Curious children in the outskirts of Vientiane, Laos
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The Asian Trends Monitoring Bulletin focuses on
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the analysis of pro-poor projects and innovative
and Vientiane between February and October 2012.
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Monitoring Bulletin (2013), Bulletin 21: Financial
issues that affect Asiaâ€™s ability to reduce poverty and
Inclusion for Asia's Poor (pp.8-10). Lee Kuan Yew
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School of Public Policy, Singapore.
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Contents 4 s A Moral imperative for action by Johannes Loh and Taufik Indrakesuma
8 s Financial findings: evidence from the ATM survey by Johannes Loh and Taufik Indrakesuma
11 s Facilitating finance in slums by 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
Financial inclusion for Asia’s poor: a distant future? by Johannes Loh & Taufik Indrakesuma
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
• How do the poor in these cities fare in terms of access to financial services?
Kong, Tokyo, Shanghai and Taipei, followed by Kuala Lumpur, Mumbai,
• What are some of the factors leading to the present situation?
Bangkok, Beijing and Seoul tell a story of rapid growth and new wealth.
• How are people (entrepreneurs) bridging these gaps?
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
We invite you to share the ATM Bulletin with colleagues interested in
East Asia and Pacific region alone, 55% of the population is unbanked. It is
pro-poor issues in Southeast Asia. The Bulletin is also available for down-
estimated that the total number of people without access to banking ser-
load at www.asiantrendsmonitoring.com/download, where you can sub-
vices is between 2.2 and 2.5 billion people.
scribe to future issues. We encourage you to regularly visit our website
Due to major successes in mobile payment services such as M-PESA in
for more updates and recent video uploads in our blog. Thank you again
Kenya or Easypaisa in Pakistan, financial inclusion has become front and
for supporting the ATM Bulletin, and as always, we gladly welcome your
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.
Suggested citation When citing individual articles
Developing countries average one bank branch and one ATM for
• Loh, J., & Indrakesuma, T. (2013). Financial findings:
every 10,000 people. By comparison, these countries exceed 8,000 mobile
Evidence from the ATM survey. In Asian Trends Monitoring
phones for every 10,000 people. As of 2012, approximately 1.7 billion peo-
Bulletin (2013), Bulletin 21: Financial Inclusion for Asia's
ple in emerging markets have a mobile phone but remain excluded from
Poor (pp.8-10). Lee Kuan Yew School of Public Policy,
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 unavailable, 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 discuss the following issues.
A food vendor trying his luck near the Red River in Hanoi, Vietnam.
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.
i McKinsey Quarterly, 2010, Counting the world’s unbanked. http://www.financialaccess.org/ sites/default/files/publications/counting-the-worlds-unbanked.pdf
A lively side street in Manila, Philippines.
A moral imperative for action by Johannes Loh & Taufik Indrakesuma
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 treatment for a family member, could wipe out a familyâ€™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.
Asian Trends Monitoring (2012). A dataset on poverty and service provision. Lee Kuan Yew School of Public Policy. National University of Singapore.
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 existing working capital, a certain level of business acumen, and more reliable revenue streams.
“The Promise of microfinance arises from designing and building organizations that minimize administrative overheads, thereby facilitating the flow of resources in smaller amounts to the people who can most effectively 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-
into the mobile sphere. And yet, Southeast Asia
to their needs. The term includes facilities for
is still waiting for its breakthrough in financial
small savings, microinsurance, and increas-
ingly, given the growing mobility of the working poor, money transfer (remittances).vi
erating opportunities, build assets, smooth con-
“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 incomegenerating projects.”
sumption in the face of highly irregular or seasonal 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
(Hanning, A. and Stefan, J., 2011. Financial inclusion and financial stability: current policy issues.)
