mfi - eight business model

8/2/2019 Mfi - Eight Business Model

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Eight Business ModelBreakthroughs for MicrofinancePresentation of Work in Progress, October 24, 2006

Task Force on

Microfinance


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The Challenge of Scale inMicrofinance

Microfinance is a recognized tool for addressingpoverty and empowering the poor.

Despite the important accomplishments ofmicrofinance institutions, most of the potentialclients of microfinance still lack access to qualityfinancial services. Why?

Needed: Business modelsthatcan bring microfinance toscale


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The Forum of Young GlobalLeaders (YGL)

A unique, multi-stakeholder community of the worlds mostextraordinary leaders who are 40 years old or youngerand who are ready to dedicate a part of their time andenergy to jointly work towards a better future.

The 2020 Initiative defining a vision for a world wheresustainable economic development replaces the plagueof poverty around the globe.

In association with the World

Economic Forum


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YGL Microfinance Task Force

Objectives

Public

Awareness

Private Sector

Engagement

ConduciveRegulatoryEnvironment

SpecificMicrofinanceProjects


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TheBreakthroughs Projectof theYGL Task Force

Search for business model breakthroughs, especially

related to scale and efficiency.

Leaders from microfinance join counterparts frombusiness and other sectors to exchange experience.

ACCION International facilitates.

Eight key breakthroughs identified and presented here.

Work will continue on: Potential impact

Obstacles to expansionPathways to widespread adoption

Final paper to be presented at theWorld Economic Forum in early 07.


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Conventional Wisdom in Microfinance

Widely held truths may

block a breakthrough.

Loan officers arethecornerstone of

goodmicrofinance.

Microfinance isabout lending for

productive

purposes.

Every MFIneeds acustom-

tailored ITsystem.

Microfinanceclients wont

use newtechnologies.


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Four Dimensions of Breakthroughs

Innovate for

MF Clients

Adapt technology to fitMicrofinance clients

Upgrade MFIcapabilities

Prepare MFIs toapply theinnovation

Attract new

players,supportstructures

Examples:creditbureaus,softwarecompanies Foster policy

or regulatorychange

Innovationsbring needto reviseregulations


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Breakthrough 1. Payment Systems

Exercise

Makeautomatedpaymentsystems

available tomicrofinance

clients

Benefits to Clientsand MFIs

Client convenience and

security

Increased MFI efficiency;lower cost

Penetrate difficult locations

Mechanisms Card products: debit,credit, prepaid, etc.

Devices: ATMs, POS, cellphones

Challenges Few MFIs are members inpayment networks

Products designed formiddle class market

Clients are used to cash,

as are vendors they use


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Breakthrough 2. Mobile Phones

Exercise

Turn cellphones intopayments

devices

Benefits

The ultimate in clientconvenience

Low income clients alreadylove cell phones

Mechanisms

Cooperation betweenTelcoms and Banks

Sim card becomespayment vehicle

Text messaging to transfermoney

Challenges

Infrastructurepreconditions

Per-transaction fees high

Security vulnerabilities

make regulators skeptical


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IT System

Basic Ops.ConnectedNetworked

Recoverable

Breakthrough 4. Improve MFI InformationTechnology

Financial Managementand Reporting

Data MiningCredit ScoringUnderstanding Customers

Social Performance Monitoring

Connect toPayment Systems

ATMs, Cards,International Money

Transfer

Streamline

Customer InterfaceTeller transactions

Loan Approvals

MFI systems must perform all

these functions well.


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Breakthrough 5. New Channels toReach Customers: Retail Networks

Traditional

ModelMFI Branch

.

Loan Officer/

Branch cashierCustomer

Use ofRetail Agent

.

Many models are possible.

MFI Branch -- ?

Retail Agent

(Pago Facil) Customer

Retailer as Delivery Channel

Retailer

(Elektra)Retail Store Cashier/Clerk

Retailer Becomes MFI

Customer


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Breakthrough 6. Offer Clients a FullSuite of Products

Monoproduct Full ServiceCredit Variety Credit & Savings

Credit:

Group

Individual

Credit:

Group

Individual

Housing

Consumer

Smallbusiness

Credit:

Individual

Group

Housing

Consumer

Vehicle

Smallbusiness

Pawn loans

Savings:

Current accounts

Programmed savings

Fixed deposits

Insurance:

Life insurance

Property insurance

Health insurance

Money Transfers andPayments:

National

International Utility bill payments

Credit:

Group

Individual

Housing

Consumer

Smallbusiness

Vehicle

Fixed asset

Pawn loans

Savings:

currentaccounts

Programmedsavings

Fixeddeposits

Payments:

Utility bills

From Mono to Multi-product


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Breakthrough 7. Leverage theMainstream Financial System

BankAlliances

With MFIs

Concept: MFIs Reach Clients More Effectively Conventional bank loan to MFI (many examples worldwide) Investment banking services (Citibank and Compartamos bonds) Bank purchases MFI portfolio (ICICI partnership model) Bank uses MFI as deposit collection agent (Brazil model of banking

correspondents)

Banks asRetailers

Concept: Banks Have Advantages MFIs Cannot Duplicate NGO-MFIs become banks (BancoSol, Mibanco, Compartamos, etc.) Bank establishes microfinance subsidiary (Pichincha, Sogebank) Bank adapts consumer lending to microfinance market (Banco de

Trabajo, Peru) Bank provides savings and payments services but not loans (Post

Office Savings Banks)

Mainstream banks offer: low cost of funds,

known brand, branch infrastructure,

technology, connection to payment

systems.


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Breakthrough 8. Create aSupportive Policy Environment

Basic Minimum Conditions for Microfinance to Operate Stable macroeconomic and political situation Liberalized financial sector with quality supervisors

MicrofinanceFriendly

Microfinance-Specific Concerns No interest rate caps market-determined Government respects its role as rule-setter, not service provider

May have special categories for microfinance

ForwardLooking

Policies & Regulations Keep Pace with New Developments Policymakers pursue access to financial services for all as goal Regulators work with industry to ensure security for new

technologies such as cell phones Regulators and industry cooperate to ensure consumer protection

A countrys policy environment

may determine whether or not

microfinance takes off.

mfi - eight business model

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