Round 2 with CGAP’s Gautam Ivatury

The ThinkChange India staff is committed to providing our readers with interviews with people we believe are at the brink of something special but have for the most part been overlooked by the mainstream media. Readers will be able to see other conversations under our TC-I Changemakers tag.

This week, Vinay sat down (over the phone) with Gautam Ivatury of the global microfinance center CGAP, which works to expand poor people’s access to financial services. Such services include but are not limited to microcredit and branchless banking. This interview is a follow up to one conducted on May 4, 2008, which you can read here.

Vinay Ganti: Could you please review yourself on the following topics, which we discussed in our last conversation?

  • Reaching beyond MFIs:

Gautam Ivatury: This still continues to be a major focus of CGAP’s mission. Across all of CGAP’s work we continue to look for ways to partner with a range of institutions and providers, including but not limited to MFIs, to be able to massively expand financial services for poor people.

GI: With regard to branchless banking, we set out to accomplish a number of goals. Overall we have been happy with the results of CGAP’s work in this area over the last six months, despite the fact that it has taken longer than expected for our project partners (in countries like Pakistan, Kenya, Mongolia, South Africa and elsewhere) to roll-out the branchless banking channels we helped design and finance.

Since our last talk, CGAP has expanded its policy and regulatory diagnostic work in branchless banking. New markets analyzed have included Colombia, Argentina and Indonesia, and we’ve continued to maintain close dialogue with the Reserve Bank of India and regulators elsewhere.

Also, the actual awareness of mobile banking in the field, i.e. what is and how it can work, has increased dramatically in the past. Last May we co-organized the first major annual event on “Mobile Money” for the unbanked in Cairo with the GSM Association (the industry body for the world’s 700+ mobile operators), IFC and DFID. That event got more than 500 paid attendees, most from private industry. And this week at the GSM World Congress in Barcelona, GSMA and other private sector players will announce additional activities in the space. DFID announced its new FAST program to encourage branchless banking this week. Initiatives like these are critical to get widespread adoption of the concept and to achieve scale. Moreover, major consulting and research outfits like Aite, Monitor and McKinsey have started research and published reports on the topic.

At the same time, our seven branchless banking projects have been slower to launch than we all expected two years ago. There have been some notable achievements — our Philippines partner has entered three new rural provinces and signed up about 80,000 new mobile banking clients, and Telenor bought 51 percent of Tameer Bank (our partner in Pakistan) to jumpstart its mobile banking initiatives. But in general the implementation of mobile / branchless banking has been slower than anticipated.

VG: Why do you think this is? Continue reading

Checking in on CGAP and Branchless Banking

When I heard that Gautam Ivatury of CGAP would be at NYU’s “From Innovation to Impact” Conference, I thought it would be a great time to follow up with my previous interview with him.  While he did not have time to talk today, we are going to schedule a follow up soon.  Nevertheless, I was able to listen to his presentation on what CGAP has been doing to help move the market to be more amenable to branchless or mobile banking.

Here are a couple highlights from his talk, but stay tuned for a more in depth interview in the coming weeks.

  • The most interesting point raised was the importance of centering the business plan around the potential agents.  In essence, branchless banking would operate in the same way people currently refill their cell phones throughout India.  A shopkeeper, authorized by a bank or cell phone company to accept withdrawals and deposits, would receive an SMS or some other communication from a customer’s phone and then either accept the deposit or disburse cash.  Ivatury emphasized that such models have only been successful when it is designed to ensure that it is profitable and worthwhile for these agents themselves — a point, while obvious, can be easily overlooked by a major player.
  • Ivatury also commented on the process of actually “moving the market” — or getting the greater financial community on board and outlined the process as such:
    1. Research and Information — first find the data that must be presented
    2. Synthesis — analyze the data in a way that is clear and concise
    3. Communicate — get mainstream media, like the Economist or Financial Times, to pick it up
    4. Influence — once major players are aware, bring them together through events to persuade them to adopt it
    5. Market Changes

An F in Financial Inclusion

In a first of its kind survey, the Indian Council for Research on International Economic Relations (ICRIER) has released a study analyzing the level of financial inclusion currently in India relative to other nations. The results are unimpressive. The paper

ranks India at 29 in a list of 55 countries based on the country’s performance in banking penetration, availability of the banking services, and the usage of the banking system. India’s ranking goes down to 50 (out of 100 countries) if one removes the banking penetration as one of the determinants from the Index. This shows that even though there is a higher banking penetration, there are inefficiencies in making these services available to the financially excluded population. [Source: VC Circle]

We have written to this issue before. Particularly, I interviewed Gautum Ivatury of CGAP, and their efforts in addressing financial inclusion via mobile banking. This study is interesting because it highlights how building a bank is only part of the process. The drop in rankings when controlled for banking penetration emphasizes this need.

Due to this interesting dynamic, there is a definite need for innovative and unconventional methods to reach these otherwise excluded communities. Technological approaches like kiosks and mobile phones are one angle, but I also have an inkling that much of it stems from being uninformed or even skeptical of modern institutions.

[TC-I Changemaker]: CGAP’s Gautam Ivatury on the linkage between technology and financial empowerment of the poor

The ThinkChange India staff is committed to providing our readers with interviews with people we believe are at the brink of something special but have for the most part been overlooked by the mainstream media. Readers will be able to see other conversations under our TC-I Changemakers tab.

This week, Vinay sat down (over the phone) with Gautam Ivatury of the The Consultative Group to Assist the Poor (CGAP), a consortium of 33 private and public development agencies focused on working together to expand poor people’s access to financial services. Such services include but are not limited to microcredit and branchless banking. Within this organization, Gautam is the Manager of CGAP’s Technology Program (their blog on India can be read here), which focuses on researching, identifying and disseminating knowledge on how technology will help financial institutions deliver such services to the poor. The Technology Program is co-funded by the Bill and Melinda Gates Foundation.

