Innovation in Latin America: New Technologies for Financial Inclusion

Speakers:

• Serge Elkiner, CEO and Co-Founder, YellowPepper
• Alberto Jimenez, Director, Global Mobile Solutions, Citigroup, Inc.
• Camilla Nestor, Vice President, Microfinance, Grameen Foundation
• Fermín Vivanco, Senior Specialist, Multilateral Investment Fund (MIF), Inter-American Development Bank (Moderator)

Summary

On November 30, Americas Society/Council of the Americas hosted its fifth annual microfinance panel in partnership with the Multilateral Investment Fund’s New Technologies for Financial Inclusion program. Speakers presented a range of perspectives on the role of technology in the development of financial inclusion models in Latin America. The discussion highlighted recently launched models in the region, as well as the importance of using technology, not only for financial gains, but also for social development.

Technology and financial inclusion: creating synergy across sectors

Speakers on the panel represented a variety of industries, including non-profit and multilateral organizations as well as banks and financial service providers. The panelists agreed that the multi-faceted nature of mobile financial inclusion models requires active partnership across these sectors.

Camilla Nestor of the Grameen Foundation spoke about her organization’s newly launched program for agricultural workers in Colombia that is a joint project with MasterCard. According to Nestor, agriculture encompasses about 75 percent of Latin America’s economy, but only 6 percent of microfinance clients in the region work in this area. Grameen intends to implement a system to deliver agricultural and health information through mobile phones to its clients with MasterCard, beginning with banana and cocoa farmers.

Alberto Jimenez of Citibank explained the bank’s current joint venture called “Transfer” with América Móvil. “Transfer” will launch in Mexico in the first half of 2012, and then expand to Guatemala, Colombia, and eventually other parts of Latin America. Jimenez noted that one-third of América Móvil’s 65 million clients do not have access to formal financial services, and this initiative will take steps to bridge the gap. Serge Elkiner of YellowPepper also noted that a significant number of mobile clients lack access to banks in Latin America. The case is most pervasive in Haiti, where 85 percent of local phone service provider Digicel’s 3.5 million subscribers do not use financial services. YellowPepper partnered with Digicel and Scotiabank in Haiti, and used a grant from USAID and the Bill and Melinda Gates Foundation to launch a financial service model called TchoTcho Mobile. The mobile wallet program allows users to “make deposits, transfer funds, pay bills, and receive government aid or NGO grants, all via text message.”

Panelists agreed that there is a need for joint ventures, because these types of projects require expertise from the finance and technology sectors as well as collaboration with governments and non-profits. But such partnerships often come with challenges. Elkiner noted that “people are afraid of jeopardizing the traditional line of business” and in order to settle these fears, stakeholders must ensure a profit for all parties involved, or else “the system will die.” The interoperability of banks and telephone companies is another challenge. According to Elkiner, banks in Latin America are more developed in terms of interoperability, but telephone companies are not. In order for these partnerships to work, each sector needs to understand the other’s behaviors and operations. Nestor concurred, saying that the “business model is the real issue,” especially since such operations are in early stages of regional deployment.

Measuring success: beyond banking the unbanked

When considering success for such initiatives, panelists agreed that understanding the client and creating a culture of savings is just as important as financial returns and large-scale deployment. Vivanco cited a recent survey by the Corporación Andina de Fomento noting that “half of the population in Latin America has a bank account, but only 21 percent use formal financial systems to save…and most bank accounts remain inactive.” This figure is even lower for Latin America’s poorest, since most maintain their savings in cash and liquid assets.

Companies and organizations must also build trust and confidence in the system, which requires a thorough understanding of the client population. “It’s about how the ecosystem behaves, not just promoting savings,” says Jimenez. Nestor and Elkiner stressed the importance of conducting ethnographic research and focus groups to study how the population uses technology and financial products. Literacy training is also a crucial aspect of implementing financial inclusion projects through mobile technology. “Financial inclusion is not just about access, but knowledge and education,” says Nestor. Mobile penetration isn’t the problem: in Latin America, it’s close to 100 percent. But because some countries have low literacy rates—in Haiti, for example, the figure runs at roughly 50 percent—launching mobile programs that require reading can be a challenge. Nestor and Elkiner agreed that the answer lies in education, which requires collaboration with local grassroots organizations.

Lessons from Africa and Asia

Jimenez pointed to successful mobile financial services in Africa and Asia as potential models for Latin America, such as Grameen’s mobile microfranchise in India and mobile health initiatives in Ghana. M-PESA—M for mobile, pesa for money—is a widely successful mobile money transfer service for Vodafone users originally launched in Kenya. All panelists agreed that M-PESA has had the most success in Africa. But according to Nestor, few M-PESA clients use the model for savings. Institutions in Kenya such as Equity Bank have promoted savings but are making slow progress.

Yet, Latin America cannot simply replicate these Asian and African models. Elkiner pointed out that it is important to differentiate between less developed financial markets such as Haiti with more developed markets like Peru and Brazil. Regulatory environments are also relatively more lenient in Latin America. Jimenez explained that on a regulatory spectrum, in which the Philippines is most lenient and India is the least lenient, Latin American countries fall somewhere in between.

Jimenez also noted that M-PESA hasn’t moved into Latin America for one simple reason—Vodafone doesn’t have a presence there yet. But there is still ample opportunity for the region to invest in mobile financial services: “We can really accomplish many more things here because we’re beginning from zero.”

M-banking and the future of formal financial systems

Panelists viewed mobile banking as an important tool for the development of microfinance and financial inclusion in Latin America. Nestor predicted that a majority of Latin Americans will begin banking through mobile financial inclusion, and said microfinance institutions (MFIs) could be left behind unless they begin to innovate quickly. Elkiner expressed his belief that microfinance will not disappear, but will need to consolidate partnerships and “get on the mobile bandwagon.” He also pointed out the example of CompartamosBanco in Mexico, which originally started as an MFI and eventually turned into a successful development bank. According to Elkiner, partnership across all sectors involved is the key to success.