FINO: The Technology for Financial Inclusion in India

India may be the most talked about country whenever experts discuss about financial inclusion. Recently, there were many debates among experts on India's financial institutions, including the controversial decision of SKS Microfinance to go public and the infamous suicides of Indian farmers in Andhra Pradesh.

Despite the negative publication, experts still turn to India to learn about groundbreaking methods in accelerating financial inclusion. India remains the most innovative country in terms of leveraging ICT to promote financial inclusion. One of the innovations came from a company called Financial Information Network & Operations (FINO) that claims to be the pioneer of total financial inclusion network in India. FINO delivers integrated technology solutions for financial institutions that serves people at the bottom of the pyramid. Operations at the grassroots level are carried on by over 10,000 agents that are spread throughout India. FINO created a platform that combine three pillars, which are Core System, Distribution System and Information System.

Based on the three pillars mentioned above, FINO developed the following products to bank the unbanked:

1. FINO Mitra (Mobile Information and Transaction)

Similar to UBL's OMNI branchless banking, FINO Mitra enables customers to utilize their mobile phones to conduct banking transactions through short message service (SMS), interactive voice response (IVR) and mobile based applications. Customers can also open a bank account at FINO agents by registering for FINO Mitra using biometric-based technology.

2. FINO Parichay

The Permanent Account Number (PAN) Card is an important identification card in India. However, many people from the lower class don't have a PAN Card because they can't credibly establish their identities. Having no identity means no access to services such as financial loans. FINO Parichay provides a card where people can uniquely establish their identity. Like every other identification, the FINO Parichay card has the individual's photograph and personal details as well as a smart-chip that holds finger print data that can be used for verification purposes. This card is also used by the government to validate social security benefit recipients and deliver national health insurance.

3. FINO Tijori

This technology is a biometric smart card specially designed for financial institutions that operate in the microfinance space. The smart card not only functions as a passbook, but also an ATM card. Once a customer owns the card, financial institutions can offer other financial products such as loans, remittance and insurance. FINO agents use a handheld device to swipe the card and scan fingerprints whenever a transaction is processed.

With a 100% annual growth since FINO was first founded in 2006, FINO's clients now include 23 Banks, five Insurance Companies, 10 Microfinance Institutions, 17 State Governments and 6 Enterprise Businesses that serves more than 30 million customers. FINO is definitely in the forefront of financial inclusion efforts in India.

References:
http://online.wsj.com/article/SB10001424052748703609004575355460120599280.html
http://www.bbc.co.uk/news/world-south-asia-11997571
http://fino.co.in/

http://www.indiamart.com/company/2754503/products.html#fino-mitra
http://www.sksindia.com/

A Case Study of Pakistan: Part 2

I will continue to write about Pakistan's United Bank Limited (UBL) innovations in information and communications technology to promote financial inclusion.

1. Benazir Income Support Programme (BISP) smart card pilot

The sharp rise in oil prices in 2008 was a catastrophe for underprivileged people. In response to this problem, the Government of Pakistan initiated BISP where families living below the poverty line could receive cash assistance every month. Initially, checks were delivered by mail to a beneficiary's door. In 2010, BISP partnered with UBL to pilot a smart card method.

The BISP card had a chip embedded on the front and a 2D barcode containing the Computerized National Identity Card (CNIC) number on the back. A BISP beneficiary was also given a PIN by mail in addition to the BISP card. Every month, the beneficiary could visit an OMNI agent who would scan the 2D barcode and asked the beneficiary to enter the PIN into the agent's mobile phone or keypad to authenticate the transaction. Once authenticated, cash would be paid to the beneficiary. With more than 2.5 million people receiving support, BISP was the largest cash transfer program in Pakistan in less than three years.

BISP smart card

2. The Watan Card Program - 2010 Floods

In July 2010, one-fifth of Pakistan's total land area was inundated following heavy monsoon rains, which affected approximately 20 million people. The National Disaster Relief Program partnered with Visa Inc., UBL and two other banks to disburse aid. UBL issued pre-paid Visa debit cards, also known as Watan cards, loaded each with Pkr 20,000 (US$230) in which beneficiaries were able to withdraw cash with no charge at an ATM or an OMNI agent. Moreover, Visa and the Government of Pakistan also established the infrastructure that allowed beneficiaries make purchases or withdraw cash in local merchants.

With a vast network of branchless banks, UBL was able to execute various humanitarian projects throughout Pakistan with methods that were similar with one another. As I mentioned in the previous post, even though UBL's programs were not mainly for financial inclusion purposes, people were 'forced' to be included in financial activities and became familiar with banking products. Having the infrastructure readily available, UBL was able to gain new clients in a relatively short period of time and accelerated financial inclusion for Pakistani citizens. As Ali Arshad Hakeem, National Database and Registration Authority Chairman, said:

'Our positive experience with the IDP Visa prepaid debit card last year increased confidence among the government and people of Pakistan that electronic payments are the future for aid disbursement, and an important first step towards financial inclusion.'

References:

1. Bankable Frontier Associates. 2011. Case Study: United Bank Limited Supports Cash Transfer Payments.

2. http://www.bisp.gov.pk/

3. http://corporate.visa.com/media-center/press-releases/press1053.jsp

A Case Study of Pakistan: Part 1

Pakistan has a population of more than 180 million in which at least a quarter of it live in extreme poverty. Promoting financial inclusion in this country is a challenging task, because approximately 120 million people live in rural areas that range from arid deserts to mountainous villages.

The United Bank Limited (UBL) is one of the biggest commercial banks in Pakistan. It is also in the forefront of Pakistani Government's financial inclusion efforts. UBL has successfully launched innovative programs to include people in the bottom of the pyramid as their clientele. This post will present two of UBL's innovations that utilize information and communications technology to achieve financial inclusion.

