[Dave Birch] The reaction of the lunchtime roundtable about learning from emerging markets has been surprising. Not only was the session very well-attended, with 70 people registered, but I've just bumped into a couple of people, a week later, still talking about it and asking when we might run another one. We had great speakers -- many thanks again to Rachel Bale from Visa CEMEA, Prateek Shrivastra from Monitise and Paul Makin from Consult Hyperion.
The huge turnout was surprising. I'm not sure what it means, but it means something. The idea that financial inclusion products developed for emerging markets, largely based around the mobile phone and often provided by non-banks, might be an effective mechanism for tackling financial and social exclusion in developed markets would have been seen as outlandish a couple of years ago, but the continuing success of schemes such as M-PESA in Kenya and G-Cash in the Philippines have led many to reevaluate the relationship between developing and developed world financial services.
For one thing, there is clear evidence that many of the less well off don't need bank accounts. In the Philippines, a sixth of G-Cash customers have given up their bank accounts and in Kenya I imagine most of the M-PESA users will never bother to get them. Meanwhile, new kinds of financial service providers are springing up on top of the mobile money transfer systems to provide financial services ranging from savings and loans to insurance and investments.
Some of these, I think, do point toward a more radical set of changes in the provision of financial services than might be immediately apparent. A particularly fascinating recent development around M-PESA is that
Equity Bank and Safaricom have launched a bank account that lets customers transfer money to and from accounts of the mobile operator's money transfer service M-Pesa via their mobile handsets as well as enjoy other benefits that come with a bank account. The new service will target customers who are looking for the convenience of a bank account that uses M-Pesa as the tool to deposit money into their accounts. Customers will not have to go to the bank to check their account balances. The mobile system will allow the customer to check their last five transactions on their linked account. With the M-Kesho Account, customers will be able to get pre-qualified personal accident insurance, access to short-term loan facilities ranging from KES 100, and interest on the mobile account from as little as KES 1. The application is built with the ability to score a customer's credit rating using a six-month history of his M-Pesa balances. The customer can request the facility through his phone, and the bank will respond if approved by loading the money into his M-Kesho Account.[From Safaricom, Equity Bank launch M-Pesa bank account - Telecompaper]
The poor and excluded find it difficult to develop a credit history, so the idea of using transaction data as the basis for a credit decision opens up the market. You can't do this with cash, which once again illustrate the key point that the transition away from cash and toward e-payments means many new opportunities for products and services.
M-PESA and G-Cash are the money transfer systems that form the platform for new financial institutions, but there are also new kinds of institutions that can make the journey from developing to developed markets where these platforms don't exist (although other platforms do, of course). Look at the example of Grameen, one of the original microfinance institutions.
The newest Grameen America branch is located in upper Manhattan, at the opposite end of the island from the city's downtown financial center. Grameen also has a branch in Brooklyn, a branch in Omaha, Nebraska and plans to expand to San Francisco and Washington D.C.
It has provided more than $6 million to 2,800 borrowers, mainly women, living below the U.S. poverty line. Those borrowers, who use the money to start or expand their small businesses, have deposited savings of more than $350,000.[From Bank for the Poor Brings Microcredit to Manhattan by Bank Systems & Technology]
If microfinance and mobile-based financial inclusion can work in Nairobi, why not in Neasden? if it works in Ghana, why not in Glasgow? Instead of pursuing the idea of financial inclusion through universal banking, European governments might find the idea of universal "transaction accounts" a better way to achieve their goals.
Perhaps the most important use of money - It saves time.
Author W. Somerset Maugham (1943).