services was not part of the original Millennium Development Goals, despite its direct implications for a person’s livelihood. Studies show that
overall health. The needs of the unbanked have garnered a lot of attention lately. The microfinance indus-
A closer look at the definition of microfinance reveals the original intent to provide
ful commercial MFIs […], indeed, tend to drift spontaneously over time towards richer segments 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 poorest of the poor. Therefore, “most of the very fall outside the scope of formal microfinance” (ibid.). During the 2012 field visits, the team met two
formal financial system run by traditional banks:
shop keepers, Eva from Indonesia and Sonxai from Laos. Eva runs a small shop near a food
“Microfinance is the provision of financial
technological innovation has brought banking
services to the poor, on a scale appropriate
Asian Trends Monitoring (2012). A dataset on poverty and service provision.
goal of reaching the extreme poor, “success-
financial services to those excluded from the
try has grown into a billion dollar industry and
microfinance movement set out with the noble
poor in Southeast Asia nevertheless continue to
a banked family is more likely to have emergency savings, healthier diets and often better
Henley and Goenka observe that while the
Ehrbeck, T. (2013, January 28). Jobs and Financial Inclusion. Retrieved February 14, 2013 from http://www. cgap.org/blog/jobs-and-financial-inclusion
market in Depok, Jakarta’s southern suburb. She hides her savings at home and occasionally vi, vii
Henley, D. & Goenka, A. (2010). Southeast Asia’s Credit Revolution: From moneylenders to microfinance. Routledge: New York. p.1. & p.13.
borrows money from informal money lenders
recently expanded her shop in Vientiane with
two stories of otherwise very similar shopkeep-
despite their astronomical interest rates. She
the help of the fourth consecutive microloan
ers show the massive difference that access to
canâ€™t maintain an account at a commercial bank
from an MFI. In addition, she has managed to set
reliable financial services can make. (Read more
because of the minimum deposit and the lim-
aside US$ 500 for emergencies in her new sav-
about their lives on pages 7 and 8). ATM
ited accessibility. Sonxai, on the other hand, has
ings account with the same organisation. These
Running a shop without a bank account
the late 2000s to ease congestion in the increasingly crowded suburb. However, it caused a serious drop in patronage at Eva’s warung as well as the traditional market as a whole. Nonetheless, her current
In Depok, one of Jakarta’s many suburbs, the team met and spoke
level of income, coupled with her husband’s income as a motorcycle
to Eva P., the 26 year old owner of a warung (small shop) located just
cabbie, is enough for a comfortable life for them and their 3 year
outside a traditional market. She is one of approximately 2.5 billion
people without access to formal financial services.
When asked further about her finances, she said that she does
In Eva’s hometown of Bengkulu, there were not many employ-
not use any formal financial services and prefers to save at home. She
ment options after graduating from school. As with most of rural
does not like saving in commercial banks, due to the large deposits
Indonesia, the only jobs available for her were agricultural. This
and the hassle in accessing the money. She also does not save money
prompted Eva to migrate to Jakarta in 2004, in search of better
with her local cooperative or the informal money lender, because
she does not trust these institutions with her money. She also very
Upon arrival, she immediately set up her own shop by building a stall next to the traditional market by Depok Baru Train Station.
rarely borrows money from the informal money lenders, because they charge extremely steep interest rates.
Her shop has remained in the same location for almost 8 years, sur-
We ended our chat by asking Eva whether she was happy with
viving several police crackdowns on informal businesses in public
her life in Jakarta, and if she would consider going back to Bengkulu.
spaces. She now sells a wide variety of food, drinks, and cigarettes to
She replied that she is content with what she and her family have.
a clientele comprised mostly of jitney drivers, street musicians and
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
“The shop makes about IDR 150,000 (US$ 16) in profits per day,
money to survive with their current jobs. Although the cost of liv-
although it used to be about IDR 300,000 (US$ 32) before the Depok
ing in Jakarta and its suburbs is much higher than in Bengkulu, the
government built the flyover,” she shared while pointing upwards.
improved work and life opportunities are well worth it.
The Depok government built a road over the traditional market in
Eva, self-made entrepreneur in her improvised shop in Depok, Jakarta.
Small loans boost egg business
to find her.
Sonxai’s business is located in the heart of Vientiane. She sells bird
has even more potential: “The difficulty of my eggs business is the
eggs, a local delicacy, from a street stall. The eggs are weighed and
location. If I had a better location, I would sell more”.
