Analysis of MOBILE FINANCIAL INCLUSİON IN Europe & CENTRAL ASIA (ECA) REGION

1. Burcu Guvenek Araslı M.A.
International Development and Microfinance Expert
Academic Microfinance Instructor
Middle East Technical University

2.  Since the early 1970s, Microfinance is growing at
30% per annum, but the vast majority of the poor
are still underserved.
 Operating costs and Financing costs are among
the bottelnecks for further growth and maturity.
 Peer to peer (P2P) online lending
 In addition, online lending offers an increased
outreach to people living in isolated rural areas.
 This increased outreach would further reduce
both transaction costs from economies of scale
and financing costs through larger loan
negotiations.
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3.  Clients are comfortable with, and educated about,
technology.
 Technology is user-friendly, not too difficult to understand
or learn.
 Technology addresses cultural sensitivities around gender,
class, and privacy.
 Clients trust that technology will not somehow cheat them;
trust is enhanced by issuing receipts.
 Technology solutions are physically accessible and
affordable. Limited geographic distribution of transaction
points reduces the value of a smart card to the customer.
At the same time, extensive ATM and, to a lesser extent,
POS networks can be expensive, requiring appropriate fees
to recoup the investment.
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4.  Traditional microfinance has developed in poor countries, today many
developed countries are also using the system with adaptations based
on local cultural differences.
 In poorer countries, online micro-lending may have a more difficult
future since most poor people are illiterate and do not have access to
Internet via a computer. In such countries, mobile banking is considered
the best solution. In India, for example, 37 million people have access to
a computer but 370 million people would have access to a mobile
telephone.
 Number of mobile connections outstrips landlines. Therefore, outreach
of mobile banking has greater potential than that of online microfinance.
 In developed countries, access to computers is far greater and using a
computer to make financial transactions is far more comfortable than
pressing small buttons on a telephone.
 Therefore, the future of online lending is probably more important than
that of mobile banking in the developed world, especially European,
context.
Perhaps the two will converge as satellite connections permit mobile web
based access to computers.
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5.  Kiva, an American
2005 2007 2008 2009 company, started an online
micro-lending model in 2005
to target mainly the needy
U.K. Zopa entrepreneurs in the
March developing countries. This too
was duplicated, with variations
U.S.A. Kiva and adaptations by many
November operators.
Germany Smava  In Europe, MyC4 and Babyloan.
February However, models are
Netherlands Boober mushrooming all over the
February
world, with a number of them
in India alone.
Denmark MyC4
 The online lending movement
May started in March 2005 with a
Italy Boober European firm called Zopa, UK.
November Since then Zopa has gone to
Kokos
the U.S., Italy and Japan
Poland
February  Today, there are more than a
dozen for-profit commercial
Poland Monetto operators in the online Peer-
March to-peer lending market. In
France BabyLoan Europe these include operators
January such as
Zopa, smava, boober, Kokos, a
nd Monetto.
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6. Legal status
Non-profit For profit
Geographic International Kiva BabyLoan, MyC4 (Sub-Saharan Africa),
coverage Smava (Germany)
National Boober (Netherlands, Italy), Kokos (Poland),
Monetto (Poland), Zopa (UK, Japan, Italy)
 Kiva operated as an international operator, transferring funds from US based
individuals to the rest of the world. Asymmetric information based issues
relating to trust which are greater in international capital movements than in
domestic movements, because legal and cultural institutions differ.
 Kiva added a second intermediary in the supply chain of funds from the US
based lender to the poor borrower in the developing country. This intermediary
was the local Microfinance Institution.
 MyC4 and Babyloan, the two European Microfinance lending institutions are
for-profit institutions set up as companies. Thus, they are not looking for
donations, but are looking at a sustainable model of online microfinance
lending. They all use auction mechanisms to ensure that borrowers and
lenders get the best rates based on market competition
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7. Loan volumes (million USD) of P2P Lending & Respective
Costs
Source: P2P-Banking.com, P2P lending companies by loan volume - Jan 09
Boober 3.3
BabyLoan 0.8
Kiva 0.1
The cost of producing
Kokos
online P2P services 57.9
encompasses: Monetto 1.5
Programming fees for MyC4 0.9
updating products,
Smava 9.0
services, and security;
Zopa 45.6
Maintenance of the site;
Marketing of the site Prime Rate Interest Rate
Salaries (Prosper Lending
Review, 2007). September January Online Social
They might also charge 2008 2009 Lending Site (%)
lenders for the same online Britian 5.00% 5.00% 8.75 to 16.99%
services (Zopa)
Germany 4.00% 3.75% 4 to 18% (Smava)
Poland 5.48% () 1 to 22% (Monetto)
USA 5.00% 3.25% 0% (Kiva)
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8.  A wider, intermediate definition, now gaining
ground in European countries is that of social
microfinance, which includes loans given to
poor people for housing, cars, education or
anything which would permit the poor person
to increase his productivity which includes
consumption loans, recognizing that money
is fungible and that if a person takes loans
for any purpose, his welfare is increasing.
 The social impact of online Microfinance has
also helped growing awareness of the needs
and the rights of poor people to financing
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9.  Authorization to use retail agents equipped with ICTs as the “cash-
in/cash-out” point and principal customer interface.
 Development of risk-based anti-money laundering (AML) rules and
rules for combating financing of terrorism (CFT), adapted to the
realities of remote transactions conducted through agents.
 The use of retail agents introduces new or enhanced risks for policy
makers and regulators. For example, agents present a variety of
operational risks to the provider and, in particular, reputational risk
given that the agent is the public face of the provider.
 In addition, four topics have been identified as “next generation”
policy and regulatory topics that are particularly important in
determining the success and sustainability of branchless banking
going forward:
◦ Appropriate regulatory space for the issuance of e-money and other stored-value
instruments (particularly when issued by parties other than fully prudentially
licensed and supervised banks)
◦ Effective consumer protection (on a variety of fronts)
◦ Inclusive payment system regulation and effective payment system oversight as
branchless banking reaches scale
◦ Policies governing competition among
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