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  • Making Money TransfersWork for Microfinance

    Institutions

    A Technical Guide to Developing andDelivering Money Transfers

    March 2008

    Consultative Group to Assist the Poor

    Making Money w-sidebars 6.12.08 6/20/08 12:00 PM Page 1

  • Making Money TransfersWork for Microfinance

    Institutions

    A Technical Guide to Developing andDelivering Money Transfers

    March 2008

    Consultative Group to Assist the Poor

    Making Money w-sidebars 6.12.08 6/20/08 12:00 PM Page 1

  • Making Money Transfers Work for Microfinance Institutions: A

    Technical Guide to Developing and Delivering Money Transfers is

    available for download from the CGAP Web site

    (http://www.cgap.org/) publications page.

    2007 Consultative Group to Assist the Poor/The World Bank

    All rights reserved.

    Consultative Group to Assist the Poor

    1818 H Street, N.W.

    Washington, DC 20433

    Internet: www.cgap.org

    Email: cgap@worldbank.org

    Telephone: +1.202.473.9594

    Making Money w-sidebars 6.12.08 6/20/08 12:00 PM Page 2

  • Table of Contents

    Acknowledgments 9

    Foreword 11

    Executive Summary 13

    This Guide 15

    Chapter 1: Opportunities in the Money Transfer Market 17

    The Money Transfer Market 17

    Chapter 2: How Money Transfers Work 22

    Payment Instruments 22

    Money Transfer Value Chain 22

    Marketing and Selling Tranfers Products 23

    Originating and Funding 25

    Selecting the Transfer Mechanism 25

    Funding the Money Transfer 25

    Originating the Transfer 26

    Sending, Clearing, and Settlement of Transfer Orders 26

    Receiving a Money Transfer Order 28

    Paying a Money Transfer Order 30

    Customer Service 30

    Chapter 3: Business Models for Money Transfers 32

    Direct Approach 36

    Partnerships 39

    Single Partnership 40

    Multiple Partnership 41

    Potential Partners 42

    Money Transfer Companies 42

    Small Money Transfer Companies 45

    Making Money w-sidebars 6.12.08 6/20/08 12:00 PM Page 3

  • Making Money Transfers Work for Microfinance Institutions4

    Bank Partners 45

    Consortium Approach 47

    Chapter 4: Developing a Money Transfer Business 49

    Taking Stock 49

    Environment 50

    Internet Assessment 52

    Setting Strategy 52

    Goal Setting 53

    Determining Competitive Advantage 53

    The Right Product and the Right Market 55

    Developing Transfer Products 58

    Product Development 59

    Client Preferences 61

    Pricing 63

    Promoting Products 64

    Creating Institutional Capacity 66

    Developing a Money Transfer Policy 66

    Establishing Delivery Channels 70

    Managing the Risks 71

    Money Management Chanllenges 72

    Information Management Challenges 75

    Client Service Challenges 75

    Payment Medium Challenges 77

    Compliance Challenges 79

    Partnership Challenges 80

    Chapter 5: Negotiating Partnerships 83

    The Two Sides of the Table 83

    The Money Tansfer Companys Perspective 83

    What the MTC Looks for in a Partner 83

    The MFIs Perspective 85

    What the MFI Should Know About a Partner 85

    Stage One: Gather Information and Rank Potential MTC Partners 86

    Making Money w-sidebars 6.12.08 6/20/08 12:00 PM Page 4

  • Table of Contents

    Stage Two: Contact Potential Partners and Perform Due Diligence 88

    Requesting additional information from the MTC 88

    Provide Information 88

    Stage Three: Negotiate Contract 89

    Discuss Strengths 90

    Negotitate Commission Terms 90

    Negotiate Other Terms 91

    Concluding Thoughts 93

    Annex 1: The Building Blocks of Retail Money Transfers:

    Payment Systems and Payment Instruments 94

    Transferring Funds 94

    Fund Transfer Types 96

    Retail Payment Systems 97

    Payment Instruments 99

    Cash-based Payments and Transfers 99

    Paper-based Payments and Transfers 100

    Card-based Payments and Transfers 103

    Electronic Payments and Transfers 108

    Annex 2: Formality of Financial Channels 115

    Formal Financial Channels 115

    Semiformal Financial Channels 115

    Informal Channels 116

    Annex 3: General Principles for International Remittance Service 119

    The General Principles 120

    Annex 4: Tracking Stock Checklist 123

    Annex 5: Selecting a Partner: Quick Reference 128

    5

    Making Money w-sidebars 6.12.08 6/20/08 12:00 PM Page 5

  • References 131

    Web sites for more information on money transfers 134

    List of Tables

    Table 1: Client preferences in money transfer services 62

    Table 2: Uses of fund transfers 95

    Table 3: Payment media and their corresponding money type 98

    Table 4: Credit, debit, and prepaid cards: a comparison 107

    Table 5: Summary: Advantages and disadvantages of money

    transfer mechanisms for customers and financial service partners 114

    List of Boxes

    Box 1: Send-side marketing by Fonkoze in Haiti 23

    Box 2: Fonkoze offers stored-value cards 29

    Box 3: Pursuing several models: Guatemalas Banrural 33

    Box 4: Postal networks offer a variety of money transfer options 34

    Box 5: Direct payment system in the Philippines and El Salvador 36

    Box 6: National Microfinance Bank of Tanzania:

    The dominant player in the domestic transfer market 37

    Box 7: Fonkoze expands remittance options 39

    Box 8: IRnet for credit unions 43

    Box 9: Cambodias ACLEDA Bank and its correspondent

    banking activities 46

    Box 10: GiroNil shared money transfer platform in Egypt 47

    Box 11: Bansefi: A network for MFIs 48

    Box 12: WIZZIT: New possibilities, but also new challenges 54

    Box 13: ARB/Ghana 57

    Box 14: SMEP provides banking services to Kenyans through

    mobile phones 66

    Box 15: An established MFIs experience with

    AML/CFT compliance 68

    Box 16: Sharded branching: Expanding points of service 71

    Box 17: Physical security in rural areas: AMUCSS experience 73

    6 Making Money Transfers Work for Microfinance Institutions

    Making Money w-sidebars 6.12.08 6/20/08 12:00 PM Page 6

  • Box 18: G-Cash and SMART Money 76

    Box 19: Alianzas prepaid debit card and open

    remittance delivery network 78

    Box 20: Managing risks 81

    Box 21: AMUCSS-Envos Confianza: A grassroots

    consortium for rural MFIs 84

    Box 22: Protecting the MFIs interests by analyzing the full costs 90

    Box 23: Enabling affordable, card-based international remittances 104

    Box 24: G-Cash in the Philippines 112

    Box 25: Hawalas A sophisticated, informal channel 117

    List of Figures

    Figure 1: Large countries receive more remittances in raw 18

    volume, but small countries receive the most in remittances

    with respect to their GDP

    Figure 2: Rich countries are the largest sources of remittance

    to developing countries in dollar terms 19

    Figure 3: Value chain for the money transfer business 22

    Figure 4: Clearing and settlement of money transfers 27

    Figure 5: Estimated market share of intenational person-to-

    person transfer providers, 2003 44

    Figure 6: SWOT Matrix 50

    Figure 7: Porters generic strategies 53

    Figure 8: Product-market matrix 55

    Figure 9: Systematic product development process 59

    Table of Contents 7

    Making Money w-sidebars 6.12.08 6/20/08 12:00 PM Page 7

  • Making Money w-sidebars 6.12.08 6/20/08 12:00 PM Page 8

  • Jennifer Isern (CGAP) led the development of this technical guide on money

    transfers. The authors are Isern, William Donges, and Jeremy Smith. Jasmina

    Glisovic-Mezieres (CGAP) provided useful research assistance. The techni-

    cal guide was edited by Chris Jarzombek and Paul Holtz.

    Launched in October 2005, the advisory group for this initiative advised

    on the initial concept and reviewed annotated outlines of the manual.

    Advisory Group members included Vanessa Vizcarra Bianchi (MFIC),

    Massimo Cirasino (World Bank), Anna Cora Evans (WOCCU), Jos Antonio

    Garcia Luna (World Bank), Dave Grace (WOCCU), Gautam Ivatury

    (CGAP), Tom Jahnes (Western Union), Tim Lyman (CGAP), Manuel Orozco

    (Inter-American Dialogue), Doug Pearce (DFID), Valsa Shah (DFID), and

    Gregory Watson (Inter-American Development Bank).

    Isern, Grace, and Glisovic-Mezieres designed the CGAP e-conference on

    money transfers in March 2006. Grace facilitated this five-day

    conference,which addressed operational issues for MFIs offering money

    transfer services. The e-conference was co-sponsored by CGAP, the World

    Council of Credit Unions (WOCCU), the International Fund for Agricultural

    Development (IFAD), and the Inter-American Development Bank

    (IADB)/Multilateral Investment Fund (MIF).

    A draft of this document was released in December 2006 for public com-

    ment. Maria Jaramillo (ACCION), Grace (WOCCU), Anne Hastings

    (Fonkoz/Haiti), Antonio Garcia Luna (World Bank), Massimo Cirasino

    (World Bank), Vizcarra Bianchi (MFIC), and Ignacio Mas (CGAP) provided

    detailed comments to the technical guide. In addition, the authors are grate-

    ful for helpful comments and contributions of text boxes from Alex

    Berthauud (AMUCSS/Mexico), Peter Van Roosmalen (Inclusion Group),

    Phyllis Mbungu (SMEP/Kenya), Randy Gutierrez (Alianza International),

    Julio Vega (Foreign Ministry of Peru), Ben Knoll (Grupo Express), Arun

    Kashyap (UNDP), Tom Jahnes (Western Union), and Martin Alsop (DFID).

    Acknowledgments

    Making Money w-sidebars 6.12.08 6/20/08 12:00 PM Pa

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