Earlier this year, we discussed the potential of the intersection of microfinance and mobile money.  Microfinance is the provision of financial services to the unbanked and can include access to credit and savings services as well as more advanced products such as microinsurance.  Over the past couple of months, mobile money providers and microfinance institutions have continued to work together to improve further the range of financial services available despite the challenging times the industry is facing in certain parts of the world.    In this post, we highlight Musoni, an innovative MFI in Kenya which has been built from the ground up to be “all mobile”, which means that loan disbursements and repayments are made exclusively on M-PESA.  This new model which takes alternative delivery channels to a whole new level provides a paradigm shift in the way more traditional MFIs operate.

In countries where there is an existing mobile money infrastructure, disbursing microloans and accepting repayments is one of the many benefits that MFIs can gain by using the mobile payment system.  Although this model is dependent on the maturity of a mobile money ecosystem, by eliminating some of the administrative costs that MFIs incur in the field and the back office, mobile microfinance makes transactions much more efficient for both the customers and the MFI.   According to CGAP, the degree of cost savings (or additional revenue generation) depends on various factors such as the lending methodology and the relative costs of technology and labour in a particular market.

In terms of the value proposition, any Musoni client who wants to repay a loan just visits any one of M-PESA’s agents and converts their cash into mobile money. After the usual procedures and security checks, their money is sent to Musoni in real time.  A similar procedure applies for loan disbursements. Musoni does not currently take savings, although this will change in the future when they obtain a deposit-taking license.  Initial customer feedback from their clients highlights the quick speed of loan disbursements (within 72 hours of application) and the ease of repayments. In addition, internal data analysis shows that 65% of their repayments take place during closed banking hours, which proves how mobile money can help users manage their cash flows with more flexibility.

One of the other advantages of building a mobile MFI from the ground up is that the significant operational challenge of integrating systems is less of an issue.  When an existing MFI decides to go mobile, it has to decide whether it should develop its own system – a decision which is expensive, time consuming and puts a strain on existing financial and operational resources, or whether to use an existing platform gradually, with the hope of strengthening its own systems in the lead up to a full integration down the road.   Musoni has developed its own interface or middleware which allows it to interact with MNOs such as M-PESAs flexible biller functionality.

In addition, the use of mobile money allows their branches to handle no cash.  This can have a positive impact on security in areas where cash handling is a risk,  but it also means no cash-in/cash-out, which reduces the ability that more traditional brick and mortar MFIs have of distributing cash and electronic value for MNOS by leveraging their existing infrastructure.Musoni is currently working on plans to extend to other markets in east Africa where the existing mobile money and regulatory infrastructure is already in place and we look forward to seeing their model develop further.