Is Bangladesh Killing Cash Soon?: In Pursuit of a Mobile Money Ecosystem

Bangladesh, with a population of nearly 160 million and a landmass of 147,570 square kilometers, is among the most densely-populated countries in the world.  It remains a low-income country, with a per capita income of US$ 652 in FY09 and 40 percent of its population living in poverty. Despite periods of political turmoil and frequent natural disasters, in the past decade Bangladesh has been marked by sustained growth (with nearly six percent on an average in past one decade), stable macroeconomic management, significant poverty reduction, rapid social transformation and human development. Foreign remittances sent by expatriate Bangladeshis remain one of the most consistent sources of foreign currency in Bangladesh, which earned Bangladesh 7th position among the top remittance-receiving countries in 2010, as reported by Migration and Remittance Fact Book 2011 of the World Bank.

Still, the majority of the Bangladeshis are unbanked, and access to financial services is very limited. Commercial banks have very low penetration in rural areas, where over 75 percent of the population lives. There are less than two ATMs for every 100,000 adults in the country. All of these characteristics make it a good business case for expanding accessibility to financial services through innovations.

Mobile networks have expanded quite rapidly in Bangladesh over the past decade. Currently, there are six mobile network operators (MNOs) in Bangladesh covering more than 90 percent of the geographic territory and 99 percent (coverage wise) of the population in Bangladesh. Consumer demand in Bangladesh makes the mobile market one of the fastest growing in the world. For instance, over the past 15 months, Bangladesh recorded nearly 1.4 million subscribers per month. The total number of mobile phone active subscribers reached about 73 million at the end of March 2011, with about a 45 percent penetration rate in the whole country. The Government and the Central Bank now recognize that the mobile banking is as a unique opportunity for the banks to increase their presence in rural and remote areas of the country and serve a huge unbanked population.

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Banglalink, the fastest growing telecom operator in recent years, is the pioneer in testing out mobile money initiatives in Bangladesh. The products it has recently launched along with other partners (such as banks and post offices) are as follows: (i) M-remittance (International and Local): which allows people to receive international remittance in the m-wallet account; enables local fund transfer P2P from one m-wallet to another m-wallet; facilitates cash deposit from “cash points” and other sources; and provides for cash withdrawal from “cash points”; (ii) M-payment (Utility): allows payment of utility bills using m-wallet; and (iii) M-collection: facilitates the purchase of train tickets.

M-remittance services are meant to address widespread issues such as inability to send money frequently, delays experienced while sending money, and issues related to insecure distribution and inconsistent delivery methods. It is also helping small entrepreneurs (agents) use part of the remittances which the receivers often do not withdraw all at once. The use of m-remittance services offered by Banglalink is picking up gradually. Around 1000 transactions are being reported across the country at the Banglalink mobile money agents/points. Users like the service for its fast and cost effective disbursement, as Banglalink found in its own market study.

Among many recent initiatives is the creation of a new organization called bKash — a scalable mobile money platform that will allow poor Bangladeshis to store, transfer and receive money safely via mobile phones. bKash is a joint venture of BRAC Bank Limited and Money in Motion LLC, USA, created out of a generous $10m grant from the Bill and Melinda Gates Foundation to ShoreBank International, an international consulting firm. The grant forms part of the Foundation’s $500m pledge over the next five years to expand savings and build a “new financial infrastructure” to bring savings services to the poor.

With mobile density of 45 percent and mobile retail density averaging 0.5 in each village, like many other countries such as Kenya, South Africa and the Philippines, Bangladesh also has enormous opportunity for financial inclusion through creating a solid “mobile money ecosystem”. This arguably will contribute to greater efforts at poverty reduction and economic development in Bangladesh.

(The writer/blogger is a Graduate student of Development Economics and International Finance at the Fletcher School of Law & Diplomacy, Tufts University)

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Tech savvy microfinance: low cost or increased threat?

Microfinance is a business of scale. It operates on principles of maximum utilization of finance, with minimum cost. As microfinance serves tens of thousand clients in its endeavor of empowerment of poor, saving even several cents per micro loan transaction matter very much. This is why the advent of new technology matters for microfinance. Technology allows micro-finance institutions (MFIs) to save those pennies otherwise spent on inefficient techniques and methods of transactions.

Microfinance thrives on economies of scale. Therefore it is highly sensitive to variable costs. By saving as much as possible, the MFI could then pass the benefit to its clients. The Point-of-Sales (POS) and mobile phone technologies are but two such methods that enable these savings. These technologies, identified as key components for the industry, were already in place by the beginning of the new millennium. The rapid developments of technology through specialized mobile apps, rapid fire internet and broadband, coupled with savvy marketing techniques have also opened up microfinance to a new and exciting era to scale its costs further down. Personal Digital Assistants or PDAs, smart phones, net books and laptops and even the new advances through i-phone and i-pad has increased customer attraction while decreasing cost of transaction for the MFI network.

Benefits attributed to these techniques are many. With the advent of mobile banking apps and banks allowing online facilities for mobile payments, MFIs and its clients found reliability, speed, low cost access and security for their transactions. MFIs found economies of scale among suitable countries. Business plans thrived with the mass market and rapid transition of technology.  India with its 370 million and rapidly expanding (about 15 million subscriptions per month – in 2010) SIM card network, Pakistan with 90 million customers with 2 million monthly additions, Philippines and Indonesia with rapid growth and access to mobile networks, South Africa with Wizzit virtual commercial bank facility are but several examples of the dynamism created and spurred through technology. Mexico, Venezuela, Ecuador, Dominican Republic has shown increased usage of PDAs, which has helped MFIs to standardize their transactions. New tech on biometrics has facilitated fingerprint recognition, while photo recognition further increased the security of each client transaction.

The advent of technology along with tech savvy market has made the reliance on paper currency less and on mobile cash more. But are the advantages of mobile cash seamless and is it devoid of any possible threat? What would the future hold for the MFI?

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Five business case insights on mobile money

-by Kabir Kumar & Toru Mino

Today, we share with you a presentation that describes in detail five ways mobile network operators (MNOs) can think about the mobile money business case. MNOs across the globe are investing millions to develop and market mobile money. Estimates claim at least 30 implementations in Africa where MNO-driven financial services are an important part of the financial inclusion landscape. Despite the bets being placed by MNOs, the business case remains uncertain in almost every implementation. 

Last year we surveyed MNOs to assess their expectations of the business case. Since then we have done analysis of two implementations (with the help of Dalberg and a major mobile money service in Africa) and taken a few steps further to understand the relationship between the business case and market structure (with the help of Bankable Frontier Associates). 

Our analysis resulted in the following five insights which are backed by data in the presentation and which we expand on in subsequent posts:

How to think about the overall revenue potential?

1. Mobile money contribution may be small compared to current MNO total revenue but could be important for future revenue growth. We believe few operators will ever meet the high expectations they have for mobile money as reflected in their responses to our survey – direct transaction revenues as 10% of overall operator revenues with three years. However, mobile money may just be the biggest source of overall revenue growth as average customer revenues on voice keep falling.

2. Mobile money success is highly dependent on the size of the MNO’s voice customer base. The vast majority of mobile money customers are likely to come from the pre-existing voice base. Mobile money by itself has not been shown to be a powerful tool for voice customer growth and acquisition, so it is even more important to come in with a large pre-existing customer base. As a result, our basic modeling exercise shows that revenue potential is greatest for the largest MNO in a market, even when it is not the first mover. There are a number of implications from the overall market structure which we describe in the presentation.

What are the most critical business case drivers?

3. Direct profit from mobile money depends on growth in “electronic-only” transactions. While there are other key drivers of direct revenue growth, the most significant driver is ultimately growth in electronic transactions per deposit or cash-in because of a simple combined effect: less use per transaction of cash-in/cash-out at agents (which is the lowest margin earning part of the business) and more use per transaction of the electronic platform (which is the highest margin earning part of the business).

4. There are indirect benefits of mobile money to MNOs, but these only become significant when mobile money reaches scale. MNOs should account for savings from indirect benefits (as others have recommended), especially when the business has “too many mouths to feed” in the value chain, either agents or bank partners or others. However, operators need to realize that these benefits are only significant at scale, which may be 20% of the voice base as active (not just registered) mobile money customers.

How should MNOs think about scale and profitability?

5. To capture long-term profits beyond domestic transfers, mobile money implementations will need to “leave money on the table” in the short term. We want all MNOs to scale in the way M-PESA Kenya has in the last four years, but that is clearly proving to be elusive. MNOs know that the prize is everyday small merchant payments (which is the larger payments market), where they seek to get a foothold with domestic transfers. But pricing schemes that make them competitive in the traditionally expensive domestic transfer market keeps them out of the larger market of merchant payments. If they price lower, they will give up some profits from domestic transfers (“leave money on the table”), but in turn open higher overall gains in the long term, as we illustrate in this presentation

– Kabir Kumar & Toru Mino

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“Money laundering”: the bane of the microfinancier!

Laundered money is never clean! In fact it is dirtier than before. Money laundering allows the criminals to disguise the origin of money, which came from illegal or criminal activities. More technically put, it is “an organized process that introduces direct proceeds from criminal activities or cash derived from suspicious transactions into the formal financial system”. It is performed through placement (introduction), layering (disguising) and integration (inclusion) of monies into the financial spheres of the world. The process is age old and was not identified by the name money laundering although used by noted mobsters such as Al Capone using speakeasies and casinos, and teamsters like Jimmy Hoffa using the cover of trade unions. The purpose is to rid the money of its tainted nature and to give it an appearance of legitimacy. Banks and financial institutions are often key targets for money laundering, with disastrous results in the end. One such event is the BCCI banking fiasco.

Does microfinance provide a soft underbelly that could be exposed to money laundering? The answer lies in the purist vision surrounding microfinance, which is empowerment of the poor and eradication of poverty. Due to the magnanimity of this vision, microfinance industry always needs a large influx of seed money from numerous donors and financiers. Often these financiers appear in the form of venture capitalists, most other times they represent the middle class investor community. The threat of money laundering begins with this; a possible inclusion of criminally acquired funds in the great melting pot of microfinance industry.

Could money-laundering suspicions thwart the goals of MFIs? Yes it could. Due to lack of adequate screening or lapses in the regulatory mechanisms of countries, MFIs provide vast opportunities to the money launderer to siphon tainted money into formal financial sector (introduction). The numerous projects undertaken by MFIs provide the ideal foil for money launderers to structure the ‘dirty’ money in such a way as to disguise its true origin (layering). Once these steps were successful, the returns obtained after a time through recognized banking/financial institutions provides the last building block of the money laundering process (integration). If successfully done, the monies received would not only have lost its tainted nature, cleansed by the rinse cycles of microfinance programs, but also increased due to the interest earned as the time value of money! 

The MFIs are keen to prevent money laundering, as it directly affect the integrity of the industry and hence the future of microfinance. Stringent screening and Know Your Customer (KYC) policies, such as the Nigerian example may at present seem adequate for hard currency. But is this approach sufficient in view of the increasing technological advances made in the financial sector and the rapid spread of mobile commerce? How do we approach this issue?

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Mobile cash, cellular phone and empowerment of poor

The rapid development of technology made the cellular phone cheap and accessible for the poor. The mass-market appeal of carrying a cellular phone spread across landscapes where fixed line operators baulked at providing service. India is a good example for this rapid growth of cellular communication. Indian Department of Telecommunication’s most optimistic survey identifies this rapid growth at almost 500 million mobile connections by 2010. With the increased mobile access came the increased use of mobile applications, and provided a responsible portal to the financial institutions to access the rural community.

Most importantly, the increased access through the growth of cellular phone users opened up the micro finance sector to the rural community. Paradigm wise, to the poor, the banks and finance institution served the rich and the middle class. To the banks and finance institutions, the rural villages were inaccessible and its population was ‘unbankable’. The Central Banks’ tough regulations and bank credit evaluations, credit scores and anti money laundering – know your customer (KYC) requirements aimed at a group of people that lacks proper documentation, proof of identification, permanent residences etc., identified the majority of rural population as ‘unbankable’. Also, the loan amounts required were too small to invite the banks to open up branches as the cost of opening up a bank branch, its maintenance and employment of staff was viewed as not feasible in terms of corporate revenue generation. The poor were not encouraged to bank their money, which was in very small amounts. Lack of awareness, cost and time taken to travel, easy availability of your friendly neighborhood moneylender and informal practices of pawning of valuables with the wealthy of the village kept the poor out of banking services.

In such environment, the growth of mobile communications and rise of popularity for mobile apps in transferring funds, news alerts, text messaging and reloads through remote kiosks created a new awareness among the community. This new awareness fueled microfinance institutions (MFI) ready to utilize the cellular phone as their business platform of approaching rural customer. Transfer of money internationally was made easy and less costly due to the extensive reach of the mobile network. The benefits allowed the MFI to search for more niche markets and to tweak the system to gain more borrowers. Some MFIs financed the cellular phone and even the cellular connection. The borrower sold the services of the phone and repaid the micro-loan through the small fee charged per each use from his customer, who may want to call his far away relative, receive a text, receive money transfer details etc.

Anand Shrivastav identify Philippines as having one of the most successful micro payment applications at present, covering over 3.5 million subscribers and using two networks. The key success factor for the market was its ability to “top-up” or reload value to their cellular accounts, thus transferring cash over cellular service. Typical top up value was around 47-57 cents (US$ terms). Development of local language apps increased the attraction to use the cellular phone. In India, Fino acts as an application service provider for microfinance institutions.

The rapid growth of cellular phone industry has increased mobile commerce among the global community but could it also provide an avenue to the rural subscriber to earn money and most of all to empower him/herself. Could this be the beginning of the end for cash, being replaced by an encrypted text message?

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Mobile technology, the gateway for financial inclusion?

In developing countries as Haiti or Senegal, in rural areas in El Salvador or India, powerful women and men try to cope in a constant fight against destiny, nature, casts or politics. In spite of these challenges, their ability to manage scarce resources is outstanding. In order to help such efforts, small scale lending for the poor has been used from Jonathan Swift in Ireland 200 years ago to Grammen Bank and BRAC in the 70’s in Bangladesh.  Even though the improvements are notorious, the challenges are becoming more complex.

In 1990, Dr. Parker Shipton gave an important spin to the debate about how to tackle rural poverty by emphasizing in the role of savings. His paper How Gambians Save gave us an interesting inside about how rural Gambians save and the notion of credit as debt. Also, encourage the international community to focus on fostering savings rather than imposing the burden of debt on people. His anthropological insight underscores the importance of understanding cultural dynamics when implementing microfinances interventions.

Continue reading

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10 Things You Thought You Knew About M-PESA

Few initiatives in microfinance, or for that matter in development, have been as successful as M-PESA: 3 and a half years after launch, over 70% of households in Kenya and more importantly over 50% of the poor, unbanked and rural populations use the service.  I am often struck by how many people fail to be inspired, or even doubt M-PESA. Skepticism is often bred from lack of information.

What about you, how much do you really know about how M-PESA actually works? Here are 10 things you may have thought you knew about M-PESA!

This intro to M-PESA/mobile-money FAQs–some of which are actually never asked but should be–was posted by Claire Alexandre, senior program officer at the Bill & Melinda Gates Foundation on the CGAP (World Bank) blog. Here’s the Top 10 list.

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KILLING CASH Conference – April 22, 2011

Welcome to the Killing Cash Conference blog! Please visit our conference website here.  More updates coming soon!

If you plan to attend the conference and would like to contribute to this blog’s content, please email

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