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Emerging Lessons of
FOCUS NOTE Public Funders in
Branchless Banking
T he potential of branchless banking services to
fundamentally transform the way low-income
people manage their money has generated
branchless banking. The paper assumes basic
familiarity with branchless banking as well as good
practice guidelines for funders in financial inclusion.
tremendous enthusiasm in the financial inclusion Additional resources are available in Annex A.
world. This paper highlights emerging lessons
from the public funders that have been engaged Introduction
in branchless banking. The goal is to help other
funders consider the role they might play in this After several decades of microcredit, more than
area. Branchless banking offers the potential to 190 million people today have microloans,2 yet a
fundamentally transform the way low-income clients further 2.7 billion people still lack access to formal
can access financial services and to help them move financial services (CGAP and World Bank 2010).
forward to full financial inclusion. Technology (such Branchless banking offers new business models
as mobile phones) and nonbank retail agents can and delivery channels that can dramatically reduce
dramatically reduce transaction costs and facilitate transaction costs. The most striking example of this
the delivery of financial services outside of bank can be seen in Kenya, where M-PESA is not only
branches, thereby bridging the gap to reach lower used by more than half of the adult population
income groups. but is also increasingly reaching down market; it is
currently used by the majority of poor (51 percent)
Public funders1 can play several roles in branchless and rural (59 percent) households.3 Moreover, now
banking, namely to (1) advise policy makers, (2) that M-PESA has such a high customer penetration
invest in public goods, (3) support branchless and ubiquitous agent network, customers are using
banking providers through technical assistance, it to access a wide range of financial products, such
and (4) fund operations. Funders should carefully as savings, insurance, and loans.4
consider which roles they wish to play in which
markets, based on their internal capacity and the Increasingly, branchless banking implementations
stage of branchless banking and availability of seeking to replicate M-PESA’s success are gaining
private funding in a given market. In addition, each traction. CGAP estimates there are 50 branchless
funder brings a unique set of instruments that it banking implementations with active users and 22
can use—such as grants, debt, equity, technical with more than 1 million registered customers. 5
assistance, and advocacy—as well as its own There is increasing evidence that branchless banking
relationships and experiences in the market. Before services are reaching the unbanked. A recent CGAP
embarking on support to branchless banking, Focus Note found that 37 percent of customers
No. 72 funders should carefully reflect on the additive role (or an average of 1.4 million people each) across
July 2011
they can play and be willing to commit to building eight branchless banking implementations were
sustainable services over the long term. previously unbanked (McKay and Pickens 2010).
Meritxell Martinez
and Claudia McKay
This paper will be most relevant for funders The potential is increasingly clear, and public
that have a solid track record in microfinance funders are eager to use their resources to help
and financial inclusion and are now considering fulfill this potential in more and more countries.
1 Public funders are defined as publicly funded donors (bilaterals and multilaterals) as well as development finance institutions. This paper is
aimed at public funders as well as private foundations.
2 Microcredit Summit Campaign, http://www.microcreditsummit.org/news/record_128_million_of_worlds_poorest_received_a_micro-loan_
in_2009/
3 See http://financialaccess.org/node/3593 and Jack and Suri (2010).
4 Eighty-one percent of M-PESA customers report using it for savings. For more information, see McKay and Pickens (2010).
5 See CGAP blog post at http://technology.cgap.org/2011/05/11/the-state-of-the-branchless-banking-sector/
2
Indeed, public funders have played a catalytic role substantial private funding, extend outreach to the
to date. M-PESA was started with the support of unbanked, and create public goods that the private
a GBP 1 million grant from the UK Department sector would not otherwise support.
for International Development (DFID). The CGAP
Technology Program 6 used grant funding to Challenges
seed other branchless banking implementations
beginning in 2005, when the branchless banking Despite the potential benefits that public funding
concept was still nascent. could bring to branchless banking, however,
funders should keep two points in mind before
However, public funders are often unclear about deciding to enter this growing market.
their role in branchless banking. With significant
momentum in branchless banking, including First, because funding for basic branchless
considerable private money, 7 what meaningful banking operations is available through private
role can public funders play without crowding out investment, funding is not a primary obstacle to
private investment? The key players in branchless growth. Instead, the limiting factors in this area
banking are multinational mobile network operators are challenges such as regulatory obstacles, low
(MNOs), commercial banks, and, to a lesser extent, customer uptake, limited agent networks, and
technology companies. For public funders to play uncertain business cases. Public funders need to
a role in the development of branchless banking, strategically use their knowledge, relationships,
should they give money to these institutions and money to tackle these challenges. This
despite their lack of an explicit social mission? strategic process requires more creativity and
technical expertise than, for example, funding loan
Public funders can play an important and additive portfolios to help microfinance institutions (MFIs)
role in developing branchless banking services in go to scale. Second, as a result of these challenges,
several ways, namely by doing the following: not all funders will have the capacity to engage
in this sector in a meaningful way. Only funders
• Extracting knowledge and learning that will with both a long-term commitment to developing
benefit the entire industry. This can be done at sustainable branchless banking services and the
both a macro level (investing in public goods to ability to develop strong internal capacity should
understand issues such as customer adoption and become involved.
regulatory obstacles) as well as at a provider level
(extracting learning from specific implementations Role of Funders
that can be shared widely).
• Influencing the industry and specific A funder’s role in a given market depends on
implementations to develop products and both the funder experience and tools available in
services that are relevant for the low-income the market as well as the stage of the branchless
unbanked segment. banking industry. Each market varies due to
• Kick-starting development, especially in smaller differing regulatory environments, market
or post-conflict countries where providers struggle structure, and other factors. Even within a region,
to obtain the capital and buy-in to make major there is considerable variation. Looking at West
investments. Africa, for example, in Côte d’Ivoire, both major
MNOs—Orange and MTN—launched mobile
If structured appropriately, public funding of money services in 2009. They invested heavily
private organizations has the potential to leverage in marketing; as a result, customer awareness
6 CGAP is not a public funder. However, the Technology Program at CGAP has given grants to branchless banking implementations, and
these experiences are reflected in this note. The Technology Program works to expand financial services for the poor using mobile phones
and other technologies and is co-funded by the Bill & Melinda Gates Foundation, CGAP, and DFID.
