Microfinance Banking-Agent model: Making financial inclusion possible

Microfinance Focus, Oct 15, 2010:  Geographic exclusion, whether due to the extreme size of a country like India, large numbers of Overseas Foreign Workers from the Philippines working in Singapore and Hong Kong or the hilly regions of Nepal, is a huge challenge for the microfinance industry. At one of the panels of Asia Microfinance Forum 2010, a group of panellist discussed the alternative channels which can deal with these challenges.

Ms. Ayesha Baig, Manager of Product Development at The First Bank of Pakistan which offers microfinance services in the remotest regions of the country using a unique Bank-Agent partnership with the postal service of Pakistan briefed the audience about how this partnership is helping the bank in achieving financial inclusion in the country.

The bank has been using Pakistan post for delivering microfinance services since March 2008 and has 83 full fledged branches across the country serving 400, 000 plus clients

Pakistan post has more than 13, 000 branches across the country and reaches out to 20 million households. It offers savings scheme, insurance scheme and have recently started offering remittances as well. It has 3.39 million saving accounts and more than 80% of these accounts have less than $120 savings thus making it an obvious target for the First Bank of Pakistan.

“When we entered into this partnership, we were looking at options of how to expand the outreach and how to offer services cost effectively without a brick and mortar office. Since Pakistan Post has offices in remotest regions of the country, it became a win-win situation for both the organizations”, Ms. Baig said. “Under this partnership, credit functions, credit decisions and client relations are with us but the cash management is with the Pakistan Post” she added.

Giving a comparison between the cost structures, Ms. Baig highlighted that the branch office takes 9 months to break-even whereas the pakistan post sub office took just 3 months.  The partnership also gives us the opportunity of mobilizing the saving of the bottom of the pyramid people

Giving the downside of such a partnership, Ms. Baig said “We do have strategic risk in collaborating with a government organization. When our recovery comes into the accounts Pakistan Post does not allow us to withdraw quickly. We also have to maintain at each level a personal arrangement. The working conditions are bare minimum and our officers work under very hard condtions.

“Agencies charges that we give them has substantially increased their revenue and that is the main attraction for them to join us and we also training their employees to manage the recovery process etc”.

The benefits to the clients under such partnerships can be viwed in terms of reduced travelling costs, she added.

As for the challenges of such a model, Ms. Baig said, “Discipline was a challenge as we have young officers sitting at the post office without any supervision. For that we have developed a manual of controlling operations which is very comprehensive and has tight controls. As a result, in the last one and half year we had just 2 frauds”.

Giving a background of the level of information technology penetration in Indian microfinance space Aparajita Agrawal, Vice President with Knowledge & Insights Division, Intellecap, India who is responsible for creation and dissemination of knowledge at the bottom of the pyramid presented a recent research sponsored by the BWTP Network.

Although a lot of microfinance institutions showed little belief in MIS (Management Information Systems) and technology infrastructure, the study revealed that the benefit of technology is fast being recognized by MFIs. “84 % of research respondents said that they have already invested in MIS a lot of MFIs are looking at developing customized in-house MIS system which allows them to control their costs”, Ms. Aparajita said.

“Most MFIs that we spoke to maintained an in-house MIS and they are now looking for upgrade or changing an existing technology. A lot of them want to use mobile banking, cloud computing and are looking at building and in house IT team to perform better.  The larger MFIs however were very reluctant as cost per client is very high or them”, she added.

With MIS improving their client outreach and geographical coverage, most of the responding MFIs have a very long wish list which includes creation of customized report, capturing data on cross selling products and using it as a customer relationship tool. Most of them are already looking for ‘Cloud Computing’ and Mobile Technology sighting their belief that these will really help them in achieving financial inclusion.

Giving an alternative delivery channel perspective from Philippines, Irma L. Cosica, Chief Operating Officer, ASKI Global Singapore said, “Philippines has a market of 240, 000 workers working in Singapore and these workers belong to vulnerable and low income groups. The problem of unemployment and underemployment still persists in Philippines. We believe that labour migration is a trend that creates immense challenge as well as opportunity for all countries in Asia and the Pacific”.

“We are targeting oversees professional not just as a market but also as active participant in the process of financial inclusion. We are offering an alternative delivery channel in the form of training education on entrepreneurship, before offering financial services to these migrant workers”, she added.

Presently 200 workers are doing training with ASKI and some of them have even started their business and repaying loans. “Our clients are now requesting to use smart money and we are looking at having that infrastructure in Philippines”, she said.

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