New ways for Financial Inclusion

FinNet Conference 2010: Microfinance Session

Washington, DC, October 19, 2010

IFC_FinNet2010-Presentation_final_19102010_part1.pptx 2
Contents Page

A: Africa's untapped potential: Low-income clients

B: Who can help? - A short market review

1) Progress in Africa: just few outliers in an industry with limited impact
2) Lessons from Brazil: commercial banks drive massive financial inclusion
3) What commercial banks can contribute

C: Pieces of the puzzle - Ways to capture the potential

1) Banking beyond branches: using alternative channels
2) The CTV-Model: merging conventional and alternative distribution channels
3) Targeted product offering: deposit-led financial inclusion

D: What we do to help: Our work for financial inclusion

© 2010 Roland Berger Strategy Consultants IFC_FinNet2010-Presentation_final_19102010_part1.pptx 3

The Potential of Low-Income Clients
Overview of Sub-Saharan Africa

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

Very low income earnings

no culture of > Poverty is more prevalent in
working with banks rural areas where 63% of the
53% of population earn < USD 1.25 per day
population live

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

Source: IMF; UNDP Human Development Report 2009; World population

prospects; Roland Berger IFC_FinNet2010-Presentation_final_19102010_part1.pptx 5
 Even in leading African markets, more than half of
the population are financially excluded, and 3/4 do
not hold a bank product
Selected African markets: Financial access and banking profile [%]

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

12% 27% 56% Tanzania [11.9 mn]

74 82 82
67 Previously banked
4% 54
Currently banked
23% 18% 27% 32% Kenya [6.5 mn] Never banked

Total Male Female Urban Rural

19% 7% 19% 55% Malawi [3.9 mn]
> Only 21% of the adult population have a bank account
(equivalent to 18 m people)
14% 9% 14% 63% Zambia [3.8 mn]
> Among the banked population, the product with the
highest penetration is savings account (92%), followed
by ATM card (64%) and current account (37%)
Excluded Informal Formal (Other) Formal (Banks)
> Bank loans are hold by only 3% and mortgages by 2%

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

Nigeria: financial access and demand by population and monthly income

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

VERY LOW INCOME EARNINGS

Total unbanked Total monthly income of < USD 2 PER DAY
50.2mn adults
population unbanked
68.3 mn USD 3.6 bn

Tapping the unbanked holds more potential than increasing "share of wallet" among banked

Source: EFInA; Roland Berger analysis IFC_FinNet2010-Presentation_final_19102010_part1.pptx 7

 In Tanzania most market potential for
banks clearly lies in the low-income groups, and
there about 2/3 in the lowest income bracket
Market Potential Analysis – "if everyone was banked": Tanzania

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

Source: FinScope Report on Tanzania 2009, Roland Berger IFC_FinNet2010-Presentation_final_19102010_part1.pptx 8

 By reaching out to low-income clients,
banks can broaden their funding base at very low
interest rates, some $ 60bn potential across SSA

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

58.9 > Retained deposit potential of the

mid- and low income segment is
higher than the customer deposits
47.2 of UBA, NedBank and Ecobank in
2009

> Total deposit base of MFIs is less

30.3
than the deposit base of the 5
24.2 largest banks by deposit base in
17.7 SSA

> If full potential of deposits from the

8.2
6.0 5.2 3.8 mid- and low income segment of
3.0 2.1 USD 58.9 bn is materialised it
would be higher than that of
Full Standard ABSA FirstRand Retained UBA Nedbank Total MFI ECOBANK Skye Commercial
market Bank SA SA deposits NGA SA Deposits, TG Bank Bank of
Standard Bank
potential SA 2009 NGA Ethiopia
from low ETH > Choice of distribution model is key
income to mobilizing the maximum
segment deposits
Source: EFInA; Bankscope; Mix Market, Roland Berger analysis IFC_FinNet2010-Presentation_final_19102010_part1.pptx 10
Who can help?
Progress in Africa: just few outliers – otherwise limited impact