7 Private investors have provided about 80 percent of the estimated $400 million in debt/equity investments that have been made in
branchless banking. See blog post at http://technology.cgap.org/2011/04/20/commercial-investment-landscape-in-mobile-financial-services-
and-branchless-banking/.
3
of mobile money is high. In contrast, in Nigeria, to use new delivery channels to reach rural and
the largest market in West Africa, all activity was low-income households. They can help improve
at a standstill while regulators decided on their agent networks to reach further down market. This
approach. Finally, in December 2010, regulators involves a combination of advocacy and technical
gave 16 companies provisional licenses for assistance.
branchless banking concurrently.8 As a result, the
race is on to launch branchless banking while in Figure 1 shows a range of roles that funders can play in
other countries in the same neighborhood—such each of four areas depending on the stage of industry
as Gabon and Togo—no players have yet emerged. maturity.
Consequently, the role of funders will be completely Funders have the potential to contribute by doing
different in a country, such as Togo, where the the following:
sector is yet to emerge, than in a country, such
as Côte d’Ivoire, with active implementations. • Advising policy makers
For funders, engaging in frontier markets, such • Investing in public goods such as knowledge
as Togo, is a clearer process. For example, in new creation
or nascent markets, funders can focus on creating • Providing technical assistance
a conducive regulatory environment for new • Directly funding branchless banking operations
entrants or on funding market research studies to
help potential mobile money providers understand Advise Policy Makers
the market scope. In countries with more mature
branchless banking systems, funders have to rely As only a handful of countries have branchless
more on their influence than on their money. banking or electronic money (e-money) regulations,
Funders with technical expertise in branchless regulatory issues remain unanswered in many
banking can influence governments and businesses countries, and regulators have many legitimate
Figure 1: Potential roles of public funders in branchless banking
INDUSTRY &
COUNTRY LEVEL Policy Diagnos c
Reviews
ADVISE Influence
POLICY MAKERS Convene and educate regulators on G2P
appropriate regula ons
Country
Feasibility
INVEST IN Assessment
PUBLIC GOODS
Support knowledge crea on that will impact the en re
industry as a public good
PROVIDER LEVEL
Provide technical assistance to specific deployments,
PROVIDE especially to accompany direct funding
EXPERTISE AND Support
TECHNICAL MFIs to
ASSISTANCE Grants leverage
BB
FUND BB
OPERATIONS Debt and/or services
Equity Investments
Nothing Emerging Growing Mature
Stage of Industry
8 For more information, see http://mbanking.blogspot.com/2011/01/mobile-banking-revolution-nigerian.html.
4
banking cuts across several different regulatory
Box 1: USAID’S Role in Influencing the domains.9 In 2007, DFID funded CGAP to conduct
Government of Colombia
diagnostic reviews of the regulatory environment
The U.S. Agency for International Development in seven countries. 10 This led to several longer
(USAID) has been involved in branchless banking
engagements and new or revised regulations in
since 2004, when its country missions saw the
potential of branchless banking in their markets. several countries.
One of the agency’s key focus areas is advising
policy makers. Funders can also help central banks determine their
In Colombia, USAID was working to promote policy and approach for regulating and supervising
sustainable financial access in rural isolated branchless banking. Eventually, every country with
communities when it learned about the tremendous branchless banking will need a comprehensive
success of branchless banking in Brazil. Due to
regulatory framework that covers important
the history of direct government involvement
in financial services in Colombia (e.g., directed issues, such as the treatment of agents, e-money,
credit), USAID wanted to support the sustainable and know-your-customer (KYC) requirements.
development of the Colombian branchless However, many funders and regulators believe
banking sector, with private providers taking the
that they need to spend a lot of time and money
lead on service delivery. With this in mind, USAID
worked as a broker between public and private developing a comprehensive framework before
entities to develop a shared vision between the any branchless banking service can begin. This
two and ensure regulators fully understood this step is not always necessary; in fact, it may be a
new approach. It also sent Colombian regulators
to Brazil so they could learn first-hand about misstep if it leads to a regulatory framework that
branchless banking. Subsequently, USAID is brought in from a different country and does
experts supported the development of a sound not follow the local market dynamics. A different
regulatory framework for branchless banking.
approach is to “test and see”—permitting some
They also helped the newly established Banca
de las Oportunidades—a public sector institution branchless banking services to start on an ad hoc
that came close to directly delivering branchless basis, conditional on specific measures to mitigate
banking services—promote private sector-led identified risks. 11 Regulators can then observe
branchless banking by proactively disseminating
how the market develops and will be better
information and by providing temporary incentives
for private banks to reach rural and underserved positioned to issue more detailed, customized,
areas. and effective regulation. This is how branchless
banking regulations developed in the Philippines.
The Filipino regulators expressly stated that they
questions and concerns on practices that seem aimed to “follow the market.” Regulators approved
risky, such as using retail shops to conduct the first two branchless banking services, GCash
banking transactions. As a result, funders can play and Smart Money, on an ad hoc basis. After four
an important role by advising policy makers in years of observing the market’s development, the
developing appropriate regulations, by convening central bank issued e-money regulations in 2009
peer groups for learning and exchange, and that were carefully tailored to the Filipino market.
by encouraging the use of branchless banking
channels for government payments. Many funders have substantial convening power.
Perhaps their greatest contribution in this area is to
In the early stages of branchless banking in help inform and train regulators, other government
a country, a good first step is to conduct a officials, and in-country influential organizations,
diagnostic review of regulations and identify the such as other funders and embassies. In Colombia,
main regulatory gaps. Central banks are not always USAID educated regulators through visits to
well placed to do this diagnostic since branchless Brazil and technical assistance (see Box 1). These
9 For a comprehensive diagnostic tool applicable to all branchless banking regulatory domains, see CGAP’s Branchless Banking Diagnostic
Template (available in English, Spanish, and French) at http://www.cgap.org/p/site/c/template.rc/1.11.1772/1.26.12702/.
