NextBillion.net - Development Through Enterprise - General Banking

Interview with CGAP's Mark Pickens: Branchless Banking Sector "Exploding" (Part 2)

Manuel Bueno — Mon, 07 Apr 2008 08:01:41 -0500

Mark Pickens is a Microfinance Analyst with the Consultative Group to Assist the Poor (CGAP), a global resource center for microfinance housed at the World Bank. We published the first part of the interview here on April 4th. CGAP are arguably the most authoritative source of information about branchless banking services and are currently in the forefront of research efforts to understand and develop this market.

Mark has co-authored a global review of regulation for mobile- and other forms of branchless banking, forming an evidence base from more than 500 interviews with central bankers and executives in mobile, banking and technology industries. His work has been quoted in The Economist, The Banker and CNN.com. Prior to joining CGAP, Mark consulted with the UN, US government, commercial banks and specialized microfinance lenders.

In the first part of the interview, Mark elaborated on the most important issues as the branchless banking market evolves in complexity and size, as well as explaining why mobile phone banking is currently one of the hottest issues in the financial services sector.

In this second and final part of the interview, Mark and I explore the possible evolution of the mobile phone banking industry as it grows out of payments and remittances and into other financial services.

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Interview with CGAP's Mark Pickens: Branchless Banking Sector "Exploding"

Manuel Bueno — Fri, 04 Apr 2008 10:07:16 -0500

Mark Pickens is a Microfinance Analyst with the Consultative Group to Assist the Poor (CGAP), a global resource center for microfinance housed at the World Bank. We have quoted CGAP on NextBillion in several posts (see them here, here and here). They are arguably the most authoritative source of information about branchless banking services and are currently in the forefront of research efforts to understand and develop this market.

Mark has co-authored a global review of regulation for mobile and other forms of branchless banking, forming an evidence base from more than 500 interviews with central bankers and executives in the mobile, banking and technology industries. His work has been quoted in The Economist, The Banker and CNN.com. Prior to joining CGAP, Mark consulted with the United Nations, US government, commercial banks and specialized microfinance lenders.

Last Friday, I had the pleasure of interviewing Mark about branchless banking’s recent developments and the most important issues as this market evolves in complexity and size. Mark explains why mobile phone banking is currently one of the hottest sub-topics in the financial services in emerging economies sector.

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Financial Access for the BoP: Recent Advances and Business Models

Manuel Bueno — Tue, 19 Feb 2008 06:08:50 -0500

In "The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid," the authors analyzed several markets. However, only one market - financial services - was not estimated in terms of exact size and scope.

Financial services can be a fiendishly hard thing to measure, but is at the same time a crucial tool to develop markets for BoP customers. In fact, financial markets often help other BoP markets flourish. Data measuring access and efficiency in financial markets are notoriously hard to come across in emerging countries, because most of these markets lie under the cover of informal economies.

A new publication by the World Bank, Finance for All? Policies and Pitfalls in Expanding Access, tries to give an overview of the most recent advances and conclusions about the improvement of access to financial services for the poor. It is a superb report. Superb, but very hard to read. For those who want to avoid the econometrics and statistical analysis, I would suggest reading only the Overview.

The study analyzes how financial access provides opportunities for the poor and for small to medium sized enterprises (SMEs). Since a defining characteristic of BoP markets is their non-integration with global markets and their subjection to higher prices (monetary or not) for most of their goods, building inclusive financial systems means equalizing opportunities between BoP and non-BoP markets.

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IFC and FT Promote Sustainable Banking as 'Good Business'

Abigail Keene-Babcock — Mon, 04 Feb 2008 12:29:10 -0500

Lars Thunell, Executive Vice President and CEO of IFC, a member of the World Bank Group, discussed sustainable banking today with the Middle Eastern banking community. He explained how the integration of social, environmental, and corporate governance objectives into financial institutions' strategy can help them better manage risks and create new investment opportunities.

Thunell spoke at a joint IFC and Financial Times dinner, where banks discussed how they can make sustainability a bigger focus of their operations. Thunell talked about the upcoming 2008 FT Sustainable Banking Awards and encouraged the region’s banks to submit applications.

"More and more Banks are recognizing that sustainability is a way of developing strong brand value and building new business lines," said Thunell. "Banks are differentiating themselves by offering innovative sustainable financial products. These include loans to women entrepreneurs, as well as microfinance or insurance for people without access to financial services."

The FT Sustainable Banking Awards will focus this year on the 'bottom of the economic pyramid', the 4 billion lower-income people worldwide who together represent a $5 trillion market but who, for the most part, have no access to financial services.

Spotlighting "Creative Capitalism:" It Is What You See

Abigail Keene-Babcock — Thu, 24 Jan 2008 08:13:45 -0500

Today, Bill Gates' speech at Davos has thrown the spotlight on "creative capitalism" and an emerging groundswell of interest in market-based solutions and business models that can drive positive social and environmental change. The excitement around these ideas to create self-sustaining, scalable options for development at the bottom of the economic pyramid (BoP) is encouraging, and the potential for a snowball effect of increased action is huge.