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

MFI clients, No. of Depositors

mn Bangladesh 15,0%
No. of Depositors Bosnia 11,7%
25 excluding Equity Bolivia 8,0%
+23% Nicaragua 6,7%
20 Georgia 2,9%
+29% Kenya 2,4%
15 Ethiopia 1,9%
India 0,9%
10 Ghana 0,8%
Uganda 0,7%
5 Tanzania 0,6%
Nigeria 0,3%
0 Mozambique 0,2%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 DRC 0,1%
SSA Countries
Non- SSA Countries

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

Institutions registered in Mix Market Comments

> Only four institutions with focus on
the low-income market have
reached more than 1mn clients
> Together they account for more than
1/3 of the African MFI clients
> Three of these are commercial
banks, only Amhara Credit and
Savings Institution (ASCI) is built
along conventional microfinance
principles
> Also in the second line, some of the
large institutions are actually set up
as commercial banks, such as
Centenary Bank in Uganda and
Equity's Ugandan subsidiary

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

"More of the same" offers no solutions – new approaches required

Source: FSDT Finscope Tanzania 2009, Roland Berger IFC_FinNet2010-Presentation_final_19102010_part1.pptx 14

Lessons from Brazil
Commercial banks drive massive financial inclusion

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

Source: Roland Berger IFC_FinNet2010-Presentation_final_19102010_part1.pptx 16

 MFIs in Brazil have been far outpaced by
commercial banks in addressing low-income clients

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

Evolution of the service structure ['000] Characterisitcs

223 > Agents are either franchisees or shops in a larger retail chain,
and also individual merchants
20
177 12 > Contractual relationship with bank or mediated by "integrators"
159 41
134 > Avg commission per transaction is USD 0.26
127 > Avg agent commission is USD 48.5 per day, profit USD 5.17
87 98
17 150
24 10 Reasons for becoming a retail agent
36
> Commisions
2003 2004 2005 2006 2007 2008 2009 > Foot traffic – 73% of retailer have seen an increase in their
non-agent business
Branches Traditional services Electronic services
> A sense of helping the community
Number of simplified current accounts [mn]
Problems
+26%
9.8 10 > Maintenance of POS devices and mobile network connections
9.6
6.3 6.8 7.6 > Crime – 41% of agents have been robed in the past 3 years
4.0 with an avg theft of USD 8,100
1.9 > Model is unsuccessful in channeling credit (see numbers on
the left) due to restrictions on microcredit offered through
2003 2004 2005 2006 2007 2008 2009 2010 simplified accounts (interest rate caps, size and term
limitations)

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

Improved Environment in Unique

Micro-finance / Mass Markets Opportunities Strengths of Commercial Banks
in African
Demographics Mass Market Reputation and Brand Name
> Youth bulge: African median ages around 20 years
> A wave of mass-markets clients over the next 10 years Banking & > Trust is a major issues for depositors due to much fraud
> Brand recognition to differentiate from other MFIs
can be the key driver for future business growth Microfinance
Institutional Capacity
Urbanization > Professional capabilities is still a key constraint for MFIs
> Experienced staff and professional back-office and HQ
> Most rapidly urbanizing region at 4% p.a.: 740 m in cities 2030
> Large pools of mass-market customers within easy reach of
commercial banks. Distance no longer the key challenge
Economies of Scale
> Existing brick & mortar infrastructure as strong basis for
branchless expansion and cash handling
Investor Interest > Use of Shared Services at low incremental cost
> Investors increase MFI financing at 20% p.a. , Microfinance
Investment Vehicles (MIV) are now moving into Africa IT Infrastructure
> Microfinance likely to be taken very positively as part of a > Investments in state-of-the-art IT enable effective microfinance
Commercial Bank's "equity story" & growth prospects
Lending opportunities
> Alternatively to micro-credit, commercial banks can allocate
Regulation deposits as cheap funding to existing lending
> Only 3 African countries have no legislation or framework for
Microfinance. Capital Markets Access
> 34 have or are drafting specialized laws for MFIs. 18 have also > Strong funding operations, treasuries active in capital markets
regulation for branchless banking (incl. Nigeria & South Africa) > "Too little funding" identified as major risk to growth in 2009 study