Vinay Ganti: First, I want to thank you for taking the time to speak with ThinkChange India and its readership. Why don’t we start out generally. Can you speak more on CGAP’s goals and how the aspect of technology plays a role?

Gautam Ivatury: CGAP is about building financial systems that work for poor people. However, there is more to it than that as we want this financial system to be integrated with the mainstream financial system at large. We do not want to create a state where the poor bank in some parallel world completely disconnected from the resources and financial options that other people enjoy. In essence we envision one inclusive financial system that provides tailored products to all types of people, including the poor.

This desire for inclusion partly stems from the need to develop financial institutions for the poor that are sound and stable, and one of the most effective ways to do that is to link them to the mainstream financial architecture. Poor clients need to have the same level of security regarding their savings and deposits as do individuals elsewhere in the traditional banking structure.

To address the stability while also providing a wide array of financial products, CGAP recognizes that there must be an approach that moves beyond just microfinance institutions (MFIs) and includes other players in the space to maximize choice for the consumer and to help us attain scale. When one looks past the traditional MFI, one observes postal banks, agricultural banks and other actors that are already helping the poor.

This is where the technology program becomes so critical as it is charged to identify those technologies that will best assist this wide range of potential providers to reach out to the poor regardless of their location or personal circumstances. Right now, the one obvious solution is the mobile phone and the rise of branchless banking that can be done via that medium.

VG: CGAP’s website highlights three key players — financial service providers, public and private funding organizations, and government policymakers and regulators — that are stakeholders in CGAP’s work. Can we discuss the conflicts that emerge among these actors?

GI: All of these actors are critical. Without governments implementing the proper regulatory framework for banking, it cannot be done. Likewise, the other stakeholders also play a vital role. In fact, there is a fourth actor, whom CGAP does not deal with directly, who are the actual customers themselves. In any market these can at times become opposing forces. Government wants safety plus access; businesses want to make money. This forces CGAP to take a practical approach with each stakeholder.

Each player has different incentives and needs, and therefore when our conversations with them require differing skill sets that reflect these distinctions. When you sit down with a banker you have to understand their perspective. She will ask what services am I supposed to give and how should I give them? Do I want to provide them at the branch and encourage the poor people to come inside or do I want to do it in a way where it can happen remotely? What sort of incentives must I provide my employees to provide these services, and what is the structure in which the employees interact with these new clients?

In contrast, when we deal with an MFI, there concerns are more technical with regard to the management and oversight of their loans or disbursements. Questions regarding improvements to portfolio tracking software, customer relationships and external fund raising all dominate the conversation.

Continue reading

Wrap it Up: Two Papers reviewed by Microcapital.org

Microcapital.org reviewed two recently released papers this week; here is a summary of those.

1. “Should Access to Credit Be a Right?” by Marek Hudon

This is a very interesting question as fields like microfinance have gained so much popularity and success. The paper takes both practical and normative approaches to this issue and frames the overall debate in a way that seems to argue that the framing of credit as a right would significantly contribute to alleviating poverty. The full paper can be found here.

2. Consultative Group to Assist the Poor, Focus Note: The Early Experience with Branchless Banking (On the Potential of Branchless Banking in the Microfinance Sector)

This paper takes information from 18 different countries that employ branchless banking to analyze its effect on both microfinance and poverty generally. The paper highlights the ability of mobile banking to overcome the hurdles that many MFIs face with regard to the lack of well-established banking infrastructures in these countries. The full paper can be found here.

Vikram Akula, founder of SKS Microfinance, to speak at CGAP, Washington, DC today

The Consultative Group to Assist the Poor (CGAP) is hosting Vikram Akula, founder and CEO of microfinance institution SKS Microfinance today as part of their informal brown bag series. RSVP to cgap@worldbank.org, or call the CGAP offices at 202-473-9594 for more information. The CGAP offices are on the third floor of 900 19th Street NW, Washington DC.

Some background on SKS Microfinance and Vikram Akula follows:

Prior to launching SKS, Vikram Akula was a Fulbright Scholar in India, during which time he coordinated a government-funded (Jawahar Rozgar Yojana) action-research project on providing microfinance for food security. He holds an BA from Tufts, an MA from Yale and a PhD from the University of Chicago, where his dissertation focused on poverty alleviation strategies.

Since its launch in 1998, SKS Microfinance has provided over USD 550 million in loans, with loans of USD 223 million currently outstanding to 1,721,155 women members in poor regions of India. Borrowers take loans for a range of income-generating activities, including livestock, agriculture, trade, production and service businesses. SKS also offers interest-free loans for emergencies and life insurance to its members. Its nonprofit wing, SKS Foundation, runs an Ultra Poor Program. SKS currently has 700 microfinance branches in 15 states across India. In 2007, SKS Microfinance claimed nearly 170 percent growth and a 99 percent on-time repayment rate.

Mid-Day News Feed

  • Oneworld South Asia highlights that India’s strategy to combat Multi Drug Resistant TB (MDR-TB) might be failing to stop the spread of the disease. There are 2.2 million new cases of TB every year.
  • The CGAP Microfinance Technology Blog picked up a story from Business Standard on Andhra Pradesh government’s plan to provide rural pensions through the mobile phone network
  • iGovernment reports that BSNL, the state owned telecom provider, plans to roll-out broadband connectivity to Community Service Centres (CSCs) and other e-Governance locations in 25,000 villages across India