Banking beyond conventional branches for financial inclusion

Photo credit: bKash

Photo credit: bKash

This post is written by Debbie Watkins, Head Implementation, Alternative Delivery Channels at SBI (Zeist/Washington), and reposted from Upsides. 

Banks in emerging and developing countries are increasingly recognising the potential of the low-income market segment. However, setting up and running a bank branch is an expensive business. This is where branchless banking comes in. Read the first article in an insightful series of three on how banking beyond conventional branches creates financial inclusion for all.

Low-income and rural populations are often inherently ‘bankable’ – they save for a wide range of different purposes, source both short- and long-term credit for capital purchases and business building, and demonstrate (often very sophisticated) financial management skills. The fact that most of their financial interactions are with informal channels is due to a number of reasons: banks may be far away from their homes or workplaces; may not be open during the hours they are not working; or may have prohibitively high minimum balances or monthly fees.

Logistical problems
Banks are increasingly recognising the potential of the low-income market segment. However, setting up and running a bank branch is an expensive business. The net cost to a bank of conducting a single over-the-counter transaction can be more than $1, and understandably banks are somewhat reluctant to have their branches full of clients conducting small transactions – the cost/benefit ratio just does not make sense. Establishing branches in rural areas also causes significant logistical problems – ensuring the branch always has sufficient cash on hand (but not too much), connecting the branch to centralised banking systems, and of course the fact that one branch covering what may be a catchment area of many square kilometres will still result in it being out of the logistical reach of a large number of people. Continue reading


A cross-market learning and exchange between South Africa and Pakistan

This post is written by Nimrah Karim, SBI Associate Consultant based in Karachi, Pakistan.

An ABSA "Entry Level & Inclusive Banking" branch, also known as 1234 branches

In late January, members of SBI’s management and ADC practice teams were joined by representatives of United Bank Limited (UBL) and the Bill and Melinda Gates Foundation in Johannesburg, South Africa for the quarterly Advisory Group meeting for the UBL Omni Branchless Banking project. As most readers may already know, UBL Omni is the largest bank-led branchless banking provider in Pakistan, and has received generous financial support from the BMGF for a two year project to develop a strategy that will cater to the poor and underserved in Pakistan. The meeting was set up in Johannesburg to provide an opportunity to stakeholders of the UBL Omni project to learn about branchless banking initiatives in South Africa, home to some of the pioneering initiatives in this space.  To this end, the team visited ABSA Bank and WIZZIT to candidly share the realities, challenges, and learning from experiences in branchless banking in both South Africa and Pakistan. Some key insights are highlighted below.

Low-limit Accounts: In 2004, South African commercial banks were mandated to offer minimum know-your-customer (KYC) requirement “Mzanzi” accounts to any customer that applies for one, thereby eliminating barriers for the formerly unserved in opening a bank account. While uptake has been strikingly successful—on its own, ABSA opened accounts for 7 million people, for whom many are first time accounts—the Mzanzi Initiative has proven to be largely unprofitable due to high inactivity ratios (42% lie dormant). Similarly, in 2005 the State Bank of Pakistan (SBP) required banks to introduce “Basic Banking Accounts” with a minimum set of banking services and no limit on minimum balance. While outcomes of this national initiative are not clearly documented (and would make for an interesting study), it is clear that the objectives of the SBP were not exactly met, since the low-income masses did not avail the opportunity. In the meantime, of the 160,000 branchless banking accounts opened in Pakistan in the past two years, only a third are active. These experiences depict that promoting uptake and regular usage of accounts targeting low income groups is a common challenge. Within our forum, a consensus emerged that a heavy focus on customer education is required to address the problems of low uptake and inactivity, coupled with effective communication of the value propositions of account services, and more strategic focus on part of the providers and the regulator in shaping these initiatives. Continue reading