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IFC_FinNet2010-Presentation_final_19102010_part1.pptx 2
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IFC_FinNet2010-Presentation_final_19102010_part1.pptx 4
Business opportunity to provide banking
services to 400mn low income, unbanked
population in sub-Saharan Africa
Opportunity – serving lower income customers
Key Comments
High net-worth
> Population of SSA is 863 mn
individuals
people, with 498 mn adults
> 80% of the adult population is
Middle class unbanked –excluded from
formal financial services
> 20% of the adult population is
Low income Earnings served by informal schemes
22% of population earn > 74% of the population live under
TARGET GROUP
USD 1.25-2 per day the poverty line, earning less
people who are
unbanked and with than USD 2 per day
Number of bank clients: 100 m people – largely higher income earners in urban areas
Opportunity: Provide formal banking to the to 398 mn Sub-Saharan Africans, largely low income earners
Financial access Strands and number of totally excluded Banking profile of the adult population in Nigeria
5 7 3 7 4
21% 2% 24% 53% Nigeria [41.7 mn] 15 14
21
27
39
Source: EFInA Survey 2008; for Nigeria, FSDT Finscope 2009 for Tanzania, Roland Berger IFC_FinNet2010-Presentation_final_19102010_part1.pptx 6
There is money left lying on the table:
of monthly income USD 7.1 bn in Nigeria, close to
half is earned by the unbanked
HIGH
Financial Access and Income NET- Grow with clients:
WORTH
INDIVIDUALS Shift into higher
Bank Status Population Monthly Income income group
mn % USD (mn) % MIDDLE CLASS due to GDP
WITH BANKING
Banked 18.3 21% 3,497 49% RELATIONSHIPS growth
Formal Other 2.2 2% 181 3% 5.0mn adults
Informal 20.7 24% 1,342 19% LOW INCOME
Excluded 45.4 52% 2,118 30% EARNINGS
USD 2-10 PER DAY
Total 86.6 100% 7,137 100% 31.5mn adults
Tapping the unbanked holds more potential than increasing "share of wallet" among banked
Addressable market: Adult population (25.1 mn) Estimated Total Bank Revenue Potential by Income
by income and urban / rural ['000] brackets [USD mn]
15,348
> USD 10
6,650 26.4
per day
Between
> USD 2
1,500
and 138.2
1,450
< USD 10
112 66 per day
2012
< USD 2 288.6
Urban > USD 10 per day Urban < USD 2 per day
per day
Rural > USD 10 per day Rural < USD 2 per day
Urban between > USD 2 and < USD 10 per day
Rural between > USD 2 and < USD 10 per day
Estimates from our business case based on population per income segment,
and transaction fees from savings, loans and remittances
SSA: "Back of the envelope" calculation – Deposits mobilisation full market potential
Adult population in
Adult population income brackets Daily savings (USD Yearly deposits
in 2008 (mn) (mn) mn) Yearly savings1) (USD bn) (USD bn)
17.7
USD 2-10: USD 2-10: USD 2-10: retained
1$
85.3 85.3 21.3 deposits
21% 30%
406 58.9
74%
70%
< USD 2: < USD 2: 41.2
0.5 $ < USD 2: 37.6
300.4 150.2 volatile2)
deposits
Total annual deposit potential exceeds the deposits of Africa's largest bank by > $ 10bn
1) 250 business days are assumed 2) Deposits that are going in and out of the accounts during
the course of a year
Source: EFInA; Roland Berger analysis IFC_FinNet2010-Presentation_final_19102010_part1.pptx 9
Mobilizing these funds from clients earning less
than USD 10 per day can be turned into a game
changing factor in commercial banking
Example SSA: Customer deposits
Top 8 Banks by Customer Deposits in SSA, 2009 [USD Bn] Key Comments
IFC_FinNet2010-Presentation_final_19102010_part1.pptx 11
Microfinance in sub-Saharan Africa is
lagging behind other world regions, with much
growth coming from few large players…
Growth in African Microfinance
SSA MFIs depositor growth, Equity Bank split out1 Microfinance reach in selected African countries2
Source: 1) Mix Market data for SSA MFIs, 2) Global Microscope on Microfinance 2009, EIU
these figures do not include the larger scale commercial players such as NMB in Tanzania or
Equity Bank in Kenya IFC_FinNet2010-Presentation_final_19102010_part1.pptx 12
…these account for the few large-scale
successes in reaching the poor
IFC_FinNet2010-Presentation_final_19102010_part1.pptx 13
At this pace, increasing financial access
could not keep up with the demand: every year some
15-20m young Africans join the adult population
Access to Finance in Tanzania: 2006 to 2009
Banking profile of the adult population
> Expansion of formal access to finance came at
the cost of the informal financial sector, i.e. did
not reduce the share of the financially excluded
Tanzania 2006 9 2 35 54
> Growth of bankable population by some
500,000 from 2006 to 2009, but adult
population had grown by 2mn
> Youth bulge: another 25% of total population
Tanzania 2009 12 4 27 56 will become of bankable age over next 5 years
> In urban settings: more formal but also less
Formal (banked): Access to and use of formal deposit taking institutions/ banks informal offers – resulting in higher exclusion
Formal (other): Access to and use of other formal institutions, e.g microfinance
Informal only: Access to use of informal services, e.g. savings clubs, SACCOS,
> Microfinance institutions have not been able to
offer large scale solutions
Financially excluded: No access to formal or informal products/services
IFC_FinNet2010-Presentation_final_19102010_part1.pptx 15
Why can Brazil provide a good
hint of what might also work in Africa
Societal, economic and environment similarities between Brazil and sub-Saharan Africa
> Brazil had long been the most unequal society, with more glaring social gaps than in Africa
and wide-spread financial exclusion (~1,700 municipalities completely unserved in 2002)
