This article was written by: Ruhullah Raihan Alhusain
As per cGAP; World Bank research shows that an estimated 2 billion working-adults globally—more than half of the total adult populations—are still un-banked and have no access to the types of formal financial services delivered by regulated financial institutions that wealthier people rely on. So what do they do? Instead they depend on informal mechanisms for saving and protecting themselves against risk. They buy livestock as a form of savings, they pawn jewelry, and they turn to the moneylender for credit. These mechanisms are risky and often expensive.
So what is financial inclusion?
It is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable.
Financial Inclusion means, including the Un-banked to your Banking system. The kind of service you offer to your banking customers, same service should be available through your MFS endeavor though Financial Inclusion. This means first of all; a Banking Account, in this case an MFS wallet. Second, Transaction through this wallet, Cash in , Cash out, send money etc.
Financial Inclusion means that customers will be able to use the fund they are holding in their wallet for Saving, Interest, Opening different Financial Products, Deposit scheme etc, which is still missing in Bangladesh Market.
Financial Inclusion means that customers will be able to apply for Micro Credit, Loan etc using the Financial History that they may have created with the MFS providers. They’ll be able to apply for loan, get approved and receive the loan in their wallet. They will also be able to pay for the loan using their wallet This is still missing in Bangladesh.
Financial Inclusion means, customers will be using their own wallet instead of retailer wallet to pay bills, pay merchants etc.
Now if we look at Kenya, Uganada and Tanzania, all these are somewhat available in there. Now let’s discuss how they are managing their distribution network or if they are actually ensuring Financial Inclusion.
Let’s start with Kenya. We all know the success story of Kenyan Mobile Financial Service .The story of how Kenya became the leading mobile financial player has been told many times. To date, M-PESA has transferred over Sh Kshs4.18 trillion, or the equivalent of 40% of Kenya GDP. Now does this mean actual Financial Inclusion took place in every single corner of the country? As per the Agent Accreditation Survey done by the Helix Institute of Digital Finance, in 2013more than 91% agents used Banks to rebalancing their wallet and in 2014 it was 88%. The Banks are located nearby, mostly in urban areas, 30 minutes or less travel distance for 95% of the agents. Now does this mean Kenya’s claim for Financial Inclusion to the remotest corner of the country is wrong? Let’s discuss both sides of the coins.
I have recently read one of the interviews of Safaricom’s chief on the true measure of M-Pesa’s – and Safaricom’s – big success is how they have transformed lives in Barsoloi, a small town in northern Kenya about seven hours away by road from the town. He has explained how Safaricom and M-Pesa unlocked the potential of the people living in that remotest corner of the country. Truly inspirational story! He has explained why he would like to attribute much of M-PESA’s successes to the inherent nature of Kenyans, which is to provide for relatives who live in rural areas by sending them money. This means people living in urban areas are cashing in and sending money to their relatives living in the rural areas. It may sound pretty simple; however it all depends on a really sound distribution structure and people who are managing it. Now as per one of the articles published in the economists; Jake Kendall and Ignacio Mas of the Bill & Melinda Gates Foundation, and Frederik Eijkman of PEP Intermedius, a financial-services firm, explained how it all works in a paper presented in late May 2015. They have mentioned that M-Pesa is using 100,000 small retailers in Kenya who are already selling airtime. They really face trouble balancing their e-wallet points and cash. The bank branches and other options are not enough for them to rebalancing their points. Agents in cities, where most transactions are deposits accumulate cash and risk running out of e-float, at which point they cannot take any more deposits. Agents in rural areas, where most transactions are withdrawals, accumulate e-float and risk running out of cash. Keeping the system running requires the agents to manage their liquidity, by regularly swapping cash for e-float, or vice versa. Exchanging cash for e-float means visiting a bank affiliated with Safaricom, and the whole point of systems like M-PESA is to reach where banks cannot. Accordingly, M-PESA relies on a system of intermediaries (including Mr Eijkman’s firm, PEP Intermedius) between agents and banks. These middlemen have their own distribution networks, and take on much of the work of ferrying cash around the country. But individual agents still handle the “last mile”. Very innovative but risky solution!
Let’s discuss the story with Tanzania. As per the study done by Helix, they have found that same as Kenya; agents in Tanzania and Uganda are also facing the same Liquidity challenges. As a result they are living in the proximity of the branches. Now what will be the solution?
In my understanding they should do the following:
Start a complete distributor led channel system. Where they will deploy field service executive who’ll be in charge of rebalancing points from retailers and managed by the distributors or super agents.
They need to find the gap between rural and urban agent availability. Need to manage customer/agent ratio in order to ensure seamless delivery of service.
They need to use USSD technology, push SMS function that we have deployed in Bangladesh. These functions allow our field service executive to pull data from our server in regards to e-wallet balance of the retailers of a particular area.
They need to start/ enhance other product/ services such as collection product where they’ll have enough Cash in/ Cash Out/ Balancing transactions @ agent end so that they won’t run out of fund or e-wallet balance.
Finally, converting actual wallet to virtual- ewallet and also introducing a super-agent/ distributor led channel system could be the key to their success in future. If we look at Bangladesh case as well, DBBL model was the same as Africa. And bKash model was distributor led as mentioned earlier. Now what I have seen in the market, bkash model is successful in terms of volume of transaction and their agents seldom face liquidity crisis because the demand of the product is high and bKash has a sound distribution model which has indeed forced DBBL to follow them. However, does this mean bKash was able to ensure financial inclusion? Well that’s a different scenario which I may explain later. Hence stay tuned for the next part of the series discussing the updates from Bangladesh Mobile Financial Service endeavors!
About the author:
Mr. Ruhullah Raihan Alhusaina is a dynamic Leader, Author & Pioneer in FinTech & Digital Business. He has successfully launched and led Financial Operations Function for the Country’s first ever Mobile Payment Service in Bangladesh, BillPay with Grameenphone Ltd. And, he is currently leading the Mobile Money Operations Service of airtel Bangladesh. He is the winner of Mobile Money Global Award 2014, shortlisted nominee for the Best Payment Deployment (Asia), and won the Retail Innovation Awards 2015.