Curious children in the outskirts of Vientiane, Laos

The Asian Trends Monitoring Bulletin is a project

sponsored by the Rockefeller Foundation, New

York and the Lee Kuan Yew School of Public Policy,

National University of Singapore. The Lee Kuan Yew

School of Public Policy gratefully acknowledges the

financial assistance of the Rockefeller Foundation.

The Asian Trends Monitoring Bulletin focuses on

the analysis of pro-poor projects and innovative

approaches that will contribute to alleviate poverty.

The emphasis is put on identifying major trends

for the poor in rural and urban areas, highlighting

sustainable and scalable concepts, and analysing

how these could impact the future of Asia’s well-

being and future development.

The Asian Trends Monitoring Bulletin are designed

to encourage dialogue and debate about critical

issues that affect Asia’s ability to reduce poverty and

increase awareness of the implications for pro-poor

policy and policy development.

Disclaimer

The opinions expressed in the Asian Trends Monitoring

Bulletin are those of the analysts and do not necessarily

reflect those of the sponsor organisations.

Frequency

The Asian Trends Monitoring Bulletin will be produced

eight times a year and can be downloaded for free at

http://www.asiantrendsmonitoring.com/downloads

Principal Investigators

Phua Kai Hong

T S Gopi Rethinaraj

Research Associates

Johannes Loh

Taufik Indrakesuma

Production

Chris Koh, Manager, Production & Research

Dissemination

Michael Agung Pradhana, Layout & Design

Image credits, with thanks

All the images in this issue were taken by the ATM

team during their field trips to Jakarta, Manila, Hanoi,

and Vientiane between February and October 2012.

Permission is granted to use portions of this work

copyrighted by the Lee Kuan Yew School of Public

Policy. Please follow the suggested citation:

When citing individual articles

Loh, J., & Indrakesuma, T. (2013). Financial findings:

Evidence from the ATM survey. In Asian Trends

Monitoring Bulletin (2013), Bulletin 21: Financial

Inclusion for Asia's Poor (pp.8-10). Lee Kuan Yew

School of Public Policy, Singapore.

When citing the entire bulletin

Asian Trends Monitoring Bulletin (2013), Bulletin 21:

Financial Inclusion for Asia's Poor - a distant future?. Lee

Kuan Yew School of Public Policy, Singapore.

When citing our survey data

Asian Trends Monitoring (2012). A dataset on urban

poverty and service provision. Lee Kuan Yew School

of Public Policy, National University of Singapore.

Please acknowledge the source and email a copy of

the book, periodical or electronic document in which

the material appears to chris.k@nus.edu.sg or send to

Chris Koh

Lee Kuan Yew School of Public Policy

469C Bukit Timah Toad

Singapore 259772

Contents4 s A Moral imperative for action by Johannes Loh and Taufik Indrakesuma

8 s Financial findings: evidence from the ATM surveyby Johannes Loh and Taufik Indrakesuma

11 s Facilitating finance in slumsby Johannes Loh and Taufik Indrakesuma

13 s Destitute poverty: the final financial frontier by Johannes Loh and Taufik Indrakesuma

15 s Outlook: the future of financial inclusion by Johannes Loh and Taufik Indrakesuma

3

One look at Asia’s skylines and the casual observer gets the impression

that Asia is truly rising. The top ten financial centres in Singapore, Hong

Kong, Tokyo, Shanghai and Taipei, followed by Kuala Lumpur, Mumbai,

Bangkok, Beijing and Seoul tell a story of rapid growth and new wealth.

However, with 1.5 billion people without access to conventional financial

services, Asia is also home to the majority of the world’s unbankedi. In the

East Asia and Pacific region alone, 55% of the population is unbanked. It is

estimated that the total number of people without access to banking ser-

vices is between 2.2 and 2.5 billion people.

Due to major successes in mobile payment services such as M-PESA in

Kenya or Easypaisa in Pakistan, financial inclusion has become front and

center of development innovation. Governments have started to realise

the potential social and economic benefits of a financially serviced popu-

lation. However, currently available solutions are too small to make a sig-

nificant impact. At the same time, regulatory regimes have been unable

to keep pace with technological advancement. For example, branchless

banking has proven its feasibility and economic success with millions of

customers in Kenya, Tanzania, and Pakistan, but uptake in Southeast Asia

has been lethargic.

Developing countries average one bank branch and one ATM for

every 10,000 people. By comparison, these countries exceed 8,000 mobile

phones for every 10,000 people. As of 2012, approximately 1.7 billion peo-

ple in emerging markets have a mobile phone but remain excluded from

formal financial services. Thus, the size of the gap is enormous.

At the same time this gap also suggests that mobile technologies have

massive potential. While good estimates for Southeast Asia are unavail-

able, it is clear that the region could make a tremendous leap in financial

inclusion with the introduction of new technologies in financial services.