At the end of the interview Sonxai points out that the business
packed into simple plastic bags. The clients do not mind the raw presentation, 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 realized 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
Financial findings: evidence from the ATM survey by Johannes Loh & Taufik Indrakesuma
The Asian Trends Monitoring team con-
section comprising ten categories, each to be
21% who actually used banks. Less than a quar-
ducted a survey among people living in poor
rated on a 5-point scale (from “easy” to “impos-
ter of all respondents had an account at a finan-
neighbourhoods in Jakarta, Manila, Hanoi and
sible/unable to do”) in addition to sections on
cial institution. These findings are not surprising
Vientiane between February and September
education, health, water and access to financial
when compared to the national urban averages
2012. We collected a total of 1,398 responses
in the four countries in our survey. Among urban
from four cities. Our sample included 69%
Out of ten possible categories includ-
residents asked whether they had saved at a
women and 31% men. 87% of respondents indi-
ing access to food, water, electricity, toilets,
financial institution in the past year (Data from
cated that they are the head of the household
schools, transport, living space, health services,
2011), barely more than 20% answered posi-
(513 respondents), or the wife (702 respondents)
work opportunities, and savings, the last three
tively in Indonesia, the Philippines and Laos. In
of the head of household. The average age was
emerged as the most difficult to fulfill. More
Vietnam urban savers were even less frequent
43 years with an average household size of five
than half of the respondents found it very dif-
ficult or were unable to save. Among the sav-
The situation worsens when looking at loan
ers 55% kept their money at home, followed by
sources and borrowing behaviour. When asked
The survey had a “perception of difficulties”
viii, ix, x, xi
Asian Trends Monitoring (2012). A dataset on poverty and service provision.
Global Financial Inclusion Database (2012). Data from http://datatopics.worldbank.org/financialinclusion/
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 â€“ often at annual interest rates higher than 100%. In that regard, Manila stood out with 42% of those regularly borrowing using informal money lenders. ATM xiii
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.
Facilitating finance in slums by Johannes Loh & Taufik Indrakesuma
Providing reliable financial services in slums has
four out of ten wanted to keep their money in a
its complications. Slums present a challenging
bank or microfinance institution, but were not
environment for financial services, which tra-
able to access these services.
ditionally ensure regular repayment through
EnFaNCE linked up with Uplift, a Manila-
securing collateral and knowing their clients’
based microfinance institution, and designed a
exact residences. Most slum dwellers are rural-
very simple savings product called “Piso-pisong
urban migrants with informal jobs, highly fluc-
Ipon” (literally Saving Peso by Peso). The only
tuating incomes and little stability in their lives.
requirements were a copy of an ID or even just
Often, they do not own any substantial assets
a passport picture; there were no fees for open-
to use as collateral. They are also more anon-
ing accounts. The basic principles of the proj-
ymous, as slums do not have conventional
ect were financial awareness among the fami-
“addresses” and changes of residence can hap-
lies and direct accessibility. Deposits could be
made in all of EnFaNCE’s field offices on a daily
It is easy to see why microfinance providers
basis, with a minimum transaction of one peso.
struggle to enter this high-risk market with ser-
The only “downside” was that no interests were
vices that are affordable for the poorest of the
paid on the savings due to already high transac-
poor. Asymmetric information problems make
tion costs incurred by the MFI. Once a month,
it more difficult to identify the right clients.
a social worker would visit the family to discuss
Secondly, the costs of attracting and retaining
their budget planning and encourage them
staff in urban environments are higher, push-
to develop a savings strategy. In addition, the
ing up the final costs of the financial services
NGO held regular group information sessions
offered to the urban poor. The end result is that
to teach the basics of financial management to
MFIs often cannot serve the bottom of the pyra-
both teenagers and adults.
mid. Nevertheless, some organizations are specifically targeting the poorest of the poor.
