TECHNOLOGY FOR THE POOR: CHALLENGES & BENEFITS OF PDAS, ATMS, & MORE FOR MICROFINANCE INSTITUTIONS

1. TECHNOLOGY FOR THE POOR: CHALLENGES & BENEFITS OF PDAS, ATMS, & MORE FOR MICROFINANCE INSTITUTIONS ALICE LUI, DAI; ROBERT PERTET, K-REP BANK; VICTORIA WHITE, ACCION MICROENTERPRISE DEVELOPMENT IN A GLOBALIZING WORLD: A USAID LEARNING CONFERENCE JUNE 14, 2006

2. DAI/ACCION SURVEY INTRODUCTION

3. PROJECT OVERVIEW • Research conducted as part of the USAID-funded AMAP Financial Services Knowledge Generation project • Goal was to determine the penetration and impact of client-focused (non-MIS) technologies • Specific focus on personal digital assistants (PDAs), point-of-sale (POS)/smart cards, automated teller machines (ATMs), and mobile phones. • Three components to research – survey, deep interviews, and case study

4. SPECIFIC RESEARCH OBJECTIVES • Determine the level of usage of these technologies • Understand the challenges of implementing these technologies • Identify factors critical to successful implementations, high adoption rates, high level of usage, and growth in usage • Understand if these investments are producing business benefit for the MFIs

5. SURVEY DESIGN

6. DEMOGRAPHICS – ORGANIZATION TYPES

7. DEMOGRAPHICS – 21 COUNTRIES RESPONDED Out of the 54 respondents, 37 provided their contact info including location

8. GENERAL SURVEY OBSERVATIONS • High expectations for benefits of technology, especially Mobile Phones • Unclear if PDAs are delivering the benefits publicized in the media • Mobile Phone is growing fast • 1/3 of respondents already using today (14/42) – but lots of hype • POS is producing more positive results but need more data • ATM and Mobile Phone are in highest use • 60% of respondents (25/42) • PDA and POS/smart card still on people’s minds • 60% of respondents plan to invest next year in one or the other or both • ATM may be a “no-brainer”: • Highest current usage and “standard” in commercial banking sector • Highest technology in use by competition • Best match between benefits expected and received • Private commercial banks are making the most IT investments

9. PERSONAL DIGITAL ASSISTANTS(PDAS):MYTH VERSUS REALITY

10. PDAS EXCEEDED EXPECTATIONS FOR ONLY ONE BENEFIT AND FOR ONLY ONE MFI:

11. PDA BENEFITS BELOW EXPECTATIONS High number of MFIs experienced deficiency in the following benefits:

12. MFIS WERE MOST DISAPPOINTED WITH THE PDA CONTRIBUTION TO IMPROVED PRODUCT/SERVICE QUALITY AND REVENUE/PROFIT:

13. 100.0% Improved Product/Service Quality 80.0% 100.0% Standardization of Procedures and Processes 20.0% 80.0% Improved Productivity/Efficiency 60.0% 80.0% Better Information Flow/Data Quality 60.0% 80.0% Improved Competitive Advantage 40.0% 60.0% Improved Revenue/Profit 80.0% 60.0% Faster/More Accurate Credit Approval and Disbursement 40.0% 60.0% Increase in Number of Customers 0.0% 40.0% Reach Areas Beyond the Branch Network 40.0% 20.0% Increase in Savings Deposit Transactions 20.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% % Expecting Benefit "pretty much" or more % Having Deficiency PDAS MAY NOT LIVE UP TO THE HYPE

14. AUTOMATIC TELLER MACHINES(ATM):BENEFITS ARE REALIZED

15. ATMS EXCEEDED EXPECTATIONS IN ALMOST ALL BENEFITS: Total Respondents = 5

16. 100.0% Improved Product/Service Quality 20.0% 83.3% Increase in Savings Deposit Transactions 8.3% 81.8% Improved Competitive Advantage 45.5% 66.7% Increase in Number of Customers 25.0% 63.6% Reach Areas Beyond the Branch Network 18.2% 58.3% Improved Productivity/Efficiency 16.7% 41.7% Improved Revenue/Profit 16.7% 36.4% Better Information Flow/Data Quality 18.2% 33.3% Standardization of Procedures and Processes 8.3% 27.3% Faster/More Accurate Credit Approval and Disbursement 18.2% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% % Expecting Benefit "pretty much" or more % Having Deficiency ATM APPEARS MOST SUCCESSFUL AT MEETING AND EXCEEDING EXPECTATIONS

17. MOBILE PHONES:HIGH HOPES = HYPE?

18. MOBILE PHONE EXPERIENCE IS A LITTLE “BUMPY”:

19. 100.0% Reach Areas Beyond the Branch Network 60.0% 100.0% Improved Competitive Advantage 40.0% 100.0% Improved Productivity/Efficiency 40.0% 100.0% Standardization of Procedures and Processes 40.0% 80.0% Improved Product/Service Quality 40.0% 60.0% Improved Revenue/Profit 60.0% 60.0% Increase in Savings Deposit Transactions 40.0% 60.0% Increase in Number of Customers 40.0% 40.0% Better Information Flow/Data Quality 20.0% 40.0% Faster/More Accurate Credit Approval and Disbursement 20.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% % Expecting Benefit "pretty much" or more % Having Deficiency HIGHEST EXPECTATIONS FOR MOBILE PHONE