This ongoing series on urban poverty was written based on field

research done in four of Southeast Asia’s major cities: Jakarta, Manila,

Hanoi, and Vientiane. The team conducted a survey and analyzed the

opportunities and challenges of the urban poor. In this bulletin we dis-

cuss the following issues.

• How do the poor in these cities fare in terms of access to financial

services?

• What are some of the factors leading to the present situation?

• How are people (entrepreneurs) bridging these gaps?

We invite you to share the ATM Bulletin with colleagues interested in

pro-poor issues in Southeast Asia. The Bulletin is also available for down-

load at www.asiantrendsmonitoring.com/download, where you can sub-

scribe to future issues. We encourage you to regularly visit our website

for more updates and recent video uploads in our blog. Thank you again

for supporting the ATM Bulletin, and as always, we gladly welcome your

feedback.

Johannes Loh

Taufik Indrakesuma

Financial inclusion for Asia’s poor: a distant future?

Suggested citation

When citing individual articles

• Loh, J., & Indrakesuma, T. (2013). Financial findings:

Evidence from the ATM survey. In Asian Trends Monitoring

Bulletin (2013), Bulletin 21: Financial Inclusion for Asia's

Poor (pp.8-10). Lee Kuan Yew School of Public Policy,

Singapore.

When citing the entire bulletin

• Asian Trends Monitoring Bulletin (2013), Bulletin 21:

Financial Inclusion for Asia's Poor - a distant future?. Lee

Kuan Yew School of Public Policy, Singapore.

When citing our survey data

• Asian Trends Monitoring (2012). A dataset on urban poverty

and service provision. Lee Kuan Yew School of Public Policy,

National University of Singapore.

by Johannes Loh & Taufik Indrakesuma

i McKinsey Quarterly, 2010, Counting the world’s unbanked. http://www.financialaccess.org/

sites/default/files/publications/counting-the-worlds-unbanked.pdf A food vendor trying his luck near the Red River in Hanoi, Vietnam.

4

A moral imperative for action

The ATM survey on urban poverty in Jakarta,

Manila, Hanoi and Vientiane revealed that four

out of five respondents did not have a bank

account. More than half of respondents kept

their savings in cash hidden at homeii. The

majority of respondents were employed in the

informal economy, struggling to make enough

money to feed their families every day. Thus, a

single emergency, such as urgent medical treat-

ment for a family member, could wipe out a

family’s entire savings. The survey also showed

that 53% of respondents have severe difficulties

to save at all.

Despite the fact that at least a handful of

Microfinance institutions (MFI) currently offer

their services in each of the cities included in

our survey, the vast majority of the urban poor

ii Indrakesuma, T., Loh, J., & Pocock, N. (2012). Vientiane

- Poor but different. Asian Trends Monitoring Bulletin #19.

Lee Kuan Yew School of Public Policy.

by Johannes Loh & Taufik Indrakesuma

iii Asian Trends Monitoring (2012). A dataset on poverty and service provision. Lee Kuan Yew School of Public Policy. National

University of Singapore.

A lively side street in Manila, Philippines.

5

in Southeast Asia fly below their radar. With

incomes below US$2/day, they are a difficult

and not very profitable client group. Several

MFIs confirmed that they prefer to lend to the

“upper poor”: households that have some exist-

ing working capital, a certain level of business

acumen, and more reliable revenue streams.

“The Promise of microfinance

arises from designing and

building organizations that min-

imize administrative overheads,

thereby facilitating the flow of

resources in smaller amounts to

the people who can most effec-

tively use such funds.”

(Henley, D. & Goenka, A. (2010). Southeast Asia’s Credit Revolution: From moneylenders to

microfinance. p.59)

Millions of urban dwellers are self-employed

micro-entrepreneurs. “In economic terms, all

these families are producers and consumers

at the same time. They need access to the full

range of financial services to create income gen-

erating opportunities, build assets, smooth con-

sumption in the face of highly irregular or sea-

sonal incomes, and manage risks,” says Tilman

Ehrbeck, the CEO of the Consultative Group to

Assist the Poor (CGAP)v.

There is nothing wrong with a profit-seeking

business strategy, but from a human-centric

perspective, all people should have access to

financial services. The right to access financial

services was not part of the original Millennium

Development Goals, despite its direct implica-

tions for a person’s livelihood. Studies show that

a banked family is more likely to have emer-

gency savings, healthier diets and often better

overall health.

The needs of the unbanked have garnered a

lot of attention lately. The microfinance indus-

try has grown into a billion dollar industry and

technological innovation has brought banking

into the mobile sphere. And yet, Southeast Asia

is still waiting for its breakthrough in financial

inclusion.

“Lack of access to finance

adversely affects growth and

poverty alleviation. It makes

it more difficult for the poor to

accumulate savings and build

assets to protect against risks,

as well, as to invest in income-

generating projects.”

