South African banks and the unbanked: Progress and prospects

Consideration is given to what the big four South African banks have done since the late nineties to open up their lending facilities to the unbanked, taking cognisance of the trends internationally, finally leading to a conclusion as to the most appropriate strategy for the future. The banks' focus has been on lending to low-income salaried individuals, making use of the downscaling strategy. Inappropriate credit technologies in this very competitive market segment led to a serious setback in 2002 when two bank micro-lenders had to terminate their operations. In contrast to their enthusiasm for the low-income market, the banks have shown a lack of interest to engage micro-entrepreneur lending, but this is to an extent vindicated by the international experience. Establishing banks dedicated to micro-finance by means of specialised public/private sector partnerships emerges as the most appropriate strategy to engage with micro-entrepreneurs. The big four banks' focus in micro-lending is expected to remain on consumption related loans for low-income salaried individuals.banking, credit, South Africa

Savings: A Gateway to Financial Inclusion

This document presents recent savings work and includes a three-year project with four of our network members. At the outset of the project titled Safe Places to Save, Women's World Banking conducted targeted research and diagnostics in four markets (Colombia, Pakistan, Kenya, and the Dominican Republic) but our analysis of the impact of savings on women's lives dates back to 1999 when Women's World Banking began building a significant body of market research on savings. Four of our early studies focused explicitly on the demand and feasibility for savings services. Data were also drawn from research into the drivers of customer satisfaction and loyalty carried out in multiple markets. In addition, Women's World Banking has conducted in-depth research studies to better understand the ways in which women's roles within poor households affect the allocation of time and money and financial behaviors. Unique in the field of microfinance, these five studies yielded striking insights into the ways men and women see themselves, and each other, as economic actors, and what those perceptions mean for financial institutions seeking to provide savings

Banking on Shared Value: How Banks Profit by Rethinking Their Purpose

This paper articulates a new role for banks in society using the lens of shared value. It is intended to help bank leaders, their partners, and industry regulators seize opportunities to create financial value while addressing unmet social and environmental needs at scale. The concepts included here apply across different types of banking, across different bank sizes, and across developed and emerging economies alike, although their implementation will naturally differ based on context

Agile Decision Making Framework to Support Mobile Microloans for Unbanked Customers

Financial institutions have revolutionized in the past decade and embraced the use of technology in improving and enhancing their services. Their hope in technology has urged them to continuously want to improve on their technologies and the use thereof as the environment they live in changes. Financial institutions have developed different products and service offering for the poor through mobile technologies and this has demonstrated how financial institutions have evolved and left their comfort zone in pursuit of the market they once thought of as being costly to serve. However, as much as financial institutions have embraced new technologies and adapted their processes to cater for this segment little has been done in providing microloans to the poor. Financial institutions still wants to employ the old methods that they have always applied and worked for them in the past for loans decision making. This study examines the need for agility in decision making of mobile microloans and present a framework to serve as one of the solutions for effective mobile microloans for the unbanked

Access to financial services in Colombia : the"unbanked"in Bogota

The authors look at the depth of the financial sector in Bogota in terms of the"financial exclusion"of those, particularly poorer citizens, who operate without accounts in formal financial institutions-the unbanked. They begin with a review of the overall decline in financial intermediation from 1998 to 2003, which explains, in part, the high percentage of unbanked-61 percent in a recent household survey in Bogota. The authors next look at the banking system today, concluding that the present challenge is to increase financial intermediation overall, especially with the poor. Their analysis shows that Colombia's banks provide costly services mainly catered toward high-income clients. Existing fees and costs of checking, savings, and loan services average 5-10 percent of a monthly minimum wage, making them hard to afford for low-income clients. The authors also explore the characteristics and impacts of financial exclusion associated with lower and more uncertain incomes, lower education, and closer links to the informal sector. They cite the household survey conducted in Bogota, showing that 70 percent of the unbanked earn less than one minimum wage per month, are three times more likely to be unemployed than the banked, and have lower education levels. The unbanked save and borrow largely in the informal sector, at greater risk and greater cost. At the same time, however, high home ownership rates show that the unbanked have the capacity to build assets, demonstrating that they have"bankable"characteristics. The authors conclude with recommendations for government and for the financial sector to broaden access for the benefit of public and private sectors, and for the unbanked.Banks&Banking Reform,Public Sector Economics&Finance,Economic Theory&Research,Financial Intermediation,Settlement of Investment Disputes

