Lao People's Democratic Republic (Lao PDR), a country in Southeast Asia with 6.9 million people, has started the journey towards digitizing its cash-based economy and introducing digital financial services (DFS) to thousands of previously unbanked customers. There are several providers in the market that have begun to develop their DFS offerings.
The banking system continues to dominate the financial services industry in Senegal, with 25 separate banks operating in the market— compared with just 2 e-money institutions. In this member state of the Economic Community of West African States, the banking service usage rate has risen steadily since 2010, reaching around 17 % of the population by the end of 2015.
Building a backbone for the financial sector in Nepal
Nepal Rastra Bank (NRB), via its Banking and Financial Institutions Regulation Department, has upgraded its reporting system with support from United Nations Capital Development Fund (UNCDF) and the Mobile Money for the Poor (MM4P) programme. They have created an e-mapping platform based on a geographic information system (GIS) that shows all existing financial points in Nepal and enables efficient compliance control, data analysis and policy formulation.
Nepal, a landlocked central Himalayan country in South Asia with 19.2 million adults, is home to 184 banking and financial institutions. Yet, only 40 percent of adults are banked, of which 73 percent reside in urban areas and 27 percent in rural areas. A significant reason why 60 percent of Nepalese adults are unbanked is that they reside in areas where financial institutions do not have a formal foothold.
Establishing a branch in such areas would normally require heavy investment and manpower, but that is not the main reason banking and financial institutions shy away from expanding their services in Nepal. In fact, it is often that they merely lack access to information about the demand for financial services in remote regions.
With a vision of financial inclusion for all, NRB has deployed various policy instruments over the years to ensure that financial outreach makes in-roads to remote, rural areas. With the e-mapping system taking shape, a view of financial service points across the country will allow the NRB Banking and Financial Institutions Regulation Department to prioritize approval of new bank branches or channel points in regions that were previously excluded.
On 21 July 2017, MM4P hosted a feedback session to give department directors a first look at the e-mapping system, which was unveiled by the Governor of NRB. The system developed by Usabledata Ltd. and Smart Solutions was demonstrated in the session. This platform will be publicly available but will have different access levels for NRB, financial institutions and the public.
The main objectives of the session were the following:
- Acquainting participants with the real-time analytics and management information system and providing a system overview.
- Showcasing the GIS-based map of Nepalese financial infrastructure.
- Providing a step-by-step guide to drill down on the view of financial access to the local-body level and to track development of financial inclusion in different areas.
- Tracking deposits/loans, including amounts at different levels.
- Helping to lay the foundation for further advancement and scale-up of the e-mapping platform through recommendations.
As the session concluded and participants looked forward to the official launch of the e-mapping system, the Governor of NRB summarized its potential:
“The e-mapping system is going to change the way financial institutions function in Nepal and in the best possible way. People living in the remote corners of Nepal are a step closer towards financial inclusion. I thank UNCDF-MM4P for their guidance and support for making this a possibility, and we are enthusiastic to further build on this system and make it the backbone of Nepal’s financial sector.”
 NRB, ‘List of Banks and Financial Institutions,’ mid-January 2017. Available from https://www.nrb.org.np/bfr/pdffiles/List_of_BFIs_Jan_2017_English.pdf
 FinMark Trust and UNCDF-Making Access Possible, ‘FinScope Survey Highlights: Nepal 2014’ (n.p., n.d.). Available from http://www.unnatiprogram.org/uploads/publications/0PBlHqL1h2kifLCSLCS0Dv24xM50jBk9.pdf
Photo 1: Governor of NRB addressing the audience
Photo credits to Shubhashish Shahi, 2017
August 2017. Copyright © UN Capital Development Fund. All rights reserved.
The views expressed in this publication are those of the author(s) and do not necessarily represent the views of UNCDF, the United Nations or any of its affiliated organizations or its Member States.
How to make mobile money more appealing than cash?
Recent findings of UNCDF projects show that mobile money is an easy alternative to cash to facilitate bulk payments in the coffee value chain. However, coffee farmers who are being paid digitally for their produce, still see a lot of value in the usage of cash. To pay for their daily groceries such as rice, cooking oil and charcoal for instance.
“Something needs to change if agriculture value chains such as coffee are to be digitized”, argues Delia Dean, Value Chain & Digital Finance Specialist at UNCDF. “When we digitize such value chains, we need to consider every payment in a farmer’s day, all of which need to be considered for digitization. Our experience and observation tells us that, besides savings, many farmers have limited to almost no use case for mobile money. This means that if we are to create a positive value proposition and stimulate uptake of digital payments, we have to create additional use cases and these new options need to be integrated within their day-to-day spent patterns.”