10 These and CGAP’s most recent country diagnostics can be found at http://www.cgap.org/p/site/c/template.rc/1.11.1772/.
11 See CGAP blog post at http://technology.cgap.org/2010/02/09/branchless-banking-the-test-and-see-approach/.
5
influential organizations should understand banking has been widespread for almost a decade,
the advantages of branchless banking and give nearly all G2P payments are made through agents;
consistent messages on critical issues, such as people are even paying taxes through agents.
allowing nonbank retailers to act as agents,
implementing proportional KYC regulation for Just as funders that wish to influence regulation
agent-level transactions, and addressing the should have prior relationships and experience
important role of nonbanks. 12 Workshops and in the regulatory arena, funders that are already
exchange visits with the right level and mix of financing G2P payments will be best placed to
attendees can also help educate and dispel some influence how these payments are delivered.
of the concerns about branchless banking risks. Often, a consortium of donors will fund social
For instance, DFID played an important role early transfer payments; this consortium may be able
on in sponsoring regulators from around the world to influence the delivery channel. In Fiji, for
to learn from policy experts and exchange ideas instance, the United Nations Capital Development
through the Windsor Leadership Seminars. The Fund (UNCDF) has been able to influence the
Alliance for Financial Inclusion (AFI) 13 organizes Department of Social Welfare to gradually
policy forums and exchange visits. Also, funders transition social payments from cash to branchless
that have influence over international standard banking. So far, more than 17,000 people receive
setting bodies and initiatives (such as the Financial payments through no-fee transaction bank
Action Task Force [FATF] and the G-20) should accounts accessible via 700 point-of-sale (POS)
advocate and educate these institutions on devices and 36 automatic teller machines (ATMs)
appropriate enabling environment issues. throughout the country.15 Incidentally, the same
benefits apply to branchless banking channels
Channeling large volumes of payments through used for payments by donors or nongovernmental
branchless banking channels can help these organizations (NGOs). Donors and NGOs should
services gain traction. Hence, in addition to policy consider which of their payments can be channeled
and regulatory assistance, funders can help catalyze through branchless banking.
branchless banking by influencing governments to
leverage their payment flows through branchless Emerging Lessons for
banking channels. This is usually easier once a Advising Policy Makers
basic branchless banking service is up and running.
Governments make government-to-person (G2P) • Support policy makers in creating an enabling
payments—such as salaries or social transfer environment for branchless banking, especially
payments—to more than 170 million poor people through the “Test and See” approach. Encouraging
worldwide, but just a fraction of these are paid regulators to permit branchless banking services
through branchless banking channels. More money on a provisional basis, accompanied by rigorous
in the system means that providers and agents can monitoring and evaluation, can lead to regulation
rely on steady payment flows. It can encourage that is custom-tailored to market conditions.
customers to register for and to learn how to use • Encourage governments to channel payments
the service. In many countries, the branchless electronically. G2P payments made through
banking account is linked to a bank account, and branchless banking channels are more efficient
customers gain access to a financially inclusive and less expensive for the government, help
bank account. In addition, electronic delivery support the development of branchless banking
of payments can help the government cut costs infrastructure, and bring beneficiaries into the
and reduce leakage.14 In Brazil, where branchless financial system.
12 A number of CGAP publications cover this area in great detail. For a primer, see Lyman, Pickens, and Porteous (2008).
13 Learn more about AFI at http://afi-global.net. AFI is administered by GIZ and funded by the Bill & Melinda Gates Foundation.
14 See Pickens, Porteous, and Rotman (2009).
15 For more information, see CGAP blog post at http://technology.cgap.org/2011/06/02/g2p-starts-with-government-to-the-poorest-in-
fiji/#more-4620.
6
Invest in Public Goods well as operational research that may be more
useful to a particular player or market (e.g.,
Many branchless banking implementations are what is the state of play of branchless banking
struggling with obstacles such as low customer in a given country?). Both types of research are
uptake and usage, small and poorly managed agent important. For example, country feasibility studies
networks, and uncertainty around the business are important for countries without branchless
case. Funders are well placed to contribute to banking services. USAID has funded feasibility
knowledge creation that tackles these common assessments in El Salvador, Ethiopia, Mexico, and
challenges and disseminates lessons learned in the Nigeria to assess the viability of introducing or
industry. supporting branchless banking. These publicly
available studies are applicable mainly to in-country
Knowledge Generation missions, providers, and development agencies.
The Asian Development Bank (ADB) and UNCDF
As most providers are in the private sector, they have conducted complementary studies in Papua,
do not want to share lessons learned with their New Guinea.
competitors. Against this backdrop, funders are
well placed to address common challenges and to Foundational research will be more broadly relevant.
make their findings widely available for the broader The following are examples of donor-funded,
public good. For example, DFID has contributed rigorous, field-based knowledge generation that
substantially to the sector through knowledge has benefited the branchless banking field:
generation and dissemination (Box 2).
• USAID identified a gap in industry knowledge
Knowledge creation begins with foundational among both regulators and practitioners in
research that tackles critical issues (e.g., what quantifying and understanding risks in branchless
are the benefits to the end client of delivering banking. In July 2010, it released the USAID-
financial services via branchless banking?) as Booz Allen Hamilton Mobile Financial Services
Risk Matrix.16 This included a detailed analysis
of the risks involved in different models of
Box 2: DFID’s Role in Knowledge
Creation branchless banking from the perspective of various
stakeholders.
DFID was one of the earliest donors to actively
contribute to branchless banking, not only through • CGAP’s Agent Management Toolkit (Flaming,
direct funding, but also through knowledge McKay, and Pickens 2011) is based on more than
creation. In 2005, DFID led a participatory process a year of research that yielded data on more than
with regulators and providers that resulted in the
16,000 agents in Brazil, India, and Kenya.
report “The Enabling Environment for Mobile
Banking in Africa” (Porteous 2006). Further
research followed on regulations and other topics Financial Infrastructure Projects
that were very influential in developing branchless
banking in different countries.