20. POINT-OF-SALE (POS):POTENTIAL VALUE BUT NEED MORE DATA

21. 100.0% Increase in Savings Deposit Transactions 66.7% 66.7% Increase in Number of Customers 33.3% 66.7% Reach Areas Beyond the Branch Network 33.3% 66.7% Improved Product/Service Quality 0.0% 66.7% Improved Productivity/Efficiency 0.0% 66.7% Better Information Flow/Data Quality 0.0% 66.7% Improved Competitive Advantage 0.0% 33.3% Standardization of Procedures and Processes 33.3% 33.3% Improved Revenue/Profit 0.0% 0.0% Faster/More Accurate Credit Approval and Disbursement 0.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% % Expecting Benefit "pretty much" or more % Having Deficiency POS PROVIDES EXPECTED BENEFITS BUT NEED MORE DATA

22. WHAT DOES THE DATA TELL US?

23. MOBILE APPEARS BETTER THAN PDA AT MEETING REVENUE/PROFIT EXPECTATIONS BUT WORSE ON COMPETITIVE ADVANTAGE

24. SUMMARY OF SURVEY OBSERVATIONS • Found contradictions • PDAs may not live up to the hype • High expectations for Mobile, but today see mixed results • ATMs appear to provide the expected business benefit • POS appears promising but need more data • Not a sample of entire MFI sector, measurements were subjective not statistical • More research/greater sample needed to draw firm conclusions • How did MFIs set and measure expectations • How did MFIs measure “benefits received” • Examine factors critical to successful technology implementations

25. TECHNOLOGY INITIATIVES AT ACCION AND K-REP BANK

26. K-REP BANKKASAINE OLE PERTET, CIO, K-REP BANK LTD

27. TECHNOLOGIES AVAILABLE IN KENYA • ATM/POS • Most viable alternative to traditional Branch Teller • Mobile Banking • 3.5M subscribers • Internet Banking • Proliferation of cyber cafes • Cost $0.2 per min • Smart Card/POS • Next generation community phones K-Rep Bank

28. ATM EXPERIENCE : OPTIONS AVAILABLE • Go it alone • Outsource • Hybrid K-Rep Bank

29. WHY HYBRID OPTION • Flexible • Grow at own pace • Cost effective K-Rep Bank

30. ATM EXPERIENCE : CURRENT POSITION • Live March 2005 • Growth < 1K to 20k t.p.m • 12 ATMs in several branches • 50 ATMS in shared network K-Rep Bank

31. ATM EXPERIENCE: BENEFITS • Reduced costs: both bank and clients • Increased efficiency: loan turnaround time • Increased deposit base • Increased client convenience • Increased revenue K-Rep Bank

32. LESSONS LEARNED : VOLUME, VOLUME, VOLUME • Business Model : Out Source Partner and Bank • Reliable Infrastructure • Location • Marketing • Training K-Rep Bank

33. VICTORIA WHITE, VICE PRESIDENT, INTERNATIONAL OPERATIONS

34. First Stage: 1999-2000 Second Stage: 2001-2003 Third Stage: 2004-2005 Current Stage • CrediPalm, first Generation of PortaCredit, is developed • The tool responded to the need of several MFIs to increase operational efficiency • Name change to PortaCredit • Implementation and roll-out in Bangente (Venezuela), Banco Solidario – Ecuador • 200 loan officers using the tool • Implementation efforts in Genesis (Guatemala), Finamerica (Colombia) • Use of CodeWarrier as primary programming language for the tool • Banco Solidario opts to switch to Pocket PC at end of 2005 • Successful results in Bangente – Venzuela continue due to great adoption by loan officers • Banco Columbia (Argentina) agrees to use the tool for its new microfinance venture with ACCION ACCION INTERNATIONAL – TECHNOLOGIES AVAILABLE PortaCredit: a tool that enables loan officers to collect and evaluate clients’ credit information on handheld personal digital assistants (PDAs) and directly upload the information into the MFI’s central database

35. ACCION INTERNATIONAL – TECHNOLOGIES AVAILABLE Credit Scoring:using historical trend analysis that links key client characteristics to risk, MFI can streamline evaluation form to reduce time required for evaluation

36. ACCION INTERNATIONAL – TECHNOLOGIES AVAILABLE Points of Sale (POS), using mag stripe or smart cards, can be installed at grocery stores, gas stations, and other locations to allow clients to make loan repayments and savings deposits closer to home.

37. ACCION INTERNATIONAL – FUTURE TECHNOLOGY INITIATIVES • Our Vision for new technologies: ACCION believes that true scale in microfinance will be reached when we have shared, standardized, and interoperable financial data systems. This vision points to the need for increased standardization across both the front-end systems (the payment systems) and the back end systems (the core banking platform) used to deliver microfinance services • Potential new technologies: • Debit Cards: current negotiations with Visa International to provide Visa debit cards to clients of ACCION’s affiliates. • Cell phones: current exploration of this technology and their application to microfinance • Cash deposit machines

38. LEARNING CONFERENCE STRATEGIC QUESTIONS • How do we ensure our work meaningfully contributes to the lives of the poor? • How do we help link the poor into economic growth opportunities in this era of globalization? • What is the current and potential role of private sector investment? • How do we serve difficult-to-reach populations such as those affected by conflict, natural disaster, and HIV/AIDS? • How do we define “success”? How do we achieve it? What else needs to be done, and by whom? • How can we, as individuals and as organizations, leverage our comparative advantage and maximize opportunities through close partnerships and strategic alliances?  Alice Liu, aliu@dai.com Robert Kasaine Ole Pertet, olepertet@k-repbank.com Victoria White, vwhite@accion.org Nhu-An Tran (Moderator), ntran@usaid.gov