1. OMNI - Branchless Banking

OMNI allows potential customers to open a UBL account by visiting UBL branches or banking agents at assigned locations. By late 2010, there were over 2,000 active agents in more than 350 cities and towns throughout Pakistan. To open an account, potential customers must bring their mobile phone number, initial deposit and their original identity card, known as CNIC (Computerized National Identity Card). Their mobile phone number will then function as their bank account number. The bank account can be operated through agents, UBL branches, mobile phone, internet or UBL call centre. Other than conventional bank transactions, OMNI account holders can also pay utility bills and purchase mobile phone vouchers. The State Bank of Pakistan estimates that banking agents will soon outnumber bank branches.

2. World Food Programme (WFP) card pilot

The intense conflict between Pakistan's army and Taliban's militant in 2009 caused millions of Swat valley residents being displaced. UBL partnered with WFP to disburse aid money to a defined group of internally displaced people (IDP). UBL issued a magnetic stripe VISA card and PIN for approximately 12,000 identified displaced people, then they could withdraw their money by presenting their card and PIN to an OMNI agent.

After the pilot became a success, UBL and WFP developed a new cash transfer program to disburse aid money for 5,000 new beneficiaries with a method similar to the pilot. The difference is that UBL issued cards with a unique 16 digit number and no magnetic stripes that function as an identification. OMNI agents will enter the unique 16 digit number and PIN issued to each card recipient to the agents' mobile phone in order to effect payment.

WFP OMNI card

Even though the WFP card pilot's main objective is not for financial inclusion, people who were unbanked became familiar with banking products and the service that UBL delivers. Therefore, there is high potential to attract new customers and have more people in the bottom of the pyramid to be included in financial activities.

I will present two other financial inclusion programs by UBL in my next post. Stay Tuned!

References:

1. https://www.ubl.com.pk/

2. Bankable Frontier Associates. 2011. Case Study: United Bank Limited Supports Cash Transfer Payments.

Mobile/Financial Services for the Unbanked

"Mobile cellular technology continues to be the main driver of ICT growth, especially in the developing world, where average mobile penetration surpassed the 50 per cent mark in 2009."

-International Telecommunication Union Report, 2010-

If you think that 50% is a low number, let's compare the number with access to sanitation. According to UNICEF, less than 50% of the developing world's population lack improved sanitation facilities. From this statistics, we can safely assume that in developing countries, there are more people who are able to call their friends and family with their mobile phones than people who have access to a toilet.

Investments in mobile technology have enabled services to be delivered in a lower cost and coverage to be expanded. The affordability and desire to stay connected became the reason why people are more willing to purchase a mobile phone. Furthermore, the ability to buy prepaid phone credit in small amounts and transfer it to other mobile phone users when needed also became an attraction for potential mobile phone users.

The deposit and transfer ability of a prepaid phone credit became the idea behind mobile phone money services. Many providers in developing countries have expanded their business based on this technology. Some of the most successful mobile phone money transfer services are as follows:

1. Safaricom with M-Pesa and M-Kesho, Kenya

Safaricom is currently the largest mobile phone operator in Kenya. In 2007, Safaricom launched M-Pesa, a service where users can deposit, transfer and receive money from their mobile phones. Users with a Safaricom mobile phone SIM card can register as an M-Pesa user. Once users register, they can start making a transaction by SMS or deposit and withdraw money at M-Pesa agents throughout the country. In late 2010, M-Pesa has 12.6 million registered users, which is equal to 57% of Kenya's population.

In May 2010, Safaricom partnered with Equity Bank launched M-Kesho. This service allows users to transfer money between their M-Pesa accounts to an Equity Bank account that offers interest. Users are also able to access loan and insurance services. In 3 months, M-Kesho had 455,000 customers.

2. SMART Communications with SMART Money, Philippines

SMART Money, launched in 2000, is a payment card that can be accessed through a SMART mobile phone that can be linked to a MasterCard. Users are able to shop, pay bills, and transfer money between SMART Money accounts by SMS. In 2006, there were over 1 million Filipino overseas workers who use SMART Money to transfer almost $50 Million each month to their relatives in the Philippines. This number continues to grow.

3. Wizzit, South Africa

Wizzit provides a low cost, transactional bank account that enables users to make payments, transfers and pre-paid purchases using their mobile phones. Users can also apply for a Maestro debit card once they already have a Wizzit account.

The innovation in mobile phone services have allowed people who are unbanked gain access to financial services, making business and everyday life more effective and efficient. It is true what Prahalad said in his book, The Fortune at the Bottom of the Pyramid, that innovation for the BOP market must be a hybrid of the most advanced technologies that is creatively combined with existing infrastructure. In this case, it is a hybrid between mobile money transfer technology and mobile phone network.

Check out this video to understand more about M-Pesa and mobile phone money services.

Reference:

http://info.smart.com.ph/money/frequently-asked-questions/
http://www.itu.int/newsroom/press_releases/2010/08.html
http://www.unicef.org/wash/

http://www.wizzit.co.za/

Jack, W., Suri, T. (2011). The Economics of M-Pesa. NBER Working Paper No. 16721.

Prahalad, C. K. (2010). The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits. USA: Wharton School Publishing.

Prior, F., Santoma, J. (2010). Banking the Unbanked Using Prepaid Platforms and Mobile Telephones in the United States. IESE Business School Working Paper WP-839.

Radcliffe, D. (2010). Expanding Customers' Financial Options Through Mobile Payment Systems: The Case of Kenya. Bill and Melinda Gates Foundation: Global Savings Forum.