Another type of public good that is attractive to
DFID also developed strong national centers some funders are financial infrastructure projects
(Financial Sector Deepening [FSD] initiatives) that could lead to interoperable systems that
in several African countries that have become
benefit the broader market. (Box 3 provides an
research and development hubs on financial
inclusion in their countries. For example, FSD example from Ghana.) These projects often
Kenya plays an important role in helping coordinate attempt to create both back-end infrastructure
different research projects around M-PESA; DFID (e.g., national switch) as well as customer-facing
has access to the information produced. Several
infrastructure, such as POS devices and agents.
FSD programs have attracted wider donor support
and will continue beyond DFID’s grant funding. The projects appeal to public funders because
they have public good goals that serve the larger
16 http://bizclir.com/galleries/publications/Mobile%20Financial%20Services%20Risk%20Matrix%20July%202010.pdf
7
population. As national scale projects, they also
Box 3: Building an Interoperable
require large funding amounts that some funders
Branchless Banking Service in Ghana
can provide.
In 2007, the Bank of Ghana decided to implement a
national, interoperable, biometric payment system
However, there are many challenges in developing called eZwich. KfW has been involved in the project
these complex systems, such as in implementing since the outset and has pledged a concessional
loan of 7 million euros for infrastructure, such as
these systems and in aligning the interests of
eZwich-enabled POS devices.
all parties involved. Funders, such as the World
Bank and the International Finance Corporation But eZwich has encountered many challenges.
(IFC), play an important role in supporting the After several years, it has issued only a few
hundred thousand cards, and only a fraction of
development of basic, critical, back-end financial
these are active. Most of these customers are
infrastructure, such as an automated clearinghouse students that receive government grants through
(ACH) and electronic funds transfer switch. eZwich accounts.
However, issues arise when these projects attempt
The biggest challenge eZwich has encountered is
to change concurrently front-end, customer-facing
the lack of a profit motive for banks; as a result,
services, such as interoperable POS devices and they are not interested in pursuing this type of
shared agent networks. business. Banks were mandated to purchase cards,
POS devices, and ATMs at high prices and were
restricted to charging only minimal fees to recover
Lessons learned by funders include the following: these costs. Not surprisingly, they have purchased
the bare minimum and are not motivated to market
• Business case and customer demand need to these products.
be clear. The main motivation for donors to put
such a system in place is national interest, such
as full financial inclusion. Governments share
these goals and are also concerned with reducing for a period of time. Once branchless banking
administrative costs. However, in most cases, these service is widespread, funders can experiment with
systems rely on private institutions, such as banks, funding shared agent networks.
and, as a result, there needs to be a clear business
case or profit motive for them to participate. Heavy Emerging Lessons for
subsidies may be needed until a critical mass of Investing in Public Goods
customers is reached and the business becomes
attractive. • Support knowledge creation that tackles the
• Buy-in from the private sector. These projects big questions around branchless banking.
need strong commitment from the private sector Funders should direct resources to help solve big
to be successful. Banks and MNOs need to be part obstacles, such as quantifying the business case;
of the process from the very beginning and need ensuring customer adoption; and developing an
to be able to influence the entire process to ensure effective, widespread agent network. They should
that they benefit as well. encourage the industry to see these issues through
• Timing matters when encouraging the lens of the market opportunity and the large
interoperability. Effective interoperability across market share represented by reaching poor and
banks and branchless banking services benefits unbanked people.
customers and is an important goal. However, • Be cautious of funding large-scale, interoperable
mandating interoperability (e.g., shared agent systems prematurely. Interoperable systems
networks) when a branchless banking market is (especially on the front end) that are designed
just beginning to develop is likely to stifle industry for full financial inclusion from the start are
development and do more harm than good. It is complicated. Instead, funders should focus
expensive to build an effective agent network, on stimulating private sector development of
and private sector actors need to know that their branchless banking now and, as markets mature,
efforts will not benefit their competitors—at least consider how to encourage interoperability.
8
Provide Expertise and Box 4: IFC Technical Assistance to WING
Technical Assistance
IFC’s Access to Finance Unit provides advisory
services to financial institutions and regulators
Most funders will select one or more branchless
to strengthen the financial sector. It has a few
banking providers to support directly. Funders engagements in the branchless banking space,
should focus their efforts on providing expertise and it is hoped that these engagements will lead
and technical assistance rather than on funding to investments (see Box 8).
core operations.
IFC and WING Money, a mobile banking service in
Cambodia, entered into a cooperation agreement
Since only a small number of branchless banking under which IFC provided technical assistance on
a 50-50 cost sharing basis. Together, they funded
services have reached some scale, there is no
experts to help develop a customer care center,
successful recipe for new services. Providers a merchant network, a strategy for technology
struggle with basic decisions around pricing, uptake, and a financial literacy campaign.
product development, and marketing messages.
IFC’s Mobile Money Toolkit* pools together many
Funders should build in ample technical assistance
industry resources and offers new content. While
to any branchless banking organizations they are parts of the toolkit are publicly available, the entire
funding. Knowledge of best practices to establish toolkit is used for engagements with clients, such
branchless banking is so limited that, in many cases, as WING.
technical assistance will be more valuable than the
*http://www.ifc.org/ifcext/gfm.nsf/Content/Mobile
funding itself. Funders do not need to be able to MoneyToolkits2
provide the technical assistance directly. However,
they need enough capacity and knowledge to get
the right expertise at the right time. And technical
When building technical assistance into projects,
assistance does not end with the launch of the
funders should make sure sufficient resources are
service. Reaching unbanked clients and offering
allocated upfront to market research and business
appropriate services are ongoing processes.
model development. The implementation must
Service providers may need additional help to
be structured to generate sufficient revenue to
provide these services. Boxes 4 and 5 highlight
support all companies in the supply chain (e.g.,
IFC and GIZ technical assistance.
