This is a guest post, from Amitabh Saxena. Amitabh started the Alternative Channels workstream at ACCION in 2006 after spending several years in developing credit card products for Capital One’s Innovation Center.  He has worked in strategy and implementation of various channels, particularly prepaid cards and mobile, for ACCION’s partner microfinance institutions (MFIs) in Latin America, Africa, and Asia.

Last week in this space was an insightful blog post on the intersection of Mobile Money and Microfinance. I spent a number of years at a leading microfinance network called ACCION International, managing a new workstream I started called Alternative Channels, and last month wrote a comprehensive paper on how microfinance institutions (MFIs) can be a more active stakeholder in the m-banking space. So why and how can mobile operators approach these entities?

Let me first clarify a common misperception that MFIs are non-governmental organizations with only a handful of clients receiving small loans, and questionable profitability. Increasingly, many MFIs offer other products beyond credit, such as savings, remittances, and insurance, are regulated by a government authority, and follow a commercial model (rather than a subsidized or donor-driven model) of microfinance. As a result there is a fair share of MFIs that are profitable – the top 4 in ACCION’s network have seen ROEs between 20% to 50% the last few years – and led by strong, experienced management teams.

In a recent CGAP blog post, I mention two main reasons that MFIs can serve as valuable partners to mobile operators: the first is that they know the financial needs of low-income consumers intimately well and, based on the trust they have gained over the years, can connect with them to educate, sell, and register an MNO’s m-banking product. Second, though they have not taken advantage of it to-date, many MFIs’ customers are the same retail agents that MNOs target as cash-in/cash-out points. These, among others, are the benefits that Telenor gains from its recent equity purchase of Tameer Bank in Pakistan to launch the new easypaisa service.

Having spoken to executives at dozens of MFIs, I can attest that there is enormous interest to launch some sort of m-banking service – but most MFIs are undecided on what services they want to offer and how to develop it. They are also unsure about whether they should partner with an MNO to design the product or go it alone. It must be said that the concern of an MFI having a power imbalance in an MFI-MNO relationship, whether justified or not, is top-of-mind for many MFI managers.

What, then, is the best way for MNOs to approach MFIs? A basic segmentation would see a different approach depending on the size of the MFI in terms of customer base, which is a crude proxy for important partnership criteria such as branch network, back-end systems, investment capital, internal controls, management experience, etc. Helping small MFIs – say those with less than 50,000 customers – to leverage an existing m-banking rural banks in the Philippines do with Globe’s G-Cash, is one approach. For larger MFIs, a partnership model is preferred, where both parties are equal contributors to the design and development of the product, and are compensated accordingly. In practice, though, to-date it appears that the engagement is taking on more of a service-level agreement for the MFI (as leveraging with Equity Bank’s ATM network demonstrates). It should be noted that MFIs with their own competing m-banking service still make good partners for MNOs (Equity is again the best case in point) and should not necessarily be excluded from list of potential MFIs for MNOs to engage.

Lastly, as in any engagement, it helps to appreciate how the MFIs view m-banking, and what their current obstacles are in implementing it; in the paper I highlight ten main ones, so that may be one starting point to gain a better understanding of where they are coming from. Feel free to contact me directly if you have any comments or questions.