Innovative Models to Address Rural Needs: Technology Innovations

1. MicroSaveMarket-led solutions for financial services Innovative Models to Address Rural Needs: Technology Innovations SEEP Annual Meeting 28 October 2004

2. Overview: Technological Innovation • Huge Potential • Concerns in rural areas: Less-dense populations + small transactions + poor infrastructure = higher costs for service delivery • One approach is to build on technology innovations • Mobile banking (Equity Building Society) • Biometric mobile ATM payments (South Africa) • Cell phone banking (South Africa, Kenya)

3. E-banking: The Key to Massive Outreach?

4. E-banking: The Changing Marketplace • Increased competition and the reduced cost of technology are rapidly changing financial markets. • E-banking is likely to be a significant component of the product delivery and customer strategy of the strategic marketing plans of cutting-edge MFIs in the future. • Does e-banking not offer the prospect of substantial, if not massive, progress in banking the poor, provided certain threshold conditions are met? -David Porteous, FinMark Trust

5. The Huge Potential of Technological Innovation See Briefing Note 21 Meeting the Challenge of IT

6. Evolution of Financial Marketplace Successful electronic banking usually builds on existing infrastructure, for example • ATM networks: Dramatic reduction in ATM prices • POS networks • Retailer networks: Degree of formalisation • Large employers: Payment of salaries to banked and unbanked • Government: Degree of connectedness of key government departments • Bank switch mechanisms: Existence and pricing strategy • Telecommunications: Widespread cell-phone coverage

7. E-banking: Technology is NotThe Issue • Technical issues do not appear to be the major constraint in the successful adoption of electronic banking initiatives. • Key Challenges: • Developing and promoting a value proposition to the customer that is high enough to match the flexibility and accessibility of cash. • Vital to design products that offer a balance between competitive pricing, functionality and sufficient access points for basic transactions like deposits and withdrawals of cash.

8. E-Banking – Value Added • Any e-banking solution should seek first to add value to the customer. • Value additions could include • increasing access to funds • making deposits and funds transfer easier • increasing portability of money

9. Innovations in Technology and Delivery Channels

10. Brief History • Began operations in 1983 • Offers a broad range of microfinance services under building societies act • Faced with near bankruptcy in 1992 – led to innovation • Although EBS has been in existence for over 20 years, it can only claim to have been market led for the last 4 years only • EBS has evolved through four phases: • Product led (1984 - 1993) • Sales led (1994 - 1997) • Social Marketing (1997-1999) • Market led (2001 to date)

11. Market-Led • Equity focused on the clients needs and demands to provide financial products and services that address the specific needs of our target market, distributing and promoting them in a manner that suit customer’s situation.

12. 1986 – 1993 – Product 1994 – 1996 - Selling1997 – 1999 - Marketing2000 – 2004 – Market Led Sept 04

13. 1986 – 1993 – Product 1994 – 1996 - Selling 1997 – 1999 – Marketing 2000 – 2004 – Market Led Expected 2004 Profit before tax 180.0 million

14. Current institutional performance (Sept. 2004) • 378,000 savings accounts (valued at Kshs. 4.8 billion, approx. US$ 6 million) • 75,818 loan accounts (valued at Kshs. 2.8 billion, approx. US$ 3.5 million) • Expected annual growth: • Deposits by 50% • Number of customers by 40%

15. Equity’s Mobile Banking Unit • Equity is focused on providing access to banking services to poor customers • Equity serves customers that live and work in remote rural areas, who want services closer • Implemented a system of mobile banks to serve these remote areas • Two objectives: • Improve access to their services for rural customers • Marketing/PR in areas dominated by SACCOs (many poorly performing)

16. How It Works (1) • Mobile banking offered in 30-40 km. radius of current branches • Each branch serves 5-6 mobile centres • Toyota Landcruisers designed as complete banking units: • Bullet-proof panels • Car tracking devices • Solar power/car battery for laptop • Windows for deposits, withdrawls and other transactions • VHF/GSM communications facility • Cash safe • Staff and armed security personnel

17. How It Works (2) • Branch database loaded onto laptop in the morning • Vehicle visits mobile banking centres 1-2 times a week and offers full range of banking services (deposits, withdrawals, statements, financial advice) • Linked by real-time, two-way VHS/GSM communications - Motorola radios and GSM/GPRS 1800/900 modems • At day-end vehicle returns to branch and immediately uploads transactions to central database • Clients expressed desire for privacy so most units now rent simple structure for processing client transactions

18. Implications for Clients • Higher frequency of contact with Equity • More savings • Kenya Tea Development Authority payments made by mobile units • Minimum balance Kshs. 400 (US$ 5) • Charge for service: Kshs. 50/month (US$ .63) • If mobile unit not linked by real-time then account blocked for the day at branch office

19. Implications for Equity Performance as of September 2004 • 34 mobile centres • Serving 23,055 clients • Total deposits approx. US$ 1.1 million • Contributing approx. US$ 116,250 • Average transaction time = 3 minutes • Project jointly funded for GBP 450,150 • Equity contributed GBP 172,000

20. Implications for Other Institutions • Security risks • This cannot be underestimated • Most agricultural MFIs in Malawi discontinued due to deterioration of security and poor law enforcement • Higher potential for fraud by officers • Costs of operations may be too high • Equity has managed costs to keep mobile unit affordable, not always the case • Estimates profits of Kshs. 9.3 million of its 190 million will come from mobile banking

21. Other Innovations • Biometric mobile ATM payments (South Africa) • Used to issue pension payments • Travels to rural clients on a regular circuit to provide ATM-based services • Cell phone banking • Vodaphone + FAULU Kenya, pilot test • www.fundamo.com, South Africa • Concept: add savings via SIM (scratch and load). Send SMS with PIN to deposit to account. Repay loans with SIM. Follow-up by Loan Officers easier – send SMS, or call

22. MicroSaveMarket-led solutions for financial services Shelter Afrique Building, Mamlaka Road, P.O. Box 76436, Nairobi, Kenya Tel: 254 (0)20 2724801/2724806/2726397 Fax: 254 (0)20 2720133 Email: info@MicroSave.org Website: http://www.MicroSave.org