the provider, agents, agent network managers,
and so on). To date, several implementations have
How can MFIs take advantage of branchless
followed M-PESA’s product and pricing model
banking? 17 MFIs can benefit by linking into
without understanding the specific customer and
a branchless banking service that is already
agent needs in their own market. Technical advisers
widespread to facilitate loan disbursements and
repayments for their clients. In markets where
branchless banking services have reached some Box 5: GIZ Technical Assistance in
scale, funders can play an important role in Indonesia
providing technical assistance (possibly combined Technical assistance is the main tool GIZ uses to
with funding) to MFIs to help them link into support the development of branchless banking. In
Indonesia, GIZ supported a network of rural banks
the existing branchless banking service. They
to understand the potential of mobile banking
may require technical assistance with the MFI’s for their businesses. GIZ helped create a mobile
management information system (MIS) as well as banking working group for rural banks, organized
support to educate clients on the new service. field visits to the Philippines, and convened
workshops with market players. A technology
For example, USAID provided a grant combined provider has been selected, and the project is
with technical assistance for the MABS project that awaiting the necessary license before launching.
linked rural banks in the Philippines with GCash.18
17 For a full discussion on the role of MFIs in mobile banking, see Kumar, McKay, and Rotman (2010).
18 See www.rbapmabs.org for more information.
9
can help providers look at the economics of the Funders can influence the target market
entire supply chain and make realistic business and help subsidize upfront costs to build
projections. The branchless banking service infrastructure to reach the poor and unbanked.
should be accessible to low-income and unbanked For example, UNCDF and AusAID provided
customers. additional funding to Digicel and Vodafone in
Fiji to build a rural agent network, subsidizing
Emerging Lessons for Providing the startup cost of setting up and capitalizing
Expertise and Technical Assistance agents in remote island areas. And CGAP’s
grant to Orange Money in Mali included
• Ensure sufficient resources are allocated to funds to hire and train Orange Money “Boys
technical assistance in every project. Many and Girls” to go to rural markets to increase
providers will find technical assistance as essential customer adoption. As a result, the sales
as funding. promotion force of 100 “Boys and Girls”
• Help MFIs benefit from existing systems, not accounted for 92 percent of new registrations
create their own. Even if MFIs purchase the in rural areas.
appropriate technology, most will not be well 3. Kick-start market development to speed
placed to develop agent networks and manage a private investment. Funders can help
payments system. Donors can play an important providers kick-start operations in markets that
role in informing MFIs about branchless banking are not yet mature. Providing a small, carefully
options and in helping them take advantage of targeted grant to a branchless banking project
existing systems. within a much larger organization helps to raise
the project’s internal profile and ensure that it
Fund Branchless is brought to market and tested. If the initial
Banking Operations funding acts as a catalyst and early results are
promising, the multiplier effect can be very
Funders in branchless banking can also play an large. For example, DFID donated GBP 1
important role in funding branchless banking million to support the launch of M-PESA. It is
provider operations. However, this area also offers estimated that Safaricom (an MNO in Kenya)
the greatest risk of public funders crowding out has spent more than $20 million since then
private investors. Public subsidies for private building the M-PESA brand and service—a
branchless banking operations are justifiable when substantial multiplier of DFID’s GBP 1 million
funders target their money and influence as much initial investment.
as possible toward the wider public good. They can
do this in three ways: Who to Fund
1. Ensure that, in return for subsidized funds, Start-up companies and established MNOs or banks
some knowledge and learning will be are the main candidates looking for branchless
publicly disseminated. Funders must be clear banking funding. These two types of organizations
upfront that, in return for a grant or subsidized are opposites in several ways. All else being equal,
debt/equity investment, some knowledge and public funders would likely prefer to fund an
lessons learned must be more broadly shared. organization with a low risk of failure, a high potential
Ideally, this should be included in the initial to scale, and limited access to private funding.
contract. Private companies will be reluctant to Unfortunately, it is rare to find all three of these
share data, but emerging lessons from startup criteria within one organization. Figure 2 shows the
operations are very useful to others. Both sides tradeoffs between start-ups and established MNOs/
should agree what experiences and data can banks along these three dimensions.
be shared and in what timeframe.
2. Steer providers toward viewing the poor Many start-up companies tend to be very risky,
and unbanked as a viable customer segment. and many will fail, especially when they are in
10
Figure 2: Tradeoffs in funding start-ups versus established companies
Low Risk of
Failure
Start-up Company
Commercial Bank or MNO
Limited
Poten al
Access to
to Scale
Finance
direct competition with large MNOs that have Digicel Haiti received $2.5 million from USAID and
significant marketing budgets. Many start-ups in the Bill & Melinda Gates Foundation). Similarly,
branchless banking are technology companies the Bill & Melinda Gates Foundation gave at least
that work on back-end technology requirements one grant to a large commercial bank (United Bank
or provide a service that works across any mobile Limited of Pakistan).
network (MNO-agnostic). Companies such as
EKO in India, WIZZIT in South Africa, and Mobile
Transactions in Zambia all started from scratch
Box 6: UNCDF Experience Funding
and had some donor funding support. They offer a MNOs
unique, MNO-agnostic proposition to customers.
UNCDF is funding Digicel to introduce a low-cost
However, they face an uphill battle as they seek mobile wallet in Fiji, Samoa, Tonga, and Vanuatu.
to come to market with a completely new product The grant will enable the company to develop a
and limited marketing funds. If funders decide to business plan for a broader Pacific rollout and to
implement a pilot project before launching in these
invest in these types of organizations, they should
markets. Through this experience, UNCDF has
be prepared for longer term horizons and some learned that working with MNOs is very different
failure. than working with its traditional grantees.
Some differences noted include the following:
On the other hand, large and profitable • Intense sense of competition. MNOs want to
MNOs or banks are driving the high potential be first market movers. Funder neutrality and
implementations in most markets. At first glance, confidentiality with different private actors are
crucial.
most public funders might assume that they
• Technical assistance needed more than
do not need external funding. However, some financial resources. As discussed, providers
public funders have decided that the benefits often need expertise more than financial
of influencing these MNO-led implementations resources. This is particularly true for MNOs that
do not have experience with financial products
toward the financial inclusion goal outweigh the
and customer education.
potential sensitivity around giving public funds • Funder role in influencing project toward
to large-scale, profitable institutions. Grants to financial inclusion. UNCDF is involved in the
MNOs have been given by CGAP (in 2009, to project on a regular basis to ensure that the goal
of financial inclusion to the unbanked remains
Orange Money), by UNCDF (in 2009, to Vodafone relevant. Otherwise, this may not be a priority.