(Hanning, A. and Stefan, J., 2011. Financial inclusion and financial stability: current policy

issues.)

A closer look at the definition of microfi-

nance reveals the original intent to provide

financial services to those excluded from the

formal financial system run by traditional banks:

“Microfinance is the provision of financial

services to the poor, on a scale appropriate

to their needs. The term includes facilities for

small savings, microinsurance, and increas-

ingly, given the growing mobility of the work-

ing poor, money transfer (remittances).vi

Henley and Goenka observe that while the

microfinance movement set out with the noble

goal of reaching the extreme poor, “success-

ful commercial MFIs […], indeed, tend to drift

spontaneously over time towards richer seg-

ments of the market.” vii The need for scale and

a high degree of cost-efficiency together with

outdated regulatory frameworks prevent many

microfinance institutions from serving the poor-

est of the poor. Therefore, “most of the very

poor in Southeast Asia nevertheless continue to

fall outside the scope of formal microfinance”

(ibid.).

During the 2012 field visits, the team met two

shop keepers, Eva from Indonesia and Sonxai

from Laos. Eva runs a small shop near a food

market in Depok, Jakarta’s southern suburb.

She hides her savings at home and occasionally v Ehrbeck, T. (2013, January 28). Jobs and Financial

Inclusion. Retrieved February 14, 2013 from http://www.

cgap.org/blog/jobs-and-financial-inclusion

iv Asian Trends Monitoring (2012). A dataset on poverty and

service provision.

vi, vii Henley, D. & Goenka, A. (2010). Southeast Asia’s Credit

Revolution: From moneylenders to microfinance. Routledge:

New York. p.1. & p.13.

6

borrows money from informal money lenders

despite their astronomical interest rates. She

can’t maintain an account at a commercial bank

because of the minimum deposit and the lim-

ited accessibility. Sonxai, on the other hand, has

recently expanded her shop in Vientiane with

the help of the fourth consecutive microloan

from an MFI. In addition, she has managed to set

aside US$ 500 for emergencies in her new sav-

ings account with the same organisation. These

two stories of otherwise very similar shopkeep-

ers show the massive difference that access to

reliable financial services can make. (Read more

about their lives on pages 7 and 8). ATM

7

Running a shop without a bank account

In Depok, one of Jakarta’s many suburbs, the team met and spoke

to Eva P., the 26 year old owner of a warung (small shop) located just

outside a traditional market. She is one of approximately 2.5 billion

people without access to formal financial services.

In Eva’s hometown of Bengkulu, there were not many employ-

ment options after graduating from school. As with most of rural

Indonesia, the only jobs available for her were agricultural. This

prompted Eva to migrate to Jakarta in 2004, in search of better

options.

Upon arrival, she immediately set up her own shop by building

a stall next to the traditional market by Depok Baru Train Station.

Her shop has remained in the same location for almost 8 years, sur-

viving several police crackdowns on informal businesses in public

spaces. She now sells a wide variety of food, drinks, and cigarettes to

a clientele comprised mostly of jitney drivers, street musicians and

motorcycle cabbies.

“The shop makes about IDR 150,000 (US$ 16) in profits per day,

although it used to be about IDR 300,000 (US$ 32) before the Depok

government built the flyover,” she shared while pointing upwards.

The Depok government built a road over the traditional market in

the late 2000s to ease congestion in the increasingly crowded sub-

urb. However, it caused a serious drop in patronage at Eva’s warung

as well as the traditional market as a whole. Nonetheless, her current

level of income, coupled with her husband’s income as a motorcycle

cabbie, is enough for a comfortable life for them and their 3 year

old child.

When asked further about her finances, she said that she does

not use any formal financial services and prefers to save at home. She

does not like saving in commercial banks, due to the large deposits

and the hassle in accessing the money. She also does not save money

with her local cooperative or the informal money lender, because

she does not trust these institutions with her money. She also very

rarely borrows money from the informal money lenders, because

they charge extremely steep interest rates.

We ended our chat by asking Eva whether she was happy with

her life in Jakarta, and if she would consider going back to Bengkulu.

She replied that she is content with what she and her family have.

They are able to access clean water in their home and cheap medical

treatment at the local health center, and are able to make enough

money to survive with their current jobs. Although the cost of liv-

ing in Jakarta and its suburbs is much higher than in Bengkulu, the

improved work and life opportunities are well worth it.

Eva, self-made entrepreneur in her improvised shop in Depok, Jakarta.

8

Financial findings: evidence from the ATM survey

The Asian Trends Monitoring team con-

ducted a survey among people living in poor

neighbourhoods in Jakarta, Manila, Hanoi and

Vientiane between February and September

2012. We collected a total of 1,398 responses

from four cities. Our sample included 69%

women and 31% men. 87% of respondents indi-

cated that they are the head of the household

(513 respondents), or the wife (702 respondents)

of the head of household. The average age was

43 years with an average household size of five

members.