The project was not intended to fill the gap in financial services, but rather to bridge the
In 2007, An NGO called EnFaNCE conducted a
gaps in knowledge needed to empower the
survey among inhabitants of slums in the Tondo
urban poor to become future microfinance cli-
district in Metro Manila. They found that only
ents. The psychosocial stress imposed by liv-
16% of working family members were employed
ing conditions and constant pressure to earn
in formal companies, while the remainder
enough to survive often prevent people from
made a living in the informal economy. The
planning for the future. The NGO found that in
average income was US$ 0.76 per day per per-
65% of families, no precautions were made for
son, of which 60% was spent on food. Despite
future events such as tuition, weddings or other
the limited liquidity, two thirds of respondents
major events. A similar picture emerged about
reported to having saved some money in the
the state of financial exclusion in the other cit-
month prior to the survey. Similar to the find-
ies covered by ATM’s 2012 survey on urban pov-
ings of the ATM team’s 2012 survey, more than
half of these respondents kept the savings hidden at home. Among respondents with savings,
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 agricultural loan and is exploring the market potential for micro-insurance. 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. Mr. Somphone Sisenglath, founder of EMI
In addition, EMI makes an effort to contribute to financial awareness 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-
Ekpatthana Microfinance Institution (EMI)
pound interest by saving a nominal amount each school day. The
Ekpatthana Microfinance Institution (EMI) was the first provider of
amount of money, 2 to 3 million Lao kip (US$ 250-375)”. The saved
microloans in Laos. It was founded in 2005 with the goal to reduce
sum is paid out at the end of primary school and is a welcome con-
poverty in Laos through the provision of financial services to people
tribution to finance further studies.
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
excluded from formal banking services. Their clients are mainly small entrepreneurs, such as market vendors, shopkeepers, some micro-
Fears for the future
enterprises and small scale farmers. The organisation is experiencing
Mr. Sisenglath expressed a concern about the foreseen penetra-
a phase of rapid growth, despite spending little to no money on mar-
tion of large scale businesses from neighboring countries when the
keting their products. In the last two years, staff numbers have dou-
ASEAN Economic Community (AEC) will enter into force in 2015, and
bled to 75 employees, assets have grown from US$ 1 million to US$
fears that Lao small enterprises are ill-equipped to compete with
2.9 million, and the number of active borrowers now exceeds 4,000.
these players. From a business development perspective, he pointed
The average loan size is around US$ 350 with a loan repayment rate
out that there is much more to be done to support micro-entrepre-
higher than 98%. EMI’s loan portfolio includes a forced-savings
neurs in Vientiane. All training and support has to be provided by
component in order to ensure that clients learn the importance
EMI; thus, the pool of the next generation of clients remains small.
of building up reserves for either business expansion or personal
Destitute poverty: the final financial frontier by Johannes Loh & Taufik Indrakesuma
EMI and its competitors in Laos see it as part of
The barriers between the destitute poor
daily deposits and withdrawals with the help of
their mission to lend to the poor, the real bot-
and access to a full range of financial services
locally trained staff. Their staff is recruited from
tom of the pyramid. However, their client pool
are not related to technology. Working solu-
the same neighbourhood as their clients and
consists mainly of the near poor with exist-
tions exist, but they require the right combina-
uses an electronic device to record all transac-
ing resources and operational businesses. In
tion of regulatory frameworks, private compa-
tions on-the-go. The second case is an experi-
order to reach the bottom of the pyramid,
nies dedicated to providing low-cost solutions,
ment by a company called Mobile Venture
they would, firstly, require better economies of
and inventiveness by policy makers. Below, we
Kenya Ltd, which saw potential in the product
scale to reduce the costs of implementing their
include two case studies of highly flexible sav-
offered by SafeSave and implemented M-PESA
“know-your-customer” policy. Secondly, lack of
ings and loan services provided to the poorest
as a “rail” to offer the same kind of flexibility
access to cheap technology limits their options
of the poor. The first case is SafeSave, an organ-
through mobile banking. ATM
to offer the kind of daily savings and loan prod-
isation which found a for-profit solution to offer
ucts needed by clients who earn less than 1 US$ per day. Clients working in the informal economy 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-
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)
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. 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.