On mission drift in microfinance institutions

This paper sheds light on a poorly understood phenomenon in microfinance which is often referred to as "mission drift": A tendency reviewd by numerous microfinance institutions to extend larger average loan sizes in the process of scaling-up. . We argue that this phenomenon is not driven by transaction cost minimization alone. Instead, poverty-oriented microfinance institutions could potentially deviate from their mission by extending larger loan sizes neither because of "progressive lending" nor because of "cross-subsidization" but because of the interplay between their own mission, the cost differentials between poor and unbanked wealthier clients, and region-specific clientele parameters. In a simple one-period framework we pin down the conditions under which mission drift can emerge. Our framework shows that there is a thin line between mission drift and cross-subsidization, which in turn makes it difficult for empirical researchers to establish whether a microfinance institution has deviated from its poverty-reduction mission. This paper also suggests that institutions operating in regions which host a relatively small number of very poor individuals might be misleadingly perceived as deviating from their social objectives. Because existing empirical studies cannot differentiate between mission drift and cross-subsidization, these studies can potentially mislead donors and socially responsible investors pertaining resource allocation across institutions offering financial services to the poor. The difficulty in separating cross-subsidization and mission drift is discussed in light of the contrasting experiences between microfinance institutions operating in Latin America and South Asia.Microfinance; Loan Size; Mission Drift; Cross-subsidization

Information Systems to Support “Door-step Banking”: Enabling Scalability of Microfinance to Serve More of the Poor at the Bottom of the Pyramid

Microfinance provides financial services to the extremely poor who are not served by banks. At the heart of microfinance is microcredit which provides small loans to the unbanked poor to seed small local businesses. Microfinance may help alleviate poverty because access to finance has a positive impact on economic development. The unmet need of the poor for financial services spawned over 11,000 microfinance institutions (MFIs) by 2010, but 90 percent of these MFIs are small with fewer than 10,000 clients. This article presents three case examples of MFIs in India that deployed information systems (IS) to increase the scale of their operations. Each example illustrates how IS helped MFIs achieve financial sustainability through scaling despite the necessity of using “door-step banking” which requires the MFI’s agents to visit clients in remote areas. By presenting microfinance examples that impact the economic empowerment of the poor, this article addresses the dearth of research on the use of IS to effect social change at the bottom of the pyramid. The article’s subject matter also provides engaging material for IS coursework and teaching

Unveiling the Real Digital Savings: An Exploratory Study on Emerging Enablers of Financial Inclusion

Digital savings has become an enabler of financial inclusion and economic empowerment in the developing countries. However, questions still arise over the category of consumers these existing digital savings products intend to serve. Existing literature points to the benefits that a savings account provides – financial health, buffer for emergencies, foothold for investments, etc. While the new players have stepped in to bridge the exclusion gap left by the traditional banks, a select customer segment is being excluded by default. The product and service offerings from current providers boast of exceptional digital experiences, aesthetic user interfaces, fancy dashboards, trackable transaction tools and convenience, individuals without access to the internet and across the digital divide are not being targeted. Consequently, this degrades the financial inclusion drive. Similarly, the context of digital savings remains undefined leading to key misconceptions in the subject. This paper examines whether digital savings includes or excludes the unbanked and low-income population who need such services. For digital savings to achieve its full potential in financial inclusion, this paper argues that providers need to consider users without internet access in their delivery of digital savings products. Thus, it becomes imperative to examine whether the expected users are the apparent consumers of such products and services

The Regulatory Implications of Mobile and Financial Services Convergence

The long awaited integration of mobile telephone and retail financial services is beginning to emerge in developing markets. To enhance the potential benefits from innovations in this domain, governments need to make complementary adjustments to domestic banking regulation and strengthen frameworks for international cooperation. In particular, as a highly regulated activity, deposit taking is insufficiently contestable for mobile operators to break into the market with enough independence from incumbent banks to stimulate valuable competition and innovation in payment networks. The success of mobile banking will also depend on the willingness and capacity of regulators to accommodate increasing international trade in retail financial services, new forms of distribution and customer due diligence rules that are more appropriate to less traditional markets. The paper provides an analysis of the relation between existing regulatory frameworks and the rise of mobile banking. And it outlines policy changes that governments should pursue in order to foster this form of innovation and target the benefits that it can bring, especially to consumers on the margins or excluded from modern financial services.Technology and Industry

Mobile financial services at the base of the pyramid : a systemic view for cross-sector governance and embedded innovation

Mobile financial services is one of the uprising movements to bank the unbanked by integrating philanthropic and business approaches for financial inclusion. In this paper, we address how a systemic view help integrate the Philanthropic Initiatives (PI) and the Commercial Initiatives (CI) to get a sustainable impact on the unbanked micro-entrepreneurs. However, each approach has pros and cons as they go along the stages of design, deployment, and sustainability. Using the soft system thinking we theorise the Base of the Pyramid (BoP) as a business system to mix-up the relatively high start-up capabilities of the PI with the relatively sustainable impact of CI. Our mobile money case shows that donors, local private enterprises, and multinational corporations follow the BoP strategy to develop an online grid that offers a reconciled balanced scorecard for economic returns, social benefits and local impact. Such a strategy guarantees flexible, long-term investments and facilitate developing innovative financial services