The survey had a “perception of difficulties”

section comprising ten categories, each to be

rated on a 5-point scale (from “easy” to “impos-

sible/unable to do”) in addition to sections on

education, health, water and access to financial

services.

Out of ten possible categories includ-

ing access to food, water, electricity, toilets,

schools, transport, living space, health services,

work opportunities, and savings, the last three

emerged as the most difficult to fulfill. More

than half of the respondents found it very dif-

ficult or were unable to save. Among the sav-

ers 55% kept their money at home, followed by

21% who actually used banks. Less than a quar-

ter of all respondents had an account at a finan-

cial institution. These findings are not surprising

when compared to the national urban averages

in the four countries in our survey. Among urban

residents asked whether they had saved at a

financial institution in the past year (Data from

2011), barely more than 20% answered posi-

tively in Indonesia, the Philippines and Laos. In

Vietnam urban savers were even less frequent

at 11%.

The situation worsens when looking at loan

sources and borrowing behaviour. When asked

Small loans boost egg business

Sonxai’s business is located in the heart of Vientiane. She sells bird

eggs, a local delicacy, from a street stall. The eggs are weighed and

packed into simple plastic bags. The clients do not mind the raw pre-

sentation, and simply look for good taste.

When her mother got older, Sonxai was asked to stay home and

take care of her. The street shop is close to the house and allows her

to earn an income while taking care of her mother. Sonxai’s aunt is a

bird farmer – that is how the business idea of selling bird eggs came

about. After initial success with small amounts of eggs, Sonxai real-

ized that the business had potential. All she needed was a small loan

to increase stocks and hence her sales volume. Her profits were too

small to apply for a loan from a commercial bank and thus, she took

loans from a money lender. At 12% monthly interest much of her

profit went into loan repayment. One day she saw a leaflet by EMI

and made an appointment. Her first loan of US$ 250 helped her to

scale the business. “Now, I can earn up to US 30$ a day” she says.

Sonxai is glad that she found the microfinance organisation to

finance her business expansion. Her stall is located on a little side

street with few pedestrians, but most of her clients know just where

to find her.

At the end of the interview Sonxai points out that the business

has even more potential: “The difficulty of my eggs business is the

location. If I had a better location, I would sell more”.

by Johannes Loh & Taufik Indrakesuma

9

viii, ix, x, xi Asian Trends Monitoring (2012). A dataset on poverty and service

provision.

xii Global Financial Inclusion Database (2012). Data from http://datatopics.worldbank.org/financialinclusion/

10

whether they borrow money regularly, 62% of

respondents from Manila and Hanoi affirmed.

Borrowing was much less prevalent in Jakarta

and Vientiane, at 28% and 27% respectively.

The primary sources of loans were relatives

and friends. More than half of respondents in

all four cities turned to someone they know to

ask for small loans. The clear lack of alternatives

became apparent when 22% of respondents

said that they take loans from informal money

lenders – often at annual interest rates higher

than 100%. In that regard, Manila stood out with

42% of those regularly borrowing using infor-

mal money lenders. ATMxiii Global Financial Inclusion Database (2012). Data from

http://datatopics.worldbank.org/financialinclusion/

xiv, xv, xvi Asian Trends Monitoring (2012). A dataset on poverty and service provision.

11

Facilitating finance in slums

Providing reliable financial services in slums has

its complications. Slums present a challenging

environment for financial services, which tra-

ditionally ensure regular repayment through

securing collateral and knowing their clients’

exact residences. Most slum dwellers are rural-

urban migrants with informal jobs, highly fluc-

tuating incomes and little stability in their lives.

Often, they do not own any substantial assets

to use as collateral. They are also more anon-

ymous, as slums do not have conventional

“addresses” and changes of residence can hap-

pen overnight.

It is easy to see why microfinance providers

struggle to enter this high-risk market with ser-

vices that are affordable for the poorest of the

poor. Asymmetric information problems make

it more difficult to identify the right clients.

Secondly, the costs of attracting and retaining

staff in urban environments are higher, push-

ing up the final costs of the financial services

offered to the urban poor. The end result is that

MFIs often cannot serve the bottom of the pyra-

mid. Nevertheless, some organizations are spe-

cifically targeting the poorest of the poor.

In 2007, An NGO called EnFaNCE conducted a

survey among inhabitants of slums in the Tondo

district in Metro Manila. They found that only

16% of working family members were employed

in formal companies, while the remainder

made a living in the informal economy. The

average income was US$ 0.76 per day per per-

son, of which 60% was spent on food. Despite

the limited liquidity, two thirds of respondents

reported to having saved some money in the

month prior to the survey. Similar to the find-

ings of the ATM team’s 2012 survey, more than

half of these respondents kept the savings hid-

den at home. Among respondents with savings,

four out of ten wanted to keep their money in a

bank or microfinance institution, but were not

able to access these services.