Yet all of the grand words and fanfare remind me that what is most riveting - what really seems to capture attention and combat ingrained suspicions (about "development aid" and about "capitalism") - are the actual stories of the models themselves.

So, today I'd like to provide a brief vignette of pieces that NextBillion has posted over the last few years that give direct windows onto how "creative capitalism" works, and what it looks like in action:

Large companies serving the BoP:
Casas Bahia
Codensa
Cemex
ITC's e-Choupal
ICICI Bank
Intel's World Ahead
MicroPlace
Smart Communications
Vodafone's M-PESA

Small entrepreneurs serving the BoP:
DESI Power
Drishtee
Gram Mooligai
Healthstore (SHEF/CFW)
Landwasher
Mi Farmacita
Scojo Foundation
Solar Electric Light Fund
Water Health International

Non-profits using market-based models:
Envirofit
International Development Enterprises (IDE)
Kiva

Patient Capita/Venture Philanthropy:
Acumen Fund
Aavishkaar

Design and Technology for the BoP:
MIT's D-Lab
Mobile Phones
One Laptop Per Child
RIOS Institute

For more organizations, case-studies, and current information related to the BoP space, search our resource library, follow the latest news, and subscribe to our RSS to keep up-to-date on our latest blogs!

Third World First: BoP Markets Reverse Flow of Technological Innovations

Abigail Keene-Babcock — Tue, 22 Jan 2008 11:03:50 -0500

By Jeremy Khan

Bapi Das, seated next to an open sewer in a teeming slum on the outskirts of this Indian city, combs his hand through his hair, smooths his moustache, and prepares to enter the global financial system.

Das, a 42-year-old commercial painter, grins as a worker for a local micro-finance group frames his face with a digital camera and zooms in. It is an important moment. His photo will adorn a smart card that, with help from a mobile phone and a fingerprint reader, will allow Das to store money electronically, make small cash withdrawals, and send money to his family on the other side of the country. It is the first bank account he has ever had.

This might seem like a classic example of the Third World struggling to catch up with the First. After all, people in the United States and Europe have been using ATM cards and the Internet for years to perform the simple banking tasks Das is only now able to do. But look again: The technology used to bring slum-dwellers like Das their first bank accounts is so advanced that it isn't available to even the most tech-savvy Americans - at least not yet.

Soon, however, it may help you purchase groceries, withdraw cash from an ATM, or ride the T. Already in the past year, Citigroup has taken a mobile banking system it pioneered in India and brought it to the United States. And a host of other companies, from Ford to Microsoft, are following suit: piloting new technologies and ways of doing business in the developing world, and only then bringing these products and services to wealthier consumers in more mature markets.

This represents a stunning reversal of the traditional flow of innovation. Until recently, consumers in the Third World also had to tolerate third-rate technology. Africa, India, and Latin America were dumping grounds for antiquated products and services. In a market in which some people still rode camels, a 50-year-old car engine was good enough. Innovation remained the exclusive domain of the developed world. Everyone else got hand-me-downs.

But today, some emerging economies are starting to leapfrog ahead. Why build a network of telephone wires out to remote areas when you can go straight to a cutting-edge mobile network at a fraction of the cost? Why burn fossil fuels for electricity and cooking if cleaner - and in some cases cheaper - alternatives, like solar and biogas, are available? Why electrify rural villages with incandescent bulbs if longer-lasting, environmentally friendly options like LEDs or new fluorescent bulbs exist? In many cases, it is mature markets like the United States and Europe, tethered to older systems, that find themselves playing catch-up.

There are numerous industries in which the new new thing is being designed for the developing world, and only later reaching the United States or Europe. Motorola's Motofone, designed with emerging markets in mind, is thinner than its popular Razr, gets up to 400 hours of standby on a single battery charge, and has a screen specially designed for text messaging that works using reflected light, with no need for an internal lamp. Oh, and it will retail for just $30. Intel has begun field tests of a new wireless broadband standard that could connect billions in the developing world to the Internet cheaply - and, if it works, will probably become the standard for the rest of us. Cheap combination drug therapies that are easier for poorer, less educated patients to follow are pioneered in the developing world before arriving in our medicine cabinets. Improvements in water treatment and clean energy - for instance, producing biogas from household waste - are also emanating from the developing world.

To achieve the growth rates and returns their shareholders demand, companies have increasingly begun chasing what C.K. Prahalad, a business professor at the University of Michigan, has called "the fortune at the bottom of the pyramid" - the vast aggregate purchasing power locked away in the 4 billion people who make up the world's poor. And as they do, companies are confronting the unique challenge of making high-tech products cheaply enough to make a profit. In some cases, this means shifting jobs for talented designers and engineers to the developing world - not just to save labor costs, but in order to better understand the markets they are now trying to reach.

"Developing markets offer the best opportunity for global firms to discover what is likely to be 'next practice,' as contrasted with today's best practice," Prahalad has written. "The low end is a new source of innovation."