Fiji and Digicel Pacific), and by USAID (in 2011,
11
Choice of Funding Instruments Equity financing is another way to invest in the
industry. The private sector has been very active in
As with microfinance, direct funding for branchless investing equity in the branchless banking sector.
banking operations can be done via grants, debt, An estimated $340 million worth of equity deals
or equity investments. have been completed since 2005, including a very
large deal of $140 million to Obopay.19 While two
Grants offer a lot of flexibility. Donors can public funders—IFC and the Overseas Private
consider giving grants to any type of organization Investment Corporation (OPIC)—have been active,
to finance innovation. Currently, different funders their investments together are less than 20 percent
approach grants in different ways. For example, of the total (less than $60 million). IFC is by far the
the CGAP Technology Program has awarded more active of the two (see Box 8).
relatively small, strategically placed grants in key
markets to help “prove the concept,” with the Almost all the investees are small to medium-
idea that once one or two implementations are sized technology companies, not MNOs and
underway in a given market, the private sector
can take over to help bring the project to scale.
Box 7: Prizes: A New Funding
A challenge fund model that invites applications Instrument?
and supports the best based on specific criteria
Donors should carefully select their funding
may be a good way to structure branchless instruments based on both what they hope to
banking funding. Funders making challenge fund achieve and how many players in the market have
grants include the Multilateral Investment Fund the ability to achieve these results. While grants
are a common funding instrument, they may not
(MIF) at the Inter-American Development Bank always be the best tool. Grants guarantee effort,
(IDB), the African Enterprise Challenge Fund, but not necessarily outcomes. Donors may spend a
and the Millennium Challenge Corporation. As lot of money with no guarantee of success.
always, donors should follow best practices and
The branchless banking world has seen at least one
give smart subsidies (Morduch 2005) to ensure very different approach—the use of prize money. A
their grants are strategic and do not crowd out prize is paid only if a specific result is achieved. This
potential commercial investors, and that there is may be useful when the objectives are clear, but
the way to achieve them is not. The Bill & Melinda
accountability for results. In particular, disbursing
Gates Foundation and USAID offered a $10 million
grants over several tranches helps to ensure prize to spur the development of mobile banking
milestones are met and funds are released only in Haiti after the earthquake. The MNO Digicel
when targets are reached. Box 7 discusses a received the first $2.5 million tranche for being the
first provider to launch mobile banking services.
relatively new funding instrument—prizes. The second operator to launch will receive $1.5
million. To ensure that the services being built are
Debt financing has been an important funding scalable and sustainable, another $6 million will
be awarded after the first 5 million transactions
instrument for startup and growing MFIs. Once
occur, to be divided accordingly among those that
established, MFIs are able to revolve funds quickly, contributed to the total number of transactions.
make a profit, and repay the loan. As they are in
the lending business, there is a clear repayment It is too early to predict whether this prize money
helped bring about sustainable mobile money
source. In branchless banking, however, a longer
services in Haiti. However, it was a creative
time horizon is needed as companies are still attempt to introduce more competition and to
figuring out how to grow and be profitable. tie funds to results achieved. In DFID’s words, it
Although branchless banking providers have is in the business of “starting races, not picking
winners.” Funders should follow this approach and
received commercial bank loans, debt originating carefully consider the best mechanism to achieve
from public funders has not played an important the desired results.
financing role.
19 This is not a comprehensive number as not all deal sizes are made public. It does not include internal investments by corporations. The
Obopay deal involves the following countries: India, Kenya, Senegal, and the United States. See CGAP blog post at http://technology.cgap.
org/2011/04/20/commercial-investment-landscape-in-mobile-financial-services-and-branchless-banking.
12
banks. MNOs and banks tend to finance their • Tailor funding instruments to the goal and project
implementations internally. From an investor needs. The size and type of funding instrument
perspective, it does not make sense to invest should be carefully selected as it influences the
equity into a large, multinational organization market in different ways. The instruments should
since an investment of a few million dollars be flexible to meet project needs and not vice
would buy only a tiny fraction of the company. versa.
Some implementations might be spun off into • Focus subsidies on customer-facing challenges,
separate entities that eventually could take equity rather than on back-end technology. Subsidies
investment. should be directed toward the bigger customer-
facing issues, such as reaching poor and unbanked
What to Fund customers effectively, not to purchase technology
platforms.
Finally, funders need to consider what to fund. As • Ensure that the provider is targeting the poor
noted, it is important to include ample technical and unbanked, and track this as part of the
assistance with any funded project. But there are project. One of the main unique contributions
two other considerations. public funders can make is to keep the focus on
reaching households with limited or no access to
First, donor subsidies should focus on front-end, financial services.
customer-facing issues, such as customer education
and strong agent network development. These
pose a bigger challenge in the industry than back- Box 8: IFC and Equity Investments
end technology platforms. There is a variety of IFC has been involved in branchless banking since
technology platforms in the market, and most 2005. It invests in the sector primarily through
services can find the platform that suits them equity deals. It has invested about $50 million and
has a current portfolio of six deals, making it the
without public funding. most active equity investor.
Second, public funders should ensure that projects IFC sees a progression in the development of
branchless banking in a country. It starts with the
target low-income and unbanked customers. For
regulatory framework, then moves to early-stage
example, funders could ask implementers to funding of companies, and eventually to scaling
measure clients’ poverty level since this is not these companies through mainstreaming. In this
something that private providers are likely to do progression, IFC’s role is in funding early/growth
stage companies that have an initial track record
on their own. For instance, the Bill & Melinda Gates
but are not yet attractive to the private sector.
