling up in order to keep the digital channel under control. Lastly, introducing DFS will change the traditional group lending model. MFIs have to be ready to change their interaction with customers. 

DISCUSSION

When Breul gave the floor to the audience, one participant asked what the most important lesson was regarding the scaling up of the agents model. Peters stressed the importance of liquidity management. This is monitored in real-time using a simple Excel-based tool. Another question revolved around one of the lessons learned in his presentation: do not adapt the channel to existing products and procedures but develop products, procedures and the channel in tandem. Peters emphasized that banks should not stop offering old products, using the example of the group lending model. After introducing the new services, group meetings were no longer necessary to make payments. New group-lending models had to be introduced that still provided value to group meetings as an internal control system.

The last case was provided by Andrew TUSHABE of UOB (Rwanda) who presented their mHose mobile banking service. The service aims to remove cash handling to improve efficiency and staff safety, increase operational efficiency, and improved but branchless customer access to services. UOB offers customers bank accounts with a wide array of services, such as credit, savings and life insurance. UOB currently has 57,000 mobile banking customers (of which 12,400 active users), 214 agents and an operational presence throughout Rwanda. The challenges related to the new DFS were linked to technical literacy, coverage and quality of the service, agent availability and liquidity, and the management of loan groups. Possible solutions to tackle some of these issues are the introduction of overdrafts for agents, direct debit of loan repayments from customer accounts and linking with Mobile Money Transfers (Tigo Cash, MTN Mobile Money). 

Tushabe concluded by highlighting solutions implemented to improve loan repayments. Firstly, he mentioned that groups have to function properly by having consistent group meetings, timely information on arrears and group repayment reminders with immediate follow-up. Secondly, you have to improve the customer experience by supporting customers to use mHose and ensure a high level of service from agents. Finally, you have to define roles and responsibilities of the staff involved, for example by sharing KPIs with sales managers and refine customer and agent registration and activation procedures.

A member of the audience asked for further explanation on the relationship between Tigo and the UOB. Tushabe replied that UOB is responsible for bank-related activities while Tigo leads the promotion of the product. Another question from the audience related to the charges on digital transactions. Peters provided the example of Vodacom which raised their transaction fees from m-Pesa to FINCA. As a result, transactions plummeted. He repeated that indirect costs of offices should be taken into consideration before starting to charge higher fees. Mobile transaction costs will overall be cheaper than a transaction in a branch.