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Eko Mobile-Enabled Savings via the Business Correspondent Model in India

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Posted: July 16th, 2012

By Grameen Foundation

Grameen Foundation

This is a guest post written by Debbie Dean (Project Director, Microsavings Initiative) and Camilla Nestor (Vice President, Financial Services) from Grameen Foundation.


When we launched our microsavings initiative – a three-year project funded by the Bill & Melinda Gates Foundation that aims to reach 1.45 million new savers across three institutions in Ethiopia, India and the Philippines – we set out to answer a range of questions, including:

  • Will the poorest save via a mobile-enabled channel?
  • Can you create a workable savings business model for all parties using a business correspondent approach?

In India, microfinance institutions aren’t permitted to intermediate deposits, and regulators are encouraging the business correspondent model to further financial inclusion.  The Reserve Bank of India (RBI) permitted banks to use the services of intermediaries who act as business correspondents (or agent) to provide banking services.

We saw an opportunity to test the potential of the business correspondent approach as a means of scaling mobile savings services for the poor, working with our long-time partner, Cashpor, an MFI operating in two of India’s poorest states – Bihar and Uttar Pradesh.

Grameen Foundation launched a partnership to test and scale this mobile-enabled business correspondent approach with the following institutions: ICICI (India’s largest private commercial bank, which holds the savings deposits), Cashpor  (the “business correspondent,” which uses its deep field network to originate and service the deposit accounts) and Eko Technologies (the technology partner, which enables a fully mobile-enabled approach as well as coordination among Cashpor’s and ICICI’s back-office systems).

A Mobile-Enabled Savings Product for the Poor

In our initial client-level research, we learned that 20% of Cashpor’s clients owned a mobile phone, 60% had access to a mobile phone and 20% had no access to a phone. With these statistics in mind, we launched the first savings product nine months ago – a no-frills account (NFA). In India, NFAs have limited functionality – they do not require ATM cards, have no opening/minimum deposit required and do not use check books – but they do allow the client to select whether they want a “pay per use” plan (in which they are charged per transaction) or an unlimited annual plan.

Cashpor customers can open their NFA account and make deposits and withdrawals during weekly center meetings using the mobile phone.  Microfinance clients attend weekly meetings ( which occur close to their homes) to repay their loans.  In this meeting, the center manager not only collects the loan repayments, but also collects deposits and makes withdrawals.  Also, they can check their balance at any time via the phone. Customers conduct their banking via SMS, using a unique set of numbers that informs Eko Technologies of the type of transaction (deposit, withdrawal, and balance inquiry) they are performing.  Eko’s solution works with multiple mobile network operators, making it an agnostic network that maximizes outreach to Cashpor’s client base.

Nine months into project launch, the results so far speak for themselves: More than 60,000 savers have opened accounts, with an average of 250 people opening a savings account each day. The average savings balance is 348 rupees (US$7.50), and the average balance has been increasing at a rate of 15% per month.

Key learnings

Though we are starting to see initial successes, there have also been a number of challenges on our path to provide mobile-enabled savings for the poor.  We have identified several key learnings for similar business correspondent model approaches targeting the poor and the poorest:

1)      For an MFI like Cashpor, originating and servicing savings – but not intermediating them, and thus not generating revenue from lending the mobilized funds – there are fundamental business model questions.  Cashpor makes the business correspondent model economically viable by providing a full suite of financial services, including pension schemes, money transfers, credit and savings. Cashpor also utilizes its existing credit infrastructure, meaning that savings are evaluated using marginal costs.

2)      Getting the business model right for all parties – including clients – is a challenge. And once the business model is in place, it can be difficult to make tweaks to the products and/or delivery channel given the tripartite agreements in place.

3)      Working together across three partners (ICICI Bank, Cashpor and Eko) requires strong communication flows, ensuring that all parties agree on the objective and that all believe they have an equal stake in the outcome of building a successful business correspondent model.

4)      Clients are hungry for a safe place to save. We are seeing the volume of transactions and the average savings balance increase month-over-month.   And, the very poor can and do save – 68% of Cashpor’s savings clients live below the $1.25/day poverty line, and the vast majority of Cashpor’s existing clients live below the $2.50/day line.

5)      Just because the poor own a mobile phone, it doesn’t mean they know how to use it. ”Mobile phone literacy” is just as important as financial literacy. Initial market research showed that some customers knew only how to press the “green” button to answer and the “red” button to hang up. We needed to place a strong emphasis on educating the customer beyond just why and how to save, but how to use the phone to perform transactions, what to look for in the English-based SMS confirmations and how to ensure that their money is safely in the bank (so if they lose their phone, they don’t lose their hard-earned savings).

6)      Training Cashpor’s field staff to be agents meant that they had to change their interactions with the customer.  It’s not just training on the savings product; other critical elements include training on the change in processes, how to interact and engage with their clients, and how to continue to provide good customer service in this new model.

Though there is still much to be learned from our work with Cashpor, there is promise in this business model.  We are looking forward to the challenges ahead of us, creating solutions to resolve them and ensuring that we have created a business model where all three partners can continue to provide savings services to the poor and poorest.

Notre Dame, MIT Economists Demonstrate Wage Impacts of Large Microfinance Program

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Fonkoze Credit Center – Participants in Chemen Lavi Miyó, a program offered by Fonkoze (a microfinance organization). The participants meet twice a week in Mirebalais, Haiti, to learn basic life skills. Photographer: Laura Elizabeth Poh

A major argument in favor of microfinance is that the poor who live in areas without banking services will gain higher returns on investments and increase their assets when provided with credit.

But a notable new study from the Consortium on Financial Systems and Poverty presents some of the first real evidence of microfinance impacts and indicates that the true returns of expanding access to credit are much more complex. Some of the greatest benefits to alleviating poverty, the study suggests, may be in the impact the programs have on driving up wages.

The research, by economists Joseph P. Kaboski of the University of Notre Dame and Robert M. Townsend of the Massachusetts Institute of Technology, examined changes in behavior resulting from the Thai Million Baht Fund. This initiative by the government in Thailand transferred one million Thai baht (about $24,000 at the time) to each of 77,000 villages throughout the country. The goal was to increase available credit and stimulate the economy. The findings were published earlier this year in the journal Applied Economics.

The CFSP study found that the village fund had the desired effect of increasing overall credit in the economy, and, in fact, in the long run, the program led to an overall expansion of credit. More significant, the authors argue, is that that wages increased by approximately 7% in a typically-sized village during the first two years that were tracked.

“This paper is the first real evidence we have on wage impacts of microfinance,” notes Kaboski. “The impact on wages is important in terms of the potential of microfinance as a poverty reduction program. Only a relatively small fraction of the poor want to borrow from microfinance, but a much greater share of the poor work, and might therefore benefit indirectly from an increase in wages. We are far from understanding the mechanisms, but there is great potential here.”

The authors suggest that the wage impacts may be because the fund led to a more efficient distribution of capital to entrepreneurs, which then increased the demand for labor. The study recorded that the wages increased for general non-agricultural labor, such as construction in the villages, but not for professional occupations or occupations outside of the village.

Additionally, the study showed, other effects of the injection of credit were more short-lived, including a notable jump in consumption, and increases in borrowing, business and labor income, and investment in agriculture.

The authors report that further examination of the data is underway. Their findings are based on an economic model they developed, using data captured as part of the Townsend Thai Data project, a monthly household panel survey that Townsend has led since 1997.

The paper, “The Impacts of Credit on Village Economies,” was published in the journal Applied Economics earlier this year.

Source: AAAS EurekAlert

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