2. For several years following the explosion
of mobile money in Africa, MFIs struggled to adapt…
…but the story is changing
2
3. 0.00
5.00
10.00
15.00
20.00
2008 2009 2010 2011 2012 2013 2014 2015
Finca Tanzania’s progression towards DFS
Tanzania active mm customers, in millions
2013:
• Mobile banking
through Vodacom
M-Pesa
• Development of
Agency Banking
2014:
Agency
Banking
pilot
2015:
Mobile banking
via Aggregator
with all MNOs
Until 2012:
Only branch
Source: CGAP estimate 3
5. Expected decrease in cost
of funds from both institutions
Key Motivation 1: Lower Cost of Funds
90%
0%
5%
10%
15%
20%
Traditional Agent channel
Finca Tanzania Microcred
Average cost of funds
5
6. Key Motivation 2: Lower Cost of Infrastructure
• Total channel
expenses stabilize at
around 2% of assets
• Majority of expenses
are from commissions,
which reflect customer
activity (which
generates revenue)
0
0.5
1
1.5
2
2.5
2014 2015 2016 2017 2018 2019
Commissions Comms OPEX
Sample projection
Agent channel cost (% of assets)
6
7. Key Motivation 2: Lower Cost of Infrastructure
0
50
100
150
200
0%
2%
4%
6%
8%
2014 2015 2016 2017 2018 2019
Billions
Total branch costs Total outlet costs
Channel expenses Total Assets
• Overall distribution
costs decline as a
percentage of assets
• The savings in branch
expenses alone
compensates the
channel expenses
Sample projection
Total distribution cost vs. asset growth
CFA
Francs
(billions)
Cost as
% of
assets
7
8. Key Motivation 3: Own the Customer Experience
Control the
customer experience
and branding
For Finca, brand
attributes warmth,
responsible banking
and growth of
customers runs
through all
customer channels.
$
Control the
pricing strategy
Since the main
goal is to collect
deposits, some
MFIs are making
cash in/out as
well as payment
transactions free.
“We’ve seen different players try
to use the mobile channel and it’s
never worked. We wanted control
over the customer experience.”
—Microcred
8
9. Finca DRC attributes
30%
of their customers to
the agent channel
Another Motivation: Grow Customer Base
Originally, customer growth was cited as a key reason for MFIs to build
agent channels. However, this has not turned out to be a driving factor yet.
Perhaps this is because MFIs are following a hub-and-spoke model where they start
off with agents quite close to branches and only gradually expand away from branches.
9
10. Of customers who
signed up via an agent,
50% were active and
performed an average
of 4 cash-in or cash-
out transactions / month
50%
One year after
launching mobile
banking, 20% of
all transactions
were going via
mobile channel
Early evidence is positive
20%
An account active
on mobile banking
has 3X the balance
vs. a normal active
account
$
$
$
Within 9 months,
35% of all cash
transactions
were being done
on agent channel35%
10
12. What about the impact on loans?
Surprisingly, no clear evidence yet of impact on microloans
• Some MFIs, like SMEP in Kenya, have reduced group meetings
from weekly to monthly as a result of digital payments
• However, most MFIs are still unclear about impact on loans.
Loan officers in some institutions actively discourage clients
from paying digitally, worried about their own redundancy.
Leading MFIs are thinking about digital credit
• Access Bank plans to develop a consumer credit product
aimed at customers of their MSME customers.
• Microcred has already piloted a digital credit product with
positive results.
12
13. Outstanding Questions
?
How many MFIs will be able to do this, especially individual MFIs
without a network over which to spread huge upfront IT investment?
What happens to the others?
How much will MFIs try to get into the payments business?
Some are starting to compete directly and offering bill payments
and P2P products. Is this a good strategy?
?
Some MFIs are talking about moving into digital credit. Is it worth
investing significant donor funds to help MFIs reach 1 million clients
when CBA can reach 10 million more quickly and easily?
?
Will MFIs be overtaken as banks, MNOs and others have figured out
ways to reach same customer segments at lower cost??
14