This blog has been written with the support of Tonny Omwansa, co-author of Money, Real Quick: The story of M-Pesa. We want to thank David James, CEO of Musoni and Sharon Langevin, Project Director of FrontlineSMS: Credit. Read Part 1 here.
FrontlineSMS
FrontlineSMS:Credit enables organizations that serve the base of the economic pyramid to bring the benefits of mobile money to the financially excluded by building and distributing free, open-source software for mobile money management.
FrontlineSMS:Credit’s PaymentView software is an extension of FrontlineSMS’s free, open-source technology that turns a laptop and a mobile phone or GSM modem into a central SMS communications hub. The tool enables users to send and receive text messages with large groups of people without the need for Internet access. With the PaymentView extension, users can also send, receive, and manage mobile money transactions. By expanding the uses of mobile money in developing markets, FrontlineSMS:Credit helps to fulfill the promise of mobile money to offer even the most underserved communities access to financial services and enable new business models that aid in development.
A lot has happened since we last talked to the FrontlineSMS: Credit team. In a previous blog post, we described their approach towards enabling organizations and businesses to easily use mobile money. Over the past few months, they’ve got the opportunity to test this approach through a project in partnership with a Kenyan financial services association (FSA) [1].
Challenge #1: Providing an easy and convenient way for groups to transfer money to the FSA…
This FSA is composed of 50 groups of around 20 people each. Like many others, it serves a large geographical area and some groups are more than 30km away from the FSA head office. This means that a representative of each group has to travel there every time the group wants to transfer money: which represents a day of travel for the representative of the group and a cost of around USD8 for the group on a monthly basis. The service implemented by FrontlineSMS: Credit allows representatives of groups to transfer money through M-Pesa directly to the FSA. FrontlineSMS estimates that there has been a reduction of up to 50% in the cost of repaying loans and a reduction of up to 85% in the time spent on repayments, depending on how far away a savings group meets from the FSA office. The groups saving the most are those who are far away from the FSA, as almost every group meets within a short walking distance of an M-Pesa agent.
Challenge #2: … without breaking group dynamics
The board of the FSA was initially worried that using mobile money would break down the group dynamics, which are very important to them. To face this challenge, FrontlineSMS: Credit has developed a process which allows FSAs to receive group payments through mobile money. A representative of the group collects money and transfers it to the FSA via mobile money.
The next step for the team is now to increase the number of FSAs using their service.
MMU: What are the main challenges faced by MFIS trying to use mobile money?
FrontlineSMS: Credit: We’ve noticed that software is a big problem. The ability of an MFI to find a software tool that enables them to easily process mobile payments is very limited, even in Kenya, where the use of mobile money for P2P transfers is very high. This software issue is a major reason why many businesses in Kenya have not adopted mobile money and have instead continued to use other forms of payment.
In addition to this, a transition to a new mode of payment combined with the new business process required at an MFI’s office to process these payments is not a small change. Within an MFI, there needs to be someone who is pushing the project forward and buy-in from the staff is essential, especially loan officer, who will be training clients on how to use the new, mobile money-enabled system. The technology is quite simple, but the human part can be a bit slower as clients adjust to repaying loans in a new way and MFI staff members adjust to a new process.
Finally, increased use of mobile money, especially larger transactions, can put strain on the agent networks in rural areas, who are not accustomed to processing larger amounts. For an individual to make a repayment, this may not apply, but if repayment is done at the group level, sometimes the nearest agent does not have sufficient float to make the transaction. However, increased cooperation between mobile money agents and MFIs or savings groups can alleviate this strain. Because groups meet and repay on the same day each month, a small amount of advance planning enables agents to retain sufficient float for group transactions.
MMU: What advice would you give other MFIs integrating mobile money to their systems?
FrontlineSMS: Credit: We would advise MFIs to plan carefully and make sure to walk through each part of the new, mobile money-enabled process, both from the perspective of an MFI staff member and a client. This enables an MFI to plan appropriately and mitigate any risks that they see in light of the new system. It also enables MFIs to design a system that fits well with their local context and customer base. Because our software, PaymentView, is free, we lower the barriers to technology adoption by MFIs and enable them to easily experiment with new processes.
We would also advise MFIs or any organization or business adopting mobile money to start with a small pilot first to work out the best system for your organization before scaling up. This means try starting out with just loan repayments and with a few savings groups. This way, an MFI can test their new system and get feedback to improve it before scaling up to include all groups and before adding other mobile money-enabled services. During the pilot, carefully measure the impact of using mobile money on your operations. This can range from increase efficiency in payments processing to time and cost savings from clients to other kinds of intended or unintended effects. Be in touch with your clients and staff members frequently to get feedback and make changes to your system as needed.
Detailed planning and iterative pilot testing can help to ensure success of a new system and process by helping with staff buy-in and improving customer satisfaction.