Achieving Financial Inclusion with ICTs: The Donor Role

With an estimated six billion cell phone subscribers worldwide, development actors are embracing the potential of using phones and other information and communications technologies – ICTs - for development purposes. Ecdpm’s Kathleen van Hove asks CGAP microfinance specialist Antonique Koning how donors can maximize their impact in this new arena, with particular focus on the use of mobile devices as part of the delivery mechanism for financial services.

A lab session at the recent European Development Days dedicated to “Achieving Financial Inclusion with ICTs” provided healthy discussion on how to leverage digital technology to provide financial services for the ‘unbanked’ – the billions of people in developing countries that do not have access to banking facilities. 

An interesting aspect in this discussion is the role of the donors.

Lab session panelist Antonique Koning is from the global think tank CGAP, which consists of 34 funders who share the mission of promoting and advancing financial inclusion for all. CGAP recently published the research paper, Emerging Lessons of Public Funders in Branchless Banking.

In a conversation with ecdpm’s Kathleen van Hove on the sidelines of the DevDays, Ms Koning addressed potential public funder donors, advising them - first and foremost - to be strategic in their approach.

Please watch the video interview here, a transcript of which follows below:

Antonique Koning:  “I believe that public funding can play a catalytic role in pushing the frontiers and pushing the private sector into areas and new spaces that otherwise it would not go. 

“There are a couple of things that funders should keep in mind while doing that: 

(i) The market condition and context itself: the characteristics of the market and stage of its development.  We see some markets that have already picked up on mobile financial services – Kenya being the big example - but other markets are not ‘there’ yet. There are characteristics, such as levels of income and population density, which make up a different context for a market. 

(ii) Funders need to consider their own strategy and capacity to be active and engaged in this area. It is critically important to have in-house expertise to do this well. For those funders that may not have the level of expertise required, it may be useful for them to work through market facilitators that are on the ground, that have good market intelligence and have the capacity to interact with the multiple stakeholders that are engaged in this world of mobile financial services.  

These stakeholders range from the regulator, to the mobile network operators, to the banks, agents networks and the clients themselves.  There are a variety in the relationships in that context. 

(iii) Keep in mind the availability of private funding. As we all know, public funding needs to be catalytic, and needs to be used in the SMART way.  Therefore, try to ‘crowd in’ private capital and not ‘crowd it out’.  Be purposeful and focused on the final outcome that we would like to achieve - that could not happen without a public funding.   So, (it is best to) target those outcomes that are most poverty related, to reach the clients that otherwise would not be reached.

Kathleen van Hove:  When they have met these pre-conditions, what can a donor usefully do in this area?

Antonique Koning:  Donors have a range of tools to themselves. They have knowledge, they have relationships, they have resources, and they have different instruments.  It does depend on the maturity of the mobile financial services market, but in most markets it is most appropriate for public funders to interact and support at the industry level, so that whatever they do and provide in terms of assistance then benefits all of the industry players. 

(i) One of the obvious places to start in the mobile financial services world is in regulatory reforms: helping central banks and regulators get the right enabling environment at the regulatory level to create level playing fields for all partners to engage. 

Those frameworks need to be both open enough for innovation, but also balanced enough to ensure the stability for the financial system and protection of clients.

If you want to get engaged here as a funder, it is only appropriate for those funders that already have relationships with the central banks, that have the necessary capacity and expertise on regulatory reform, of course. It requires a specialisation.

(ii) In more developed markets, like Kenya, you could engage with the government, even beyond the regulatory framework, to try and encourage them to channel more of their own payments - for instance, cash transfers, welfare programmes - throughout the mobile financial services network. 

This could reduce the costs for the government and reduce leakages, but also ensure that those clients that are at the other end, receiving the cash transfers, are closer to the financial system and hopefully will also get financially included.

For the industry, the benefit is that this increases the volume of transactions, which in the end, also makes the economics work much better.

(iii) Another area is generating public goods. This is still a relatively new area where we see a lot of unknowns - what is the right business model?  How do we develop the right products so that people do get the right services in their hands?  How do we improve customer uptake to get people from being registered clients to being clients that are actually transacting and using more services? 

A lot of work can still be done in market research, and putting that to the disposal of market actors who can take it forward and do something with it. 

(iv) The last area is funding the branchless banking operations themselves, with grant support, for instance, or other instruments.

Much care needs to be taken here, however. It involves subsidies and, as in other areas of development, these subsidies need to be SMART, and smartly invested to make sure they don’t ‘crowd-out’ but that they ‘crowd-in’ the private sector; that they are performance based and very much focused on the challenges that are faced by customers. 

This collaborative piece was drafted with input from Kathleen van Hove, Antonique Koning and Monica Peiro-Vallejo, with support from the capacity4dev.eu Coordination Team.