Against this background, UNCDF and CGAP, with technical support from PHB Development are designing new business models for mobile money services in Uganda. Ciprian Panturu, Digital Finance Expert at UNCDF suggests that the Mobile Network Operators (MNOs) should start focusing on volumes rather than high-value services. “The current mobile money business model in Uganda is essentially driven by a single use case; person-to-person remittance services. People mostly use them to send money to family and friends living in rural areas. The recipients then find an agent and cash-out most or all of what they have received and pay a fee for doing that. This is where the MNOs get a big share of their revenues.”, says Ciprian. The main problem with this model is that there is a restricted demand and, more importantly, it ends up with a return to cash.
In the current model a strong and liquid agent network is required. But setting up and running an agent ecosystem for customers to collect these remittances is expensive. Agent commissions and other related costs are the main cost drivers and reduce profit margins for MNOs. At the same time, these cash-out fees represent an important barrier to regular use by customers. The digital journey systematically starts from and ends up in cash, which is what makes the model less efficient.
Nathan Were from CGAP says that MNOs are faced with large untapped opportunities; “People make several cash transactions every single day and there is always a cost associated with using cash. Such as the risk of losing money, theft and the inconvenience of carrying cash. If MNOs change their models so that the cost of using mobile money is well below the cost of cash, people will make the switch,” suggests Nathan and points out that this will lead to a reduced need for running extensive agent networks.
“This is where there are big opportunities for MNO’s and we have only scratched the surface of what can be done”, believes Nathan. “MNOs could transition to a closed-loop digital payments eco-system within five years. Although it requires taking some risks, but relatively limited upfront investment is needed and there is a lot of space for growth. MNOs now have a vast user base, currently mainly using mobile money for remittances. Meanwhile, the average user is using cash for more than 10 basic transactions to pay for goods and services every single day. If we can digitize this type of transactions with a competitive enough fee structure that is low enough to ‘beat’ the cost of cash, people will start using mobile money to conduct their regular payment transactions. MNOs can tap into this market and we expect to see an exponential increase of their transaction volumes.”
Avec plus d’un million huit cent comptes actifs de monnaie électronique, les Services Financiers Numériques (SFN) se développent au Sénégal. Même si le cash occupe une place encore importante sur le marché, notamment en zone rurale ou la monnaie électronique est peu connue, un nombre croissant de Fintechs se développent dans le pays et le cadre réglementaire régi par la BCEAO est favorable à la monnaie électronique.
MM4P a mené une étude sur l’état des SFN, qui donne un aperçu détaillé de l’évolution du marché de la finance digitale au Sénégal.
With more than one million eight hundred active e-money accounts, Digital Financial Services (DFS) are growing in Senegal. Even if cash remains dominant in the market, particularly in rural areas where mobile money is barely known, a growing number of Fintechs are making their way in the country and the regulatory framework led by the BCEAO is favorable to e-money.
MM4P conducted a research review on the state of digital financial services, which gives a detailed overview of the evolution of Senegal DFS market.
Uganda Testing Digital in Tea
When you are told that “Money falls from the sky to pay tea farmers”, you go through a moment of disbelief and astonishment. When you witness it, you feel the adrenaline rush through your veins as security officers rapidly make sure the airdrop is a success.
A few months ago, I was in Uganda for the production of a new MM4P video with the country team. The plan was to film and interview tea workers who chose to test digital payments. Every two weeks these workers receive their payment directly on their phone instead of spending a half day queuing for their payment at the factory.
Fort Portal the town nearby -half day’s walk - is not small and has bank with an ATM, but the security measures and the amount of cash needed to pay the workers are just not available at the local bank. Reason why McLeod prefers to send the money by airplane to the tea estates west of Kampala.
Dropping cash comes with issues one might not think of at first. Weather is an enemy of such methods. When an airplane can’t fly, due to rain for instance, the pay day has to be postponed. The human factor can also create issues, when for example the wrong bag is dropped on the wrong estate or just one bag is released instead of two. When such issues take place the tea estate manager, Vikram Singh Ranawat takes his car and flies – literally flies with his car full speed on the road- to ensure he will be able to pay on time the workers lined up in front of factory gates.
Digitizing these payments can potentially come with challenges too. In the pilot phase, that covered payments to 100 workers on the McLeod Russell tea estates, specific challenges were uncovered and solved. The good management during this phase is critical to prevent hick ups from hampering a smooth roll-out to all workers volunteering to test receiving their pay on their mobile phones instead of cash.
The tea workers have to familiarize themselves with this new service and the options it offers. When we met 15 of them before the filming, they still have many questions about the payments they or their coworkers have received. Wycliffe Ngwabe, UNCDF MM4P Digital Finance Expert, spent 30 minutes improvising a Q&A session to answer all these questions and telling workers. The questions in fact mainly revolved around phone usage and how they could get their own phone through payment in installments, and about the fees, and the possibilities about saving money on their mobile money account. Despite that the team hadn’t planned any of this in our script, the cameraman had the bright idea to record the Q&A session with the consent of the farmers. This video with the questions farmers had for Wycliff, will soon be released.
While you wait for that extra video, I invite you to view the story of the tea estate manager Vikram and the tea workers telling us about their experiences during the MM4P pilot to digitizing payments (video is on the right-hand-side column).
Come back to view the next video!
For more on the digital payment pilot at McLeod please read this previous article.
by Karima Wardak, KM Senior Associate UNCDF-MM4P
While Zambia was the earliest adopter of digital financial services (DFS) in Africa in 2002, it had lagged behind in leveraging those services to advance financial inclusion in the country for many years. Years of inertia have shifted to a period of momentum, which is reflected in an exciting 2016 for DFS.
Nepal: Ensuring customer confidence
Electronic banking has led to a surge and uptake of digital finance worldwide. It has captured the attention of developing countries and least developed countries (LDCs) alike, where traditional banking—or no banking at all—is still prevalent. Transitioning these populations to digital channels requires shifting customer behaviour, which in turn necessitates building greater customer trust in the system.
Introduction of ATMs: An example to assess the role of trust in digital finance
The automated teller machine (ATM) was the first of several innovations that led to the digital boom. ATMs have steadily dotted the landscape of many developing countries and LDCs, with the pace of ATM infrastructure development heavily influenced by the demand side through the acceptance of cards. The process typically starts with one bank installing the services for its own customers and slowly, as acceptance picks up and other banks follow suit, demand for joining the network and for achieving interoperability in the long term grows.
Metrics to assess trust
Institutions invest in digital banking to increase revenue or to reduce cost. While non-financial transactions, such as balance enquiries and mini-statement requests, do not generate revenue (in fact, they put some strain on resources), these types of transactions build customer trust—first in the machine and ultimately in the system. The behavioural shift by customers to electronic banking and the confidence of customers in the system can be gauged by the volume of non-financial transactions. ATM data from one LDC in South Asia for financial and non-financial transactions underlines this point. In 2013, when ATMs were still in an early period of growth in Nepal, the ratio of financial to non-financial transaction volume was 3.07. It is now 4.57, revealing the growing confidence of customers to use ATMs to withdraw money as well as to conduct other financial transactions and not just to check balances (see figure I).
Role of central bank to build trust
Many examples from across the globe attest to the fact that adoption and usage of electronic banking channels and instruments take time. The trust in the system that must be developed is linked to customer protection. Most LDCs are in an early stage of market development with technology-based banking. At that stage, the central bank needs to play a key role in ensuring customer confidence in the system through implementation of a robust grievance redressal mechanism and other rules/policies for customer protection. One issue that can erode customer trust in the technology is repeated transaction failure, which may or may not lead to financial loss but ultimately pushes the customer away from using digital instruments and instead to relying more on cash.
Failures that decrease trust
In Nepal, transaction data show the following failure ratios. On the ATM network, the ratio of successful to unsuccessful financial transactions is 3.21. On the point-of-sale (POS) network, this ratio is 3.27. The same ratio for non-financial transactions is 2.44 for both the ATM and POS networks (see table 1).
Reasons for failures that must be addressed to improve trust
There are a number of underlying reasons for these failures (see figures II and III). In the case of ATM transactions, while a lack of awareness on the part of the customer is the cause of a significant number of failures, most failed transactions are on the part of the issuing bank, machine or network (e.g., issuer time-out, issuer down, switch not available). In the case of POS transactions, the high level of failure is singly attributed to the supply side: the bank or acquirer network is unable to process and pass the transaction message (due to various causes).
These are the types of issues that could drive down customer confidence and trust in digital channels and that must be considered as markets prepare to offer digital channels/instruments, especially in the context of achieving financial inclusion goals. A focus on building customer trust by providers can go a long way towards increasing uptake and hence sustainability of investments. In the same vein, central banks must play a key role in establishing platforms to collect and address customer grievances, establishing principles for market players to follow when dealing with customer issues and implementing a strong oversight mechanism to ensure compliance.
August 2017. Copyright © UN Capital Development Fund. All rights reserved.
The views expressed in this publication are those of the author(s) and do not necessarily represent the views of UNCDF, the United Nations or any of its affiliated organizations or its Member States. The designations employed and the presentation of material on the maps and graphs contained in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations or UNCDF concerning the legal status of any country, territory, city or area or its authorities, or concerning the delimitation of its frontiers or boundaries.
The Mobile Money for the Poor (MM4P) programme launched in 2012 because UN Capital Development Fund saw that the gains in digital financial services (DFS) were not reaching the least developed countries (LDCs). MM4P was created to demonstrate how the correct mix of financial, technical and policy support can build a robust DFS ecosystem that reaches low-income people in LDCs. In doing so, it has helped accelerate growth in several countries, identified some of the levers to help markets develop and supported efforts to reach the last mile.