The Gates Foundation on Microfinance
Hosted by SVMN
Event recap written by SVMN Volunteer, Monica Oyarzun
On Mondy, February 27th, The Silicon Valley Microfinance Network hosted Jake Kendall, head of the Financial Services for the Poor (FSP) Initiative at the Bill and Melinda Gates Foundation. Victoria Barret, Associate Editor at Forbes Magazine, interviewed Mr. Kendall to offer us an update on the strategy and research findings of the FSP.
Through the Gates Foundation, Kendall manages research grants and works to create opportunities for people left out of the financial services sector. He told us of the FSP’s savings-led approach to financial inclusion, in which they focused on using innovation and technology to bring access to remote, rural areas that would otherwise be excluded from these critical services.
In this savings-led approach, the FSP team was led into branchless banking and mobile money transferring services. Through these efforts, they began to see that the impacts went far beyond just access to savings, and really started to offer a whole network of financial services and economic benefits to the poor populations they were working with.
The global financial collapse shouldn’t have an impact on the microsavings movement, as base of the pyramid customers often opt to pay fees in order to have access to savings, so the decline in interest rates shouldn’t deter them from continuing to save through these accounts.
Kendall cited research the foundation had conducted on M-PESA, a company started in Kenya in which customers can transfer money through their mobile phones. He and his team found that families who had access to M-PESA were better able to manage household shocks such as the death of an animal or flooded crops. Shocks like these would have been devastating prior to having this sort of money transferring system.
He spoke to the barriers in extending financial services to the unbanked, included in which is the fact that they live in a cash economy, often in rural areas. Thus, we need to move closer to them in order to be able to offer any kind of service. By allowing agents to work with mobile technology, it is possible to reach a larger range of customers.
As Kendall states, “it takes the cash processing out of the institutions and puts it in the hands of mobile bankers.” In this manner, he elaborated, financial institutions are able to focus on other opportunities, such as creating additional products and establishing appropriate credit reporting methods. It can reorganize the value chain of the financial system as a whole.
Kendall continued by speaking to the goals of the FSP, which are to measure impact and offer “data based advocacy.” They collect data to show the scope of economic activity, to demonstrate to private markets wherein lies the opportunity for investment. Ultimately, they don’t want to be the sole funder for any project, and try to influence private markets by creating successful platforms.
While M-PESA has indeed become an example of success, it is not without faults. Kendall mentioned that one of the company’s principal barriers is in the price of money transfer. Each individual transfer costs 30 cents; while this may not seem so high for the developed world, when working with populations that live on 2 dollars or less per day, it is astronomical. He referenced other mobile money systems that have developed in Pakistan, Tanzania and Uganda; these have created a more competitive market by offering transaction fees of only 3 cents per transfer.
Ms. Barret and the audience had several questions for Mr. Kendall, regarding everything from his thoughts on SKS Microfinance and the credit crisis in India, to regulation and the impact of the global financial collapse on the benefits of microsavings, to the FSP’s plans for future strategies and innovations.
Kendall answered these based on his experience; his personal view on credit is that it can be a valuable tool but also a double-edged sword. The Gates Foundation opted not to get involved in microcredit and to focus instead on savings because of the saturation of donors that was already existent in the credit world. They saw a greater opportunity to gain leverage and make an impact with microsavings than with microcredit.
With regards to regulation, he mentioned the importance of consumer protection and ways in which to rationalize the “know your customer” or KYC ideal. By offering regulations to specific functions – lending money or offering savings options, for example – instead of regulating financial institutions as a whole, it can expand coverage by reducing the obstacles necessary to only offer a few services.
The global financial collapse, he stated, shouldn’t have a large impact on the microsavings movement. While in the developed world we are accustomed to being offered a return on our savings accounts, this is not the case in poor economies. On the contrary, base of the pyramid customers often opt to pay fees in order to have access to savings, so the decline in interest rates shouldn’t deter them from continuing to save through these accounts.
Using again the example of M-PESA, he spoke to the “notion of payments as a gateway to financial inclusion.” Mobile payments are an excellent way to start a relationship with a customer. By hearing that their transfer was received, they are getting instant, positive feedback and gaining trust in the system. The FSP found that customers were starting to leave money on the account, using it as an option to leverage their own assets.
As a final note on the benefits of mobile money transfers, Kendall spoke to the potential for marketing methods. By monitoring people’s calls and SMS messages, we can see customers’ social networks and the ways in which they expand the reach of financial services. Through word of mouth, this transfer system will hopefully expand on a global level, and it will be exciting indeed to see what the FSP’s future research findings will hold.