EnFaNCE linked up with Uplift, a Manila-

based microfinance institution, and designed a

very simple savings product called “Piso-pisong

Ipon” (literally Saving Peso by Peso). The only

requirements were a copy of an ID or even just

a passport picture; there were no fees for open-

ing accounts. The basic principles of the proj-

ect were financial awareness among the fami-

lies and direct accessibility. Deposits could be

made in all of EnFaNCE’s field offices on a daily

basis, with a minimum transaction of one peso.

The only “downside” was that no interests were

paid on the savings due to already high transac-

tion costs incurred by the MFI. Once a month,

a social worker would visit the family to discuss

their budget planning and encourage them

to develop a savings strategy. In addition, the

NGO held regular group information sessions

to teach the basics of financial management to

both teenagers and adults.

The project was not intended to fill the gap

in financial services, but rather to bridge the

gaps in knowledge needed to empower the

urban poor to become future microfinance cli-

ents. The psychosocial stress imposed by liv-

ing conditions and constant pressure to earn

enough to survive often prevent people from

planning for the future. The NGO found that in

65% of families, no precautions were made for

future events such as tuition, weddings or other

major events. A similar picture emerged about

the state of financial exclusion in the other cit-

ies covered by ATM’s 2012 survey on urban pov-

erty. ATM

by Johannes Loh & Taufik Indrakesuma

12

Ekpatthana Microfinance Institution (EMI)

Ekpatthana Microfinance Institution (EMI) was the first provider of

microloans in Laos. It was founded in 2005 with the goal to reduce

poverty in Laos through the provision of financial services to people

excluded from formal banking services. Their clients are mainly small

entrepreneurs, such as market vendors, shopkeepers, some micro-

enterprises and small scale farmers. The organisation is experiencing

a phase of rapid growth, despite spending little to no money on mar-

keting their products. In the last two years, staff numbers have dou-

bled to 75 employees, assets have grown from US$ 1 million to US$

2.9 million, and the number of active borrowers now exceeds 4,000.

The average loan size is around US$ 350 with a loan repayment rate

higher than 98%. EMI’s loan portfolio includes a forced-savings

component in order to ensure that clients learn the importance

of building up reserves for either business expansion or personal

emergencies. Somphone Sisenglath, EMI’s Founder and Executive

Director, adds that "savings is part of our mission...[...] Access to credit

is one thing, but if there is nothing left [at the end of repayment],

they are still poor." EMI makes it a requirement for all their clients

to save 10% of their initial loan. The company’s more than 10,000

deposit account holders enjoy interest rates for their savings of up

to 16% per annum.

The organisation offers individual loans for business purposes

if collateral can be provided as well as payroll loans for Small and

Medium-sized Enterprises. In rural areas (within Vientiane Capital

Region) EMI also offers group loans without collateral. Repayments

happen on a weekly or monthly basis over periods between one and

24 months. In the past, EMI also offered daily repayment, often the

preferred choice for clients in the informal sector, but administrative

costs were too high to keep offering this product.

The management team is preparing for the launch of an agri-

cultural loan and is exploring the market potential for micro-insur-

ance. However, the team thinks that lack of awareness would require

a comprehensive (and expensive) advocacy effort. In the medium

term, they want to provide start-up loans for micro-entrepreneurs,

but staff capacity and technical expertise have to be built up first.

In addition, EMI makes an effort to contribute to financial aware-

ness among young students. In collaboration with the international

NGO Aflatoun, they run a learning program in elementary schools

around Vientiane where the students learn the concepts of com-

pound interest by saving a nominal amount each school day. The

school’s principal said that “by doing this with EMI for these few

years, students that finish from this school are able to save quite a big

amount of money, 2 to 3 million Lao kip (US$ 250-375)”. The saved

sum is paid out at the end of primary school and is a welcome con-

tribution to finance further studies.

Fears for the future

Mr. Sisenglath expressed a concern about the foreseen penetra-

tion of large scale businesses from neighboring countries when the

ASEAN Economic Community (AEC) will enter into force in 2015, and

fears that Lao small enterprises are ill-equipped to compete with

these players. From a business development perspective, he pointed

out that there is much more to be done to support micro-entrepre-

neurs in Vientiane. All training and support has to be provided by

EMI; thus, the pool of the next generation of clients remains small.

Mr. Somphone Sisenglath, founder of EMI

13

Destitute poverty: the final financial frontier

EMI and its competitors in Laos see it as part of

their mission to lend to the poor, the real bot-

tom of the pyramid. However, their client pool

consists mainly of the near poor with exist-

ing resources and operational businesses. In

order to reach the bottom of the pyramid,

they would, firstly, require better economies of

scale to reduce the costs of implementing their

“know-your-customer” policy. Secondly, lack of

access to cheap technology limits their options

to offer the kind of daily savings and loan prod-

ucts needed by clients who earn less than 1 US$

per day. Clients working in the informal econ-

omy need a flexible savings and loan product

to accommodate their highly volatile income

situation.