CGAP (2013). Accessed March 7, 2013 from http://www. cgap.org/blog/geography-cash-points-tanzania
A busy street in South Jakarta
Vendors setting up Vientiane's night market
Outlook: The future of financial inclusion by Johannes Loh & Taufik Indrakesuma
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.”
He is referring to services
beyond payment, savings and loans – implying xix
Asian Trends Monitoring (2012). A dataset on poverty and service provision.
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.
Face-to-Face financial services for slum dwellers: SafeSave, Bangladesh
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
The poor often struggle with their day-to-day money management.
are equipped with handheld devices to electronically record each
In absence of savings instruments they find themselves unable to
transaction into SafeSave’s database.
save up for the future. There are too many essential expenses that eat
Surprisingly, 44% of account holders do not take loans and prefer
up their daily or weekly earnings. With small and irregular incomes,
only to save. For accounts with balance above US$ 15 the organiza-
managing their financial affairs takes is a major concern for the poor.
tion pays 6% p.a. interest to account holders, while the interest rate
Thus, there is strong demand for a convenient cash-flow manage-
for loans is 3% monthly. Regular and fast repayment is incentivized
ment facility on a daily basis.xxi
by making an increase of the credit limit conditional on how fast the
Ideally, the facility should allow for small-scale savings of any
existing loan is repaid. In 2010, the product range was expanded to
value at any time with the right to withdraw on demand, combined
include a long-term savings product for three, five, seven or ten years
with the possibility of taking small loans to smoothen unexpected
with 7%, 8%, 9% and 10% interest per year.
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 facility 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 popular and sustainable. Despite flexible arrangements, the repayment rate stands at 97%. Operating from nine branches, Safesave sends out 66 collectors, all women from low income neighbourhoods in the same area, who visit client’s homes or workplaces every day. With a small handheld 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
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]
“Having some instrument there that allows him to make those payments on a regular and frequent 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 service 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]
SafeSave (2011). SafeSave Performance. Available at: <http:// safesave.org/performance.html>. [Accessed on 9 September2011]
that future service providers could use these platforms to offer micro-insurance and pay-asyou-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 transformed the financial landscape in countries such as Kenya and Tanzania. ATM
Mobile savings for the poorest of the poor: Jipange KuSave, Kenya
Although the maximum loan size was capped at US$ 1,200.
Inspired by the success and convenience of Safaricom’s mobile pay-
ponent. Seven out of ten respondents listed this as the top product
ment service M-PESA, a new company called Mobile Venture Kenya
feature. Respondents also said that not having access to their sav-
Ltd. recognised an opportunity to test a flexible savings product
ings during repayment helped them to achieve their targets more
through mobile channels targeted at the poorest.
quickly. Users who simply stored value in their M-PESA accounts,
A client feedback survey showed that the most valued feature of this mobile loan and savings offer was the forced savings com-
The pilot project was called Jipange Kusave (in Swahili “to orga-
found the money too easy to withdraw at any of the M-PESA agents.
nize oneself to save). Clients would receive interest free loans for a
They struggled with following their own “mental accounting” rules.
small administrative fee and all payments would be made directly
When the savings were less accessible, the funds were clearly ear-
through M-PESA . A small part of each loan was retained as sav-
marked as future savings. This makes a huge difference which could
ings. This setup meant that there were no field collectors, lower
help the poor to keep their money safe and save more, compared to
costs, but also increased risk of default. Despite the minimization
hiding the savings in cash at home.
of human interaction, the initial recruitment and registrations were
After completion of the pilot phase MVK decided not to launch
conducted in person. The higher risk required a good screening pro-
the service commercially, because acquiring the required banking
cess to avoid clients with higher likelihood to default.
license would have been too difficult for a small start-up. Their num-
The pilot project was rolled out in three phases with different
bers suggested that a client base of 300.000 plus within three years
product specifications to test client satisfaction and the feasibility
with average savings of US$ 180-300 would ensure profitability.
of the business model. While the initial clients in the Jipange pilot
Given that Kenya currently has 17 million mobile phone users, this
were predominantly banked customers, almost 40% lived on less
threshold would not be the limiting factor.