Kanta, a stooped, middle-aged woman in the Delhi slum of Harsh Vihar, works part-time helping her children in their shop. What little she earns is mostly spent on food. Any money she manages to save, she hides in her apartment or on her person, where it could easily be lost or stolen. She earns no interest, of course. There are no commercial bank branches or ATMs in Kanta's neighborhood. (Like many Indian women in this area, she uses only one name.) Most banks wouldn't want her business anyway: it would cost them more to service her account than they could make off her small transactions.

Bangladesh Bank Report Finds SMEs Can Curb Poverty

Abigail Keene-Babcock — Wed, 02 Jan 2008 12:07:04 -0500

Higher growth of the Small and Medium Enterprises (SMEs) can help cut poverty to a satisfactory level by eliminating various prejudices against labour intensive and creating jobs for the skilled manpower in the SME sector.

This was revealed in the just released Bangladesh Bank annual report for fiscal 2006-07.

The report said, the key reasons behind the SMEs are not entering into manufacturing are financial constrains, dismal state of utilities, technology and policy discriminations. On the others hand, Bank and others financial institutions generally prefer large enterprise clients because of lower transition costs, and greater availability of collateral.

The SMEs also fall outside the reach of micro finance schemes, and thus compelled to depend on formal sources of funds at much higher interest rates, the Bangladesh Bank report said.

The BB report, however, said that other interrelated problems like shortage of short and long term finance, lack of modern technology and lack of promotional support services are major obstacles in the way of development of the SMEs sector.

Banco Wal-Mart Targets the 'Unbanked'

Abigail Keene-Babcock — Mon, 17 Dec 2007 11:18:28 -0500

Every day 2.5 million people walk through the doors of a Wal-Mart (WMT) store in Mexico, generating nearly $20 billion in sales last year. Now they are potential customers of Banco Wal-Mart, the chain's new lending operation. So are the company's 12,000 Mexican suppliers, as well as its 155,000 employees. "We want to leverage this traffic we have in our stores," says Julio B. Gómez, Banco Wal-Mart's chief executive.

As in the U.S., Wal-Mart is Mexico's largest retail chain. It has 997 locations, including supercenters, food and clothing stores, and restaurants. It has diverted many Mexicans from traditional commerce and stirred occasional opposition from local merchants. But the president of Mexico's central bank, for one, publicly credits Wal-Mart's high-volume, budget-conscious retail strategy with helping tame inflation to the low single digits. Mexican regulators say they expect the newly chartered Banco Wal-Mart to spark competition that eventually could lower the cost of consumer borrowing.

New Finance Development Magazine: Upsides

Manuel Bueno — Mon, 17 Dec 2007 07:17:26 -0500

Last week, while checking out some regular blogs, I bumped into a short note about a magazine called "Upsides" in the CGAP Blog.

Upsides is an FMO (the Netherlands Finance Development Company) initiative, supported by other likeminded financial institutions such as Standard Bank, Plantersbank, Triodos Bank and ShoreBank. As such, the core content of Upsides revolves around finance and development.

Every Upsides issue has, on average, three detailed articles that develop a particular aspect of development finance. These articles are peppered with several case studies that help add flesh to the bone and reflect stories from different perspectives. Additionally there is a section called 20:20 featuring interviews with important actors in the arena.

Initially, I thought that I would read the four already published issues and give an overview here, but soon it became apparent to me that the magazine is just too good to do it the disservice of a mediocre summary. Plus the contents are well thought out and they develop several important well-connected points. Clearly, the authors are experts and they have put much time into their articles.

Instead, I have chosen to give some mouthwatering tidbits of the fourth issue with the hope of stimulating readership from NextBillion visitors. There were three main topics: remittances, the brain drain in emerging economies and branchless banking.

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Interview with C.K. Prahalad: Mircofinance, Banking and Mobile Phones

Abigail Keene-Babcock — Wed, 12 Dec 2007 17:52:08 -0500

The Credit Suisse Thought Leadership Conference 2007, organized by ISP for key clients, took place on November 20 in Zurich under the slogan "Entering the Next Level." One of the speakers was Professor C. K. Prahalad from the University of Michigan, USA. In an interview he talked about microfinance and market potential at the bottom of the income pyramid.

Cornelia Stauffer: Why are you campaigning for the market at the bottom of the income pyramid?

Professor C. K. Prahalad: Until a few years ago, multinational companies primarily focused their efforts on the one billion people who live at the top of the global economic pyramid. The other 80 percent of the world’s population that formed the base of this pyramid were ignored. With my work I want to draw attention to these 4-5 billion people, the majority of whom survive on less than two dollars a day. They have purchasing power and offer large companies the opportunity to engage actively and profitably in the latent market at the bottom of the pyramid.

Credit Suisse has been engaged in microfinance since 2003. What do you think about microloans aimed at low-income customers?

Poverty has three causes: First, poor people do not have the same access to information on markets and prices as rich people. Second, there is a lack of access to products of world-class quality. And third, they do not have access to credit on reasonable terms. So microfinance plays a key role in combating one and may be two of these three problems. Microloans can enable families to improve their livelihoods.

What is your opinion about microcredit for small and medium-sized companies (SMEs) in emerging markets and at the bottom of the pyramid?