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 2 here.
A lot has been written on the opportunity of using mobile money to provide microcredit and on why Micro Finance Institutions (MFIs) should be using mobile money. Indeed, mobile money is a cheap and convenient channel that can be used for loan disbursement and repayment. It also reduces the risk of fraud as MFI officers often travel with cash from the place they collect it to the MFI branch office.
However, the number of MFIs substantially using mobile money is actually quite limited, and for good reason: typical mobile money services have not been designed with the vision of serving MFIs, but rather individuals, and using mobile money to supplement their operations presents a number of challenges for MFIs. In this blog post, we present how two organizations are trying to find solutions to these challenges in Kenya.
Musoni
Musoni (‘M’ for Mobile and ‘Usoni’ for future) is a young but very promising MFI in Kenya. Established at the end of 2009, Musoni believes the next generation of microfinance is mobile. Musoni’s vision is to substantially improve the quality and availability of financial services to low income, unbanked and underbanked individuals in the developing world through the establishment and support of best-practice MFIs with an emphasis on efficiency, transparency and client focus.
Musoni is the first MFI in the world to go 100% mobile, using mobile money transfer services for all loan repayments and disbursements. Musoni has successfully integrated its back office with the leading Kenyan mobile network operator, thus enabling seamless processing of all transactions. Musoni’s success in taking advantage of the Kenyan M-PESA service, with its 45,000 agents and 18m clients, has enabled it to offer a flexible and convenient alternative to the traditional time-consuming and manual microfinance processes.
Musoni has cash-lite operations, but not branchless. The branches are places for clients to visit to meet Staff and discuss issues on hand but not for Cash transactions which are done at Money Transfer Agents and Shops. After a little over two years, Musoni has set up five branches spread out in three cities, two of which are in and around the capital city of Nairobi.
Musoni has identified Uganda as its second country of operations and plans are underway to set up the first office in Kampala, Uganda. In Kenya, Musoni works with Safaricom’s M-Pesa, but plans to use multiple mobile money services in Uganda.
Challenge #1: Reducing the cost of setting up MFI branches…
Setting up brick-and-mortar branches is quite expensive for an MFI, and Musoni made the bet that this cost could be substantially reduced if transactions were not in cash. For example, a strong room is an obvious requirement if cash is to be held at a branch. In addition, tellers are required in the branches to process the cash repayments. In many MFIs, a number of the costs associated with brick-and-mortar operations are eventually passed on the consumer. And it’s not just about cost; it’s also about convenience, speed of transaction processing and fraud related risks.
This is why Musoni decided to operate cashless. This way, using the same resources as other MFIs, particularly staff, Musoni has been able to establish more branches and serve a much larger number of customers. Going forward, Musoni has a better capability of setting up branches in more remote areas than a traditional MFI would due to its cashless nature.
Challenge #2: … while improving quality of service
Loans are disbursed and repaid via mobile money enabling Musoni to disburse loans much faster than traditional cash and cheque based models. Musoni guarantees its customers loan money within 72 hours of application. The MFI enjoys lower risks, less paper work, better customer service, easier and more accurate transaction tracking.
The first loan was given in May 2010 and since then over 18,000 loans have been disbursed, totalling over KSh.500M (approx USD 6M). Musoni currently serves over 8,000 clients.
At the moment Musoni does not take deposits or savings, but is now moving in that direction, planning to offer a variety of products around savings. A lot of work is being done to define the nature of savings products to offer, particularly to the base of the pyramid, but one thing will be unifying – they will all be mobile.
MMU: What are the main challenges faced by MFIS trying to use mobile money?
Musoni: Creating the automated bridge between mobile money and the back end systems has been the greatest challenge. Customers not only pay for themselves, they pay for others within the group and beyond. Non customers also pay for our customers. There are individuals who make wrong entries even after rigorous training, including paying for the wrong person. So the technology must be “intelligent” enough to learn and accommodate these issues with the support of customer service personnel. There being no such software in the market, we’ve had to create it and refine it continuously. Our model is cash less and minimum paper work, which means we depend heavily on the technology. It’s got to work all the time, otherwise we are in chaos.
MMU: What advice would you give other MFIs integrating mobile money to their systems?
Musoni: We’ve learned a number of lessons over the past 3 years which could be beneficial to other MFIs willing to use mobile money:
- Rather than start with brick and mortar, why not leverage mobile? Setting up systems may be challenging, but the rewards are worth the trouble.
- It’s critical to establish trust, particularly through face to face interactions. Cashless can never mean doing away with loan officers/relationship officers!
- Mobile money is a game changer; it streamlines the process and all other processes need to be adjusted accordingly.
- You must conduct market research to ensure that you are meeting customers’ needs by offering loans through mobile money.
- Customers value reliability and convenience. As you establish your back end systems, you got to aim at 100% uptime.
- Customers want to know what you will charge for any transaction. Be transparent about any fees.
- Customers will take advantage of the flexibility to pay after working hours so you better be ready for that.
- A well trained customer makes things easier for the MFI, more so if you introduce technology
In addition, Musoni is now looking to license its innovative IT platform to non-Musoni MFIs, thus greatly increasing its potential outreach and social impact.