Foundation funded AudienceScapes to measure the While its average investment size is $3 million to
poverty level of mobile money users in Kenya and $4 million, it wants to increase this. It primarily
Tanzania.20 It found that, although early adopters in invests in technology companies since it cannot
invest in large MNOs and banks. For example, IFC
Tanzania have higher incomes, 36 percent of new provided the technology company FINO in India
users are living on less than $2 a day. with $4 million in first-stage financing. This filled an
immediate financing gap for FINO and enabled the
company to reach a stage where purely commercial
Emerging Lessons for
funding options were more widely available.
Funding Operators
IFC sees the biggest industry gap in the funding of
• Determine your risk appetite. Start-up companies seed-stage companies or projects. These startups
require small amounts (less than $1 million) and are
are riskier than commercial banks or MNOs.
too small and risky for an IFC investment. There
However, the market development aspect of could be a role for a public funder with a higher
investing in start-up companies might fit better risk appetite to create a fund to invest in seed-
with a funder’s organizational objectives. stage companies.
20 For more information on the methodology, see MMU blog post at http://mmublog.org/blog/mobile-money-in-tanzania-is-it-reaching-the-
bop/.
13
Prepare the Organization development, and financial system development
for Branchless Banking colleagues into a unified team at its headquarters.
Interventions • Seek flexibility in investments. Some public
funders lend to governments as their main client.
Before entering into the realm of branchless Funding branchless banking may not match this
banking, funders must recognize that some internal type of funding instrument. Seeking flexibility in
changes and investments will be necessary to the type, size, and recipient of instruments is key.
contribute effectively to the sector’s growth. The If this is not possible, funders should perhaps not
following are emerging lessons that funders should engage in this area at all. Funders should not try to
consider: fit the project to the lending instrument.
• Think about pooling funding with others to share
• Internally define branchless banking’s important risk and leverage capabilities. Pooling funds in a
role in the broader financial inclusion agenda. branchless banking investment facility might be
The full financial inclusion goal requires innovative a good strategy for funders with little expertise,
ways to deliver financial services to poor people. limited funding, and low-risk appetite in this arena.
Branchless banking holds great potential to become • Evaluate and stay accountable. If the funding
an important service. Explaining the public good organization decides to invest in branchless banking,
element of this type of intervention is important for it should develop systems that monitor and evaluate
public funders that are less accustomed to working the programs to determine whether the funding is
with the private sector. effective and to ensure a feedback loop.
• Obtain buy-in to work directly with the private • Look for opportunities to leverage other
sector. Public funders often face internal problems programs already being funded. Funders
working with the private sector. Before heading in should look at how their grants are disbursed and
this direction, funders should define their impact understand that the same benefits of branchless
model and seek buy-in to work with the private banking G2P payments (decreasing leakage and
sector. This often requires working with competitors corruption while supporting branchless banking
in the same industry. Funders must understand and infrastructure) apply to donor payments as well. For
respect the importance of partners’ concerns over example, the World Food Program experimented
propriety information. with directing flood relief emergency payments in
• Develop an engagement strategy based on Pakistan through branchless banking.
internal capacity. For most public funders,
branchless banking is a new arena. If there are Conclusion
resource constraints, consider being the junior
partner of bigger projects, thus allowing the Considerable enthusiasm has surrounded
funding agency to influence programs with greater branchless banking in both the private and public
impact rather than funding discrete, small initiatives sectors in the past few years. There is indeed cause
with low visibility and limited impact. DFID, for for optimism that branchless banking services can
instance, has only one full-time equivalent staff go to scale and offer efficient delivery mechanisms
working on branchless banking at its headquarters. for financial services to poor people around the
However, as a partner of CGAP’s Technology world. To achieve this potential, knowledge and
Program, DFID influences the branchless banking capital are needed. There are many unanswered
agenda worldwide. Also, consider pulling together questions, such as what financial services poor
internal resources into an interdisciplinary team people really want and what the business case is for
and training staff. Understanding the necessary different branchless banking models. Public funders
political, financial, and technical building blocks of a can play an important role in helping to answer
branchless banking ecosystem might require public these questions and to support branchless banking
funders to establish interdisciplinary teams. One by advising policy makers, investing in knowledge
model used by GIZ brought together information for the public good, providing technical assistance,
and communication technology, agricultural and funding branchless banking operations.
14
Not all funders are well equipped to be involved Kumar, Kabir, Claudia McKay, and Sarah Rotman.
in branchless banking. As with other aid, too 2010. “Microfinance and Mobile Banking: The
much money given carelessly or in response to Story So Far.” Focus Note 62. Washington,
disbursement pressure will harm the industry. This D.C.: CGAP, July. http://www.cgap.org/gm/
is not an area for one-off solutions intended to show document-1.9.45546/FN62_rev2.pdf
quick results. Funders who engage should have a
long-term commitment to robust and sustainable Lyman, Timothy R., Mark Pickens, and David
branchless banking services. Those funders who Porteous. 2008. “Regulating Transformational
are ready to dedicate significant resources to Branchless Banking.” Focus Note 43. Washington,
internal knowledge, to engage with the private D.C.: CGAP. http://www.cgap.org/gm/
sector, and to be creative in how they can bring document-1.9.2583/FN43.pdf
all their resources—relationships, knowledge, and
money—to the table can play an important role McKay, Claudia, and Mark Pickens. 2010.
in supporting branchless banking services around “Branchless Banking 2010: Who’s Served? At What
the world and in advancing toward full financial Price? What’s Next?” Focus Note 66. Washington,
inclusion. D.C.: CGAP, September. http://www.cgap.org/gm/
document-1.9.47614/FN66_Rev1.pdf
References
Morduch, Jonathan. 2005. “Smart Subsidy
CGAP and World Bank. 2010. Financial Access for Sustainable Microfinance.” Financial
2010. Washington, D.C.: CGAP and the World Bank. Access Initiative. New York, December. http://
http://www.cgap.org/gm/document-1.9.47743/ financialaccess.org/sites/default/files/D6_FAI_
FA_2010_Financial_Access_2010_Rev.pdf SmartSubsidy_1_0.pdf
Flaming, Mark, Claudia McKay, and Mark Pickens. Pickens, Mark, David Porteous, and Sarah Rotman.