than US$ 2.5 a day. After experimenting with different fee struc-
In late 2012, Safaricom launched a new mobile banking product
tures the company determined that in order to build a sustainable
called M-Shwari which offers interest free loans and up to 5% interest
business model activation and disbursement fees had to be raised
on savings held in the M-Shwari account. The loans can be as small as
from initial levels. Customers had to pay a one-time activation fee
US$ 1.25. In terms of risk management Safaricom assumes that los-
of US$ 5 to become eligible for the mobile loan service. Thereafter,
ing your mobile number is deterrent enough to ensure repayment.
they pay a 5% loan disbursement fee (5% of the total loan princi-
One limiting factor is that the money held in an M-Shwari account
pal), starting with an initial loan of US$ 20. Half of the loan amount
can only be moved to and from an M-PESA account and thus ties the
is held back as savings. Customers need to indicate a savings target
user to existing M-PESA limitations.
and the company will keep their savings out of reach until the target
Initial sign-up rates are promising, but it is too early to assess the
has been reached. Most clients were able to understand the product
impact this new product will have on financial inclusion, in particular
features and charges within 15 minutes. After successful repayment
among the poor.
the customer automatically qualifies for a new (slightly bigger) loan.
Rotman, S., Ferrand, D., and Rasmussen S. (2012). The Jipange KuSave Experiment in Kenya. CGAP, Washington, USA.
A statue in Vientiane's Buddha Park.
Phua Kai Hong is a tenured professor at the LKY School
Johannes Loh is working as a Research Associate at the
of Public Policy and formerly held a joint appointment as
Lee Kuan Yew School of Public Policy. He holds a Master’s
Associate Professor and Head, Health Services Research
degree in Public Policy from the Hertie School of Public
Unit in the Faculty of Medicine. He is frequently con-
Policy in Berlin, and a Bachelor of Arts in Integrated
sulted by governments within the region and interna-
Social Science from Jacobs University Bremen. His previ-
tional organisations, including the Red Cross, UNESCAP,
ous research experience includes aid governance, visual
WHO and World Bank. He has lectured and published
political communication and public sector reform in
widely on policy issues of population aging, health-
developing countries. Prior to joining the Lee Kuan Yew
care management and comparative health systems in
School of Public Policy he has also worked for the United
the emerging economies of Asia. He is the current Chair of the Asia-Pacific Health
Nations Environment Programme in Geneva, Transparency International Nepal, and
Economics Network (APHEN), founder member of the Asian Health Systems Reform
the Centre on Asia and Globalisation in Singapore. His email is johannes.loh@nus.
Network (DRAGONET), Editorial Advisory Board Member of Research in Healthcare
edu.sg and you can follow his updates on trends in pro-poor policies in the region on
Financial Management and an Associate Editor of the Singapore Economic Review.
His email address is firstname.lastname@example.org T S Gopi Rethinaraj joined the Lee Kuan Yew School
Taufik Indrakesuma is a research associate at the Lee
of Public Policy as Assistant Professor in July 2005.
Kuan Yew School of Public Policy. He is a recent gradu-
He received his PhD in nuclear engineering from the
ate of the Master in Public Policy programme at the
University of Illinois at Urbana-Champaign. Before
Lee Kuan Yew School of Public Policy. He also holds a
coming to Singapore, he was involved in research and
Bachelor in Economics degree from the University of
teaching activities at the Programme in Arms Control,
Indonesia, specialising in environmental economics.
Disarmament and International Security, a multi-disciplin-
Taufik has previously worked as a Programme Manager
ary teaching and research programme at Illinois devoted
at the Association for Critical Thinking, an NGO dedicated
to military and non-military security policy issues. His
to proliferating critical thinking and human rights aware-
doctoral dissertation, “Modeling Global and Regional Energy Futures,” explored the
ness in the Indonesian education system. His research interests include behavioural
intersection between energy econometrics, climate policy and nuclear energy futures.
economics, energy policy, climate change mitigation and adaptation as well as urban
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 security, climate policy, energy technology assessment, nuclear fuel cycle policies and international 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 email@example.com
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