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

Equity Bank (Kenya): Growth since Turn-around 1994 Comments

Depositors '000, Number of

Clients/ Staff borrowers '000 Professional Management
5,000 900 > Selected senior management with banking
& accounting experience
4,500 depositors [thsd]
800 > Invests constantly in management and
borrowers [right scale] personnel training
4,000 700
Clients/Staff
Innovative Distribution Channels
3,500 +55% > Launched mobile branches with 4x4 jeeps in
600
3,000 2000 to serve rural villages
500 > Built own ATM network
2,500 > Launched own mobile phone banking offer
400 > Cooperating with Safaricom to offer a suite
2,000 of products (savings account, instant loan,
300 life insurance) via MNO agents and Equity's
1,500 branches
200 > Now selecting and training candidates to
1,000 +31% build up a proprietary network of agents
+180% 100
500
Full Service Banking
0 0 > Offers all basic financial services, many
specialized savings & lending products
1994 1996 1998 2000 2002 2004 2006 2008 2010 > A pioneer in large-scale agricultural banking
> No gender-bias (55% women)
Phase 1: Phase 2:
fast-growing, well- transformation into full-fledged
managed "MFI-style" commercial bank with
institution mass-market focus IFC_FinNet2010-Presentation_final_19102010_part1.pptx 21
 Why growth rates matter – for making
significant progress on access to finance,
economies of scale of commercial banks are key

Projections: Evolution of financial inclusion in Africa

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

Business enablers Income Business Enablers

> Factors that reflect local market and
infrastructure environment
Banked owned 3rd party owned > Condition viability of certain channels
and ability to go-alone / need for JVs
Stationary

Bank Branches/
Retail agents
ATMs Channel Options

Education
> Fully regulated commercial banks
Regulation

Network Service Manager with infrastructure in "driver seat"

> Move into alternative channels can
Bank
Bank Bank Telco-run mobile be done via own channels (mBanking
Mobile

or agents) or 3rd party networks

mobile
DSAs DSAs1) banking & agents
> Leveraging existing distribution
channels to achieve lowest possible
Channel options transaction cost:
a) bank branch and ATM networks
Technology b) post offices, retail chains, telcos,
gas stations, basic consumer goods
Network Service Managers
> offer outsourcing services & special
1) Mobile Network Operators expertise on wide distribution reach

Source: Roland Berger IFC_FinNet2010-Presentation_final_19102010_part1.pptx 24

 Modern technology and tailored business
models can help overcome the major gaps for
financial inclusion...

What keeps customers from banks? Three main gaps for financial inclusion

Potential client Geographical gap

> Little or no financial servicing on local level
– The average distance to a branch is 31 km,
involving travel costs prohibitive to the poor
Organizational gap
> ATM card requirement (fee)
> Minimum balances
> Identification requirements
> Opening hours
Cultural gap
> Not feeling welcome as customer
> Not feeling educated enough to use services

> 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

Source: Roland Berger IFC_FinNet2010-Presentation_final_19102010_part1.pptx 25

 …using an alternative distribution model
or a mix of channels with low fixed & operating
costs and proximity to the target clients

Approach: conventional branch model vs. mass market models

Conventional branch model Innovative, technology-enabled mass market models

Agent model MNO1) agent model

Bank HQ

> Client comes to bank

(opening hours and distance Retail agent model
as hurdles)
> Centralized, urban branches Bank HQ

> Mostly middle to high segment

customers
> Limited to banking services
> High fixed cost basis
1) Mobile network operator

Source: Roland Berger IFC_FinNet2010-Presentation_final_19102010_part1.pptx 26

 Bricks & Mortar is too costly for increasing
financial outreach: but lean, agent-based models
could do it at roughly 1/3 the cost

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)

USD 2-10 : Agent costs:

85.3 4.8

70,0002) 28.03) 2.42) 10.6

< USD 2: Other costs:

300.4 5.8

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
PROMISE AND OPPORTUNITIES
> Penetration of mobile phones 2x to 3x of banking
penetration in most African countries
> Leverage mobile networks as the fastest growing
infrastructure with the widest reach in African countries
> Vast and rapid expansion of client base (Safaricom's
10m in 3 years still the unattained benchmark)
> Lower channel costs than classical brick & mortar
banking
> Channel via which to sell a wide range of products
(banking, payments and others)
Average transaction volumes > USD 50 suggest that low-income are not very active users
Source: Safaricom, Vodacom Tanzania, Roland Berger
HURDLES AND LIMITS
> Unless integrated savings & loans, very high
transaction charges needed for economic viability
> Telcos in stronger bargaining position than bank: own
network and client, and control data flow
> Building network of agencies: time-consuming , costly
and limited control over quality
> Agencies often overwhelmed by cash management:
cash partnering with a bank as key bottleneck
> SMS less effective than humans for cross-selling
> Customer still needs to go to agencies to convert cash
– makes it unattractive for mobilizing the petty cash
– Transportation costs and limited opening hours
> Customer needs to have or pay for phone
> Customer needs to be literate
IFC_FinNet2010-Presentation_final_19102010_part1.pptx 28
Pieces of the Puzzle
CTV Model, merging traditional and alternative channels

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

Source: Roland Berger IFC_FinNet2010-Presentation_final_19102010_part1.pptx 30

 Crucial issues for Agents – destined
to work complementarily in multichannel approach

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

3 SALES (up- and cross-selling ) require personal contact and conversations

> Limited training and control plus time-conflicts make it unlikely for retailers & MNO
Stationary Agents
> DSA fully trained, builds & tracks client base, advise based on needs & potential, MNO1) Agent
> Direct contact incentivizes product use
Retail Agent

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

Agriculture/ farmers Informally employed Own business/ traders

Access/ payments
> Branch/ ATMs too far away, need to
spend time on the field
> Remittances from family in cities
Deposit and savings
> Seasonal lump-sum income –
big one-time deposits to live off
Credit
> Seasonal investment needed
> Payment tied to delivery
of machinery, seeds or fertilizer
> Warehouse storage pre-payments
Cash access/ payments
> Limited mobility, access at ATMs in
towns
> Remittances from family in cities
Deposit and savings
> Frequent but irregular small deposits
> Education of kids, big-items consumption
Credit
> Consumer credit, personal use
> Personal emergencies (fire, funeral,
wedding etc.)
Cash access/ payments
> Very mobile
> Deposit large-scale working capital at
home, withdraw in market town/city
> Some international transfer
Deposit and savings
> Frequent deposits
> Continued ability to save profit to build up
lump-sums for expansion of business
Credit
> Credit for working capital and expansion
of business

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

Source: Roland Berger IFC_FinNet2010-Presentation_final_19102010_part1.pptx 33

 Traders are easy to reach and may act
as multiplier – should receive special attention

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)

Source: Roland Berger IFC_FinNet2010-Presentation_final_19102010_part1.pptx 34

What we do to help
Ways how we promote financial inclusion

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
Financial inclusion projects of Roland Berger
I Market assessment and Business Case
Time: approximately 4-5 weeks for each country
Purpose: Gain transparency on market potential (by
income brackets & product groups) of low-income
clients and demonstrate business case to banks
Content: Analysis of demographic, economic and
survey data, RB expertise on channel costs
II Bank-specific assessment of success factors
Time: approximately 4-5 weeks for each bank
Purpose: Recommend most relevant strategy for
bank to establish or expand offer for unbanked poor
Content: Assessment of competitive environment and
internal capabilities, possible 3rd party partners, bank-
specific research on cost and revenue drivers
Source: Roland Berger
III Full Launch of low-income banking offer
Time: Four phases with decreasing RB intensity
depending on client needs and preference
a) four weeks strategy development & refining
b) eight weeks preparation of launch
c) 3 months light support during soