Country focus: Market trends and opportunities for digital financial services in Ethiopia

This post is written by Shital Shah, Enclude’s Global Strategy Group Coordinator. 

Photo Credit: Nienke Stam

Photo Credit: Nienke Stam

While Kenya’s mobile money success story continues to garner attention and showcase the promise of digital financial services, a different story lives right next door. In Ethiopia, a contrasting situation exists, given the nation’s history, geography, and infrastructure. The landlocked country has the second largest population in Africa, with most people living in rural areas in an economy driven by agriculture. A large portion of the adult population remains unbanked. In a country with a population of over 80 million, 45 million are of working age and 34 million are under the age of 14. However, 92%-95% of the adult population does not have access to financial services, despite the presence of 18 commercial banks and over 30 microfinance institutions.

In short, daily transactions are expensive and inconvenient for most Ethiopians. While neighbouring countries in East Africa are engaged in mass market efforts toward the digitization of financial services, Ethiopia still grapples with basic infrastructure issues that make building the “rails” of a digital platform challenging. Physical, electronic and financial infrastructure is weak and still developing in most parts of the country, especially in rural areas. At the same time, given the current state of financial services in the country, the need for a more efficient, reliable option is pressing.

Ethiopia is on the cusp of becoming an attractive market for mobile financial services. Its infrastructure is indeed weak, but improving at impressive rates, indicating that the “rails” necessary to build a mobile financial services platform will be largely in place in the coming years. Mobile network coverage is low – under 30% – but increasing rapidly as the state-run monopoly telecom provider, Ethio Telecom, aggressively builds out its network. Financial infrastructure, including ATMs and bank branches, is also still under development, leading to a heavy dependency on cash. Continue reading

Successful interoperability: Maintaining a long-term view

This post is written by Ali Gross, SBI Senior Business Analyst.

Photo Credit:

Photo Credit:

To encourage the development of more agent and branchless banking networks, donors and policymakers are emphasizing interoperability and institution-agnostic platforms, as opposed to a bank or MFI opting to roll out its own agent network.  They often stress the importance of avoiding duplication of efforts and of promoting interoperability as a way to increase efficiency and scale as well as customer access and convenience.

However, despite these efforts, financial institutions want to develop their own agent networks in their efforts to implement alternative delivery channels. The financial institution rationalizes that this will result in increased control over profit and agent quality and lower risk of losing existing customers to the competition.  Often, what financial institutions fail to account for is not only the amount of time, money and effort required to roll out an agent network, but also what is best for the customer.  For instance, in the U.S., most customers would prefer access to an interoperable switch that allows a Wells Fargo client, for example, to withdraw from a Bank of America ATM.  Would clients in emerging markets not prefer the ability to visit one agent that represents a variety of financial institutions resulting in greater flexibility and less confusion about which agents they can visit?  As increasing client choice and convenience of accessing financial services becomes increasingly important, the question becomes, how can financial institutions begin to look at interoperability in a way that is mutually beneficial, rather than solely competitive?  Continue reading

Demand for mobile financial services in Nepal

Debbie Watkins, SBI’s Head, Implementation for Alternative Delivery Channels, was one of the key speakers at the Mobile Financial Services Summit hosted in Kathmandu, Nepal in June 2012.

The conference was organized by USAID Nepal through its Nepal Economic, Agriculture and Trade (NEAT) program in order to “set the stage for an interactive dialogue on how Nepal can successfully develop its mobile financial services sector and encourage further innovation in mobile money and branchless banking.”

Nepal, with a population of 27 million and a per capita income of less than US$650, is one of the least developed countries in the world. The country has seen modest development progress over the past 15 years: poverty rates have declined steadily; child mortality and tuberculosis infections have been reduced by half; and 90 percent of children are now initially enrolled in school. This development has also been reflected in the growth of the Nepalese financial sector – aided by recent developments in banking technology which have expanded banking from the traditional brick-and-mortar infrastructure of staffed branches to a system supplemented by channels such as automated teller machines (ATM), credit/debit cards, internet banking and online money transfers.

However, despite significant improvements, access to basic financial services is still restricted only to certain segments of the society. For the financially excluded, opening and maintaining bank accounts in Nepal can be complex and time-consuming due to lack of awareness, geographic inaccessibility, and low availability of targeted products. Continue reading

The next phase of developing agent networks in Pakistan

This post is written by Khurram Sikander, Senior Lead, SBI ADC Implementation Group & Gerald Rasugu, Global Lead, SBI Agent Network Group.  Khurram is based in Karachi, Pakistan and Washington, DC, USA, and Gerald is based in Nairobi, Kenya.

Photo credit: State Bank of Pakistan

SBI, at the behest of the State Bank of Pakistan (SBP), hosted a branchless banking workshop focusing on agent network development last quarter. The workshop attracted key stakeholders from the branchless banking industry, including financial institutions, technology and telecom companies. Several points were covered regarding the success of branchless banking and its dependence upon the quality of banking agents in the market. Among the opportunities identified as imperative critical factors pertaining to branchless banking is the strength of its agent network. A well-developed banking agent network is undoubtedly the most efficient way of penetrating the un(der) banked segments of the population.

The main purpose of the conference was to understand the nature of challenges encountered when institutions deploy branchless banking initiatives and identify opportunities as branchless banking initiatives evolve beyond the implementation stage. Continue reading