> Poverty, illiteracy and high population growth rates are endemic in a few regions which
have little else than subsistence farming (Nordeste, Amazônia)
> Brazil's topography, climatic situation and agricul-
tural zones are very similar to that of sub-Saharan Africa
> Macroeconomic instability had plagued the economy
from the 1970s to the mid 1990s with hyperinflation,
capital flight, debt crises to an extent larger than for most
African economies
> Strong dependence on mineral and agricultural
resources
Four main factors that have contributed to the commercial bank's success in Brazil
Bank's capabilities Regulation
> Professional management teams > In 1999 Brazilian banking authorities
> Financing of investment for large allowed use of agents to offer bank
expansion Commercial transactions
> Access to the newest technology (i.e. banks > The creation and regulation of
POS devices) and IT infrastructure simplified savings and current accounts
> Scalable back-office IT for low massively
as key step
transaction cost processing expand > Commercial banks had to direct 2% of
> Credibility and brand name access to their demand deposits to microcredit
finance
Retail agent channel Government policy
> Existing retail networks (chains, > Brazil with active social policy
franchises, cooperatives, merchants) targeting low-income and poor
> Opportunity to use new POS citizens, programs for conditional
devices to offer cashless payments, cash transfer reach 12.7mn
and gain new clients > Disbursement handled via agent-
> Now, there are more than 150,000 banking services: strong base-load
agents 50,000 authorized to open for channels
accounts
Source: Central Bank of Brazil; Mix Market; Roland Berger analysis IFC_FinNet2010-Presentation_final_19102010_part1.pptx 17
Retail agents have grown in importance
over the years and their growth derives from their
success in increasing outreach
Retail Agents are the backbone of the commercial bank expansion
Source: Central Bank of Brazil; Febraban; Roland Berger analysis, CGAP IFC_FinNet2010-Presentation_final_19102010_part1.pptx 18
Who can help?
What commercial banks can contribute
IFC_FinNet2010-Presentation_final_19102010_part1.pptx 19
Commercial banks have all ingredients to
seize the opportunities offered by unbanked poor
Source: MIX Market/Microsavings Information Exchange, Center for the Study of Financial Innovation, Roland Berger analysis IFC_FinNet2010-Presentation_final_19102010_part1.pptx 20
Equity Bank is an outstanding example
of what can be achieved when applying commercial
banking practices to the mass market
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Adult Population SSA in mn 406 422 438 455 471 487 503 520 536 552 568 Equity's growth
Scenario 1: "Equity Bank"-
path:
full access to
type growth 55.5% p.a. 20,5 32 50 77 120 186 290 451 536 552 568
finance comes
Financial Inclusion 5% 8% 11% 17% 25% 38% 58% 87% 100% 100% 100% within reach
Traditional growth
Scenario 2: average MFI
path:
growth 23% p.a. 20,5 25 31 38 47 58 71 87 107 132 162 full access to
Financial Inclusion 5% 6% 7% 8% 10% 12% 14% 17% 20% 24% 29% finance remains a
distant goal
IFC_FinNet2010-Presentation_final_19102010_part1.pptx 22
Pieces of the Puzzle
Banking beyond branches: using alternative channels
IFC_FinNet2010-Presentation_final_19102010_part1.pptx 23
Framework of distribution channels for
mass market retail banking and access to finance,
worldwide: configuring multichannel approaches
Comments
Bank Branches/
Retail agents
ATMs Channel Options
Education
> Fully regulated commercial banks
Regulation
What keeps customers from banks? Three main gaps for financial inclusion
> Low to very low income (USD 2, USD 2-10 per > Modern technology (mobile phones, POS),
day) client innovative distribution channels and dedicated
> First time formally banked, rural and urban, product portfolios offer means to close the gap
mobile phone users between low income clients and banks
Bank HQ
SSA: "Back of the envelope" calculation – Operational costs for both banking models
Branch banking model Agent-based banking model
Target clients in # of branches Yearly costs of Yearly costs of Yearly costs of
income brackets needed branch net-work # of agents agents & other agent network
(mn) (USD bn)1) needed (mn) costs (USD bn) (USD bn)1)
1) Costs without risk and capital costs 2) Based on number of clients to be served (385.7 mn adults) (3) Average operational costs per branch are USD 0.4 mn
Source: Roland
EFInA;
Berger,
RolandEFInA
Berger analysis IFC_FinNet2010-Presentation_final_19102010_part1.pptx 27
mobile Money may only hold part of the
solution to challenges of financial access in African
markets and beyond
Average transaction volumes > USD 50 suggest that low-income are not very active users
IFC_FinNet2010-Presentation_final_19102010_part1.pptx 29
CTV-Model: a conceptual model to merge
the worlds of branch-based and branchless
banking for increasing Access to Finance
Multichannel Solutions for financial inclusion and geographic coverage
Agent (mobile)
MNO1) Agent Capital
Villages Villages Bank HQ
Retail Agent (spoke) (spoke)
ATM
Super-Agent (requires critical
with access to vault/ mass) Retail Agent
cash container for may act as Super-
Agent
TOWN
over-night cash
Villages City
(depends
(spoke) up to 1 hours
travel by bike
(HUB) up to 1-2 hour(s)
travel by car/ bus
(center)
on village
size:
critical
mass) (depends on village
size: critical mass) Satellite / Mini-branch /
Correspodent bank branch
Limited Service Full-Service Branch of Bank or
Focus on Sales a correspondent bank (e.g.