2011. Agent Management Toolkit: Building a Viable 2009. “Banking the Poor via G2P Payments.” Focus
Network of Branchless Banking Agents. Technical Note 58. Washington, D.C.: CGAP and DFID.
Guide. Washington, D.C.: CGAP, February. http://www.cgap.org/gm/document-1.9.41174/
http://www.cgap.org/gm/document-1.9.49831/ FN58.pdf
AgentManagement_TG.pdf
Porteous, David. 2006. “The Enabling Environment
Jack, William, and Tavneet Suri. 2010. “The for Mobile Banking in Africa.” DFID. London.
Economics of M-PESA: An Update.” October. May. http://www.microfinancegateway.org/gm/
http://www.mit.edu/~tavneet/M-PESA.pdf document-1.9.25001/36204_file_M_banking_
Enab_Env.pdf
15
Annex A: Resources
Branchless Banking Funders in Branchless Banking
Branchless Banking Database, http://www.cgap. USAID. 2010. “FS Series #9: Enabling Mobile Money
org/p/site/c/template.rc/1.9.49977/ Interventions.” Washington, D.C.: USAID.
CGAP Technology Blog, http://technology.cgap. Porteous, David, with Neville Wishart. 2006.
org/ “m-Banking: A Knowledge Map.” Washington, D.C.:
infoDev/World Bank. http://www.infodev.org/en/
Dermish, Ahmed, Christoph Kneiding, Paul Publication.169.html
Leishman, and Ignacio Mas. 2011. “Branchless and
Mobile Banking Solutions for the Poor: A Survey.” Funders in Financial Inclusion
http://ssrn.com/abstract=1745967
CGAP. 2006. “Good Practice Guidelines for Funders
Flaming, Mark, Claudia McKay,and Mark Pickens. of Microfinance.” Washington, D.C.: CGAP.
2011. Agent Management Toolkit: Building a Viable
Network of Branchless Banking Agents. Technical McKinsey & Company. 2009. “And the Winner Is …
Guide. Washington, D.C.: CGAP, February. Capturing the Promise of Philanthropic Prizes.”
http://www.cgap.org/gm/document-1.9.49831/ www.mckinsey.com/App_Media/Reports/SSO/And_
AgentManagement_TG.pdf the_winner_is.pdf
Mas, Ignacio, and Hannah Siedek. 2008. “Banking ——. “Global Financial Inclusion.” http://www.
through Networks of Retail Agents.” Focus Note 47. mckinsey.com/clientservice/Social_Sector/our_
Washington, D.C.: CGAP. practices/Economic_Development/Knowledge_
Highlights/~/media/Reports/SSO/GFI_v13_
Mobile Money for the Unbanked Blog, http:// complete.ashx
mmublog.org/
16
No. 72
July 2011
Annex B: Mapping of Selected Public Funder Please share this
Involvement in Branchless Banking Focus Note with your
colleagues or request
INDUSTRY MAPPING OF SELECTED PUBLIC FUNDER INVOLVEMENT IN BRANCHLESS BANKING extra copies of this
& COUNTRY
LEVEL paper or others in
Windsor Influence this series.
ADVICE Extensive
Seminar for legislation Influence
POLICY involvement Influence
regulators, in Uganda, regulators
in regulatory Dept. of
MAKERS
and G2P
regulatory funds AFI
Welfare in
(e.g., CGAP welcomes
diagnostic for global Afghanistan,
issues
reviews network
Fiji for G2P
Colombia) your comments on
this paper.
FSD Kenya
Technology and Created IFC All CGAP publications
INVEST IN Cashpoint Mobile
blog, Focus Tanzania, Mobile
Study in Financial
PUBLIC Notes, Agent produced Money
Papua New Services Risk
are available on the
GOODS Management several Toolkit (parts
toolkit reports for are public)
Guinea Matrix CGAP Web site at
industry www.cgap.org.
CGAP
PROVIDER 1818 H Street, NW
Extensive Support Technical
LEVEL Technical Wing Investment- Assistance, MSN P3-300
rural banks Extensive
Assistance, Money linked especially
in
especially Indonesia
Cambodia Technical linked to
Technical Washington, DC
PROVIDE (50/50 cost Assistance
linked to in m- Assistance funding (e.g., 20433 USA
EXPERTISE funding banking
share)
Digicel Fiji)
AND
TECHNICAL
ASSISTANCE Tel: 202-473-9594
14 current FDCF funded Concessional Some Fax: 202-522-3744
Equity
grants for Vodafone (M - loans for grants (e.g.,
Challenge Investments Challenge Funding
branchless PESA), also national MABS in
Fund (e.g., Fund Telcos
(grants)
banking funded AECF
FINO,
switches
(grants) (grants)
Philippines) Email:
around the and sub-grants (Senegal, and equity
FUND BB
world (CGAP)
WIZZIT)
Ghana) (OPIC) cgap@worldbank.org
OPERATORS
© CGAP, 2011
AECF CGAP DFID GIZ IFC KfW MIF/IADB UNCDF USAID &
Note: This is not a comprehensive global mapping of funder work in branchless banking. It does reflect the key activities to date of those OPIC
funders researched for this publication.
The authors of this Focus Note are Meritxell Martinez and insights. Mayada El-Zoghbi and Steve Rasmussen provided
Claudia McKay of CGAP. The authors would like to thank all valuable comments and guidance throughout the process of
of the funder organizations that participated in interviews and writing the paper. The Technology Program at CGAP works to
whose experiences are highlighted in the paper. Chris Bold, expand financial services for the poor using mobile phones and
Jasmina Glisovic-Mezieres, Kabir Kumar, Kate McKee, and other technologies and is co-funded by the Bill & Melinda Gates
Michael Tarazi of CGAP as well as Tillman Bruett (UNCDF) and Foundation, CGAP, and the UK Department for International
Thomas Rahn (GIZ) reviewed the paper and contributed useful Development (DFID).
Suggested citation
Martinez, Meritxell, and Claudia McKay. 2011. “Emerging Lessons of Public Funders in Branchless Banking.” Focus Note 72.
Washington, D.C.: CGAP, July.