In Africa, the innovative pilot project Kenyan

Jipange KuSave (see page 17) has already illus-

trated ways to integrate the cost-effective

mobile money technology with the provision

of financial services to the poorest of the poor.

However, it remains to be seen whether this

model project will be adopted and brought to

scale by profit-seeking companies in the future.

In Pakistan, the government has begun to test

branchless banking as a means to channel social

transfer payments (US$ 1.1 billion annually)

through mobile banking.

In addition, they launched a debit card, the

Benazir Debit Card, to push the frontiers of

financial inclusion among the poor. The debit

card can be used throughout the country’s

financial system. At the beginning of 2013, the

country had more than 1.8 million branchless

banking accounts and 31,000 agents.xvii The

branchless banking market is expected to grow

rapidly this year.

The barriers between the destitute poor

and access to a full range of financial services

are not related to technology. Working solu-

tions exist, but they require the right combina-

tion of regulatory frameworks, private compa-

nies dedicated to providing low-cost solutions,

and inventiveness by policy makers. Below, we

include two case studies of highly flexible sav-

ings and loan services provided to the poorest

of the poor. The first case is SafeSave, an organ-

isation which found a for-profit solution to offer

daily deposits and withdrawals with the help of

locally trained staff. Their staff is recruited from

the same neighbourhood as their clients and

uses an electronic device to record all transac-

tions on-the-go. The second case is an experi-

ment by a company called Mobile Venture

Kenya Ltd, which saw potential in the product

offered by SafeSave and implemented M-PESA

as a “rail” to offer the same kind of flexibility

through mobile banking. ATM

by Johannes Loh & Taufik Indrakesuma

Branchless banking is defined as the delivery of financial services outside conventional bank branches, often using agents and relying on information and communications technologies to transmit transaction details – typically card-reading point-of-sale (POS) terminals or mobile phones. (Definition from: CGAP 2010, Branchless Banking Diagnostic Template)

xvii CGAP Blog (2013). An overview of the G2P payment sector in Pakistan. Retrieved March 28, 2013 from http://www.cgap.

org/publications/overview-g2p-payments-sector-pakistan.

xviii CGAP (2013). Accessed March 7, 2013 from http://www.

cgap.org/blog/geography-cash-points-tanzania

14

A busy street in South Jakarta

15

Outlook: The future of financial inclusion

The success of mobile banking innovations

such as M-PESA is yet to be replicated in scale

in other countries. Almost every Kenyan adult

has now access to a mobile phone, and 73% of

phone owners are mobile money users. Recent

additions to the mobile banking product range

suggest that the sector will continue to grow

rapidly. In Tanzania, mobile money agents

which serve as cash outlets outnumber bank

branches 35 to 1. For Kenya, this ratio is now

exceeding 100 to 1.

However, the technology itself allows for

very flexible implementation. Paul Breloff,

Managing Director at of the Accion Venture

Lab, writes on the CGAP blog that “m-payment

platforms themselves are only part of the fun.

Perhaps more exciting will be the ways these

platforms (such as M-PESA) can be used as the

‘rails’ on which innovative financial services

can be offered.” xx He is referring to services

beyond payment, savings and loans – implying

by Johannes Loh & Taufik Indrakesuma

Vendors setting up Vientiane's night market

xix Asian Trends Monitoring (2012). A dataset on poverty and

service provision.

xx Breloff, P. (2013, January 29). Tech Start-Ups and Financial Inclusion: Trends to watch in 2013. CGAP Blog. Retrieved March

13, 2013 from http://www.cgap.org/blog/tech-start-ups-and-financial-inclusion-trends-watch-2013.

16

Face-to-Face financial services for slum dwellers: SafeSave, Bangladesh

The poor often struggle with their day-to-day money management.

In absence of savings instruments they find themselves unable to

save up for the future. There are too many essential expenses that eat

up their daily or weekly earnings. With small and irregular incomes,

managing their financial affairs takes is a major concern for the poor.

Thus, there is strong demand for a convenient cash-flow manage-

ment facility on a daily basis.xxi

Ideally, the facility should allow for small-scale savings of any

value at any time with the right to withdraw on demand, combined

with the possibility of taking small loans to smoothen unexpected

cash expenditures; - services that people in developed countries can

utilize at any ATM or via online banking.

Conventional microfinance products do not offer this kind of facil-

ity and commit borrowers to regular repayments. They also rarely

include a savings instrument. SafeSave, providing financial services

in slums in Dhaka, Bangladesh, provides a service that fills this gap.

SafeSave provides financial services to very poor clients without

the usual requirements. There are no group meetings, joint liability,

guarantors, or even fixed weekly loan repayments.xxii Originally, it

started out as an experiment and turned out both extremely popu-

lar and sustainable. Despite flexible arrangements, the repayment

rate stands at 97%.

Operating from nine branches, Safesave sends out 66 collec-

tors, all women from low income neighbourhoods in the same area,

who visit client’s homes or workplaces every day. With a small hand-

held device they process deposits and withdrawals and document

loan repayments. Clients only have to visit the branches for loan

disbursements or large savings withdrawals.xxiii The innovation of

giving clients the choice of how much to save or how much to repay

on a daily basis, matches the irregular nature of the slum dwellers’

income flows. In consequence, there are no fixed loan terms. To

ensure proper accounting and prevent human error all collectors

are equipped with handheld devices to electronically record each

transaction into SafeSave’s database.

Surprisingly, 44% of account holders do not take loans and prefer

only to save. For accounts with balance above US$ 15 the organiza-

tion pays 6% p.a. interest to account holders, while the interest rate

for loans is 3% monthly. Regular and fast repayment is incentivized

by making an increase of the credit limit conditional on how fast the

existing loan is repaid. In 2010, the product range was expanded to

include a long-term savings product for three, five, seven or ten years

with 7%, 8%, 9% and 10% interest per year.

“Having some instrument there that allows him

to make those payments on a regular and fre-

quent interval, this is the trick that maximizes

poor people’s ability to intermediate as much of

their cash flow as possible." Stuart Rutherford, Founder of SafeSave

While some people prefer the rigid repayment discipline required

by traditional microfinance providers such as Grameen, the ser-

vice has filled a gap for all those with more irregular, unpredictable

cash-flows. SafeSave has found a profitable business model that at

the same time pushes the boundaries of financial inclusion to the

extreme poor. Accepting deposits of tiny sums as small as US$ 0.02

allows even those living on less than US$ 1.25 a day the opportunity

to save for a better future. It would be great to see this innovation

replicated by major microfinance providers and brought to scale in

some of Southeast Asia’s slums.

xxii Bauchet, J., 15 July 2010. Report from the field: SafeSave, a different kind of microfinance methodology. Available at: <http://financialaccess.org/node/3509>. [Accessed on 10 September 2011]

xxi Murali, D., 9 June 2010. Three opportunities for Microfinance providers. The Hindu. Available at: <http://www.thehindu.com/business/Economy/article450818.ece>. [Accessed on 10 September 2011]

xxiii SafeSave (2011). SafeSave Performance. Available at: <http://safesave.org/performance.html>. [Accessed on 9 September2011]

17

that future service providers could use these

platforms to offer micro-insurance and pay-as-

you-go access to energy or clean water. Once

the mobile service is reaching a mass-market,

new promising start-ups may stimulate product

development outside of pure banking products.

It is undeniable that agent banking has trans-

formed the financial landscape in countries such

as Kenya and Tanzania. ATM

Mobile savings for the poorest of the poor: Jipange KuSave, Kenya

Inspired by the success and convenience of Safaricom’s mobile pay-

ment service M-PESA, a new company called Mobile Venture Kenya

Ltd. recognised an opportunity to test a flexible savings product

through mobile channels targeted at the poorest.

The pilot project was called Jipange Kusave (in Swahili “to orga-

nize oneself to save). Clients would receive interest free loans for a

small administrative fee and all payments would be made directly

through M-PESAxxiv. A small part of each loan was retained as sav-

ings. This setup meant that there were no field collectors, lower

costs, but also increased risk of default. Despite the minimization

of human interaction, the initial recruitment and registrations were

conducted in person. The higher risk required a good screening pro-

cess to avoid clients with higher likelihood to default.

The pilot project was rolled out in three phases with different

product specifications to test client satisfaction and the feasibility

of the business model. While the initial clients in the Jipange pilot

were predominantly banked customers, almost 40% lived on less

than US$ 2.5 a day. After experimenting with different fee struc-

tures the company determined that in order to build a sustainable

business model activation and disbursement fees had to be raised

from initial levels. Customers had to pay a one-time activation fee

of US$ 5 to become eligible for the mobile loan service. Thereafter,

they pay a 5% loan disbursement fee (5% of the total loan princi-

pal), starting with an initial loan of US$ 20. Half of the loan amount

is held back as savings. Customers need to indicate a savings target

and the company will keep their savings out of reach until the target

has been reached. Most clients were able to understand the product

features and charges within 15 minutes. After successful repayment

the customer automatically qualifies for a new (slightly bigger) loan.

Although the maximum loan size was capped at US$ 1,200.

A client feedback survey showed that the most valued feature

of this mobile loan and savings offer was the forced savings com-

ponent. Seven out of ten respondents listed this as the top product

feature. Respondents also said that not having access to their sav-

ings during repayment helped them to achieve their targets more

quickly. Users who simply stored value in their M-PESA accounts,

found the money too easy to withdraw at any of the M-PESA agents.

They struggled with following their own “mental accounting” rules.

When the savings were less accessible, the funds were clearly ear-

marked as future savings. This makes a huge difference which could

help the poor to keep their money safe and save more, compared to

hiding the savings in cash at home.

After completion of the pilot phase MVK decided not to launch

the service commercially, because acquiring the required banking

license would have been too difficult for a small start-up. Their num-

bers suggested that a client base of 300.000 plus within three years

with average savings of US$ 180-300 would ensure profitability.

Given that Kenya currently has 17 million mobile phone users, this

threshold would not be the limiting factor.

In late 2012, Safaricom launched a new mobile banking product

called M-Shwari which offers interest free loans and up to 5% interest

on savings held in the M-Shwari account. The loans can be as small as

US$ 1.25. In terms of risk management Safaricom assumes that los-

ing your mobile number is deterrent enough to ensure repayment.

One limiting factor is that the money held in an M-Shwari account

can only be moved to and from an M-PESA account and thus ties the

user to existing M-PESA limitations.

Initial sign-up rates are promising, but it is too early to assess the

impact this new product will have on financial inclusion, in particular

among the poor.

xxiv Rotman, S., Ferrand, D., and Rasmussen S. (2012). The Jipange KuSave Experiment in Kenya. CGAP, Washington, USA.

18

19

A statue in Vientiane's Buddha Park.

20

Johannes Loh is working as a Research Associate at the

Lee Kuan Yew School of Public Policy. He holds a Master’s

degree in Public Policy from the Hertie School of Public

Policy in Berlin, and a Bachelor of Arts in Integrated

Social Science from Jacobs University Bremen. His previ-

ous research experience includes aid governance, visual

political communication and public sector reform in

developing countries. Prior to joining the Lee Kuan Yew

School of Public Policy he has also worked for the United

Nations Environment Programme in Geneva, Transparency International Nepal, and

the Centre on Asia and Globalisation in Singapore. His email is johannes.loh@nus.

edu.sg and you can follow his updates on trends in pro-poor policies in the region on

Twitter @AsianTrendsMon.

Taufik Indrakesuma is a research associate at the Lee

Kuan Yew School of Public Policy. He is a recent gradu-

ate of the Master in Public Policy programme at the

Lee Kuan Yew School of Public Policy. He also holds a

Bachelor in Economics degree from the University of

Indonesia, specialising in environmental economics.

Taufik has previously worked as a Programme Manager

at the Association for Critical Thinking, an NGO dedicated

to proliferating critical thinking and human rights aware-

ness in the Indonesian education system. His research interests include behavioural

economics, energy policy, climate change mitigation and adaptation as well as urban

development policy.

Phua Kai Hong is a tenured professor at the LKY School

of Public Policy and formerly held a joint appointment as

Associate Professor and Head, Health Services Research

Unit in the Faculty of Medicine. He is frequently con-

sulted by governments within the region and interna-

tional organisations, including the Red Cross, UNESCAP,

WHO and World Bank. He has lectured and published

widely on policy issues of population aging, health-

care management and comparative health systems in

the emerging economies of Asia. He is the current Chair of the Asia-Pacific Health

Economics Network (APHEN), founder member of the Asian Health Systems Reform

Network (DRAGONET), Editorial Advisory Board Member of Research in Healthcare

Financial Management and an Associate Editor of the Singapore Economic Review.

His email address is spppkh@nus.edu.sg

T S Gopi Rethinaraj joined the Lee Kuan Yew School

of Public Policy as Assistant Professor in July 2005.

He received his PhD in nuclear engineering from the

University of Illinois at Urbana-Champaign. Before

coming to Singapore, he was involved in research and

teaching activities at the Programme in Arms Control,

Disarmament and International Security, a multi-disciplin-

ary teaching and research programme at Illinois devoted

to military and non-military security policy issues. His

doctoral dissertation, “Modeling Global and Regional Energy Futures,” explored the

intersection between energy econometrics, climate policy and nuclear energy futures.

He also worked as a science reporter for the Mumbai edition of The Indian Express

from 1995 to 1999, and has written on science, technology, and security issues for

various Indian and British publications. In 1999, he received a visiting fellowship from

the Bulletin of the Atomic Scientists, Chicago, for the investigative reporting on South

Asian nuclear security. His current teaching and research interests include energy secu-

rity, climate policy, energy technology assessment, nuclear fuel cycle policies and inter-

national security. He is completing a major research monograph "Historical Energy

Statistics: Global, Regional, and National Trends since Industrialisation" to be published

in Summer 2012. His email address is spptsgr@nus.edu.sg

Principal Investigators Research Associates

The Lee Kuan Yew School of Public Policy is an autonomous, professional graduate school of the National University of Singapore.

Its mission is to help educate and train the next generation of Asian policymakers and leaders, with the objective of raising the

standards of governance throughout the region, improving the lives of its people and, in so doing, contribute to the transformation

of Asia. For more details on the LKY School, please visit www.spp.nus.edu.sg