Villages (requires critical Villages rural bank, postal bank)
mass) Differentiated Service for Affluent
(spoke) (spoke) Clients
Back-Office Operations
Oversight
1) Mobile Network Operator
1 CRITICAL MASS: Agents need critical mass of clients and transactions within MobileAgents
their catchment area for it to be profitable
> Retailers & MNO Agents are stationary – unlikely to work in villages Direct Sales Agents (mobile)
> DSA are mobile, can "collect" their critical mass
> Go to clients' doorstep
> Offer account opening
2 OPPORTUNITY COST: Agents need to be convinced that the earnings potential is > Offer full range of banking
worth spending time servicing bank clients services (deposit, withdraw,
> Retailers & MNO Agents are in high-margin businesses they already know
transfer, sell other products
> Account Opening too time-consuming for retailers/MNO
4 SPEED OF DEPLOYMENT: Rapid expansion of bank's network is crucial for > Receive clients in their
a convincing service offer and first mover advantage into low-income market existing shops or stands
> Retailers and MNO agents offer existing distribution infrastructure, shorter selection > Offer just transactions
> DSA network would have to be built from scratch, time-consuming and gradual, services (deposit, withdraw)
higher need for PMO at bank
1) Mobile Network Operator
IFC_FinNet2010-Presentation_final_19102010_part1.pptx 31
Targeted Product Offerings
Deposit-led offerings of microfinance products
IFC_FinNet2010-Presentation_final_19102010_part1.pptx 32
Banks also need to adapt their product
portfolio to the specific basic financial needs of poor
client segments
Flexible hours, special products Ensure lowest costs of delivery Bind client – support his business,
use as multiplier for outreach to
clients who work with him
Banks should approach the unbanked mass market with a differentiated product offer
Traders as multipliers
Relevance of cooperation
Clients > Traders are a particular client group with
Cash concentration multiplier function for bank.
> They should be served by bank without third
party intermediaries
Bank HQ
> Through their client and business partner
interaction they
Branch Agent – concentrate cash = possible deposits
Trader
– can interact / incentivise clients and business
partners to trade via banks' own mobile
Business banking and become bank clients
partners > They have financing needs
Simple direct
coverage Business relations as > Conclusion: special coverage in mid-size/larger
natural multipliers towns to meet their needs (cash, financing,
opening hours)
IFC_FinNet2010-Presentation_final_19102010_part1.pptx 35
We typically work in three types
of projects with banks/MFIs to make a real impact
on access to finance in African settings
Time: approximately 4-5 weeks for each country Time: Four phases with decreasing RB intensity
depending on client needs and preference
Purpose: Gain transparency on market potential (by
a) four weeks strategy development & refining
income brackets & product groups) of low-income
b) eight weeks preparation of launch
clients and demonstrate business case to banks
c) 3 months light support during soft-launch,
Content: Analysis of demographic, economic and learnings capture
survey data, RB expertise on channel costs d) quarterly operational & strategic reviews
Purpose: Design, prepare and roll-out a fully scalable
II Bank-specific assessment of success factors banking offer for target segments among un- and
Time: approximately 4-5 weeks for each bank underbanked, low income population (urban & rural)
Purpose: Recommend most relevant strategy for Content: Full strategic assessment (market and
bank to establish or expand offer for unbanked poor bank), assessment of distribution channels (incl. JV
with Telcos, MFIs, informal groups), business case
Content: Assessment of competitive environment and and financial modelling, design of processes and
internal capabilities, possible 3rd party partners, bank- products, assistance in selection of technologies, set-
specific research on cost and revenue drivers up of program structure, knowledge transfer
banking strategy
Source: Roland
EFInA;
Berger
Roland Berger IFC_FinNet2010-Presentation_final_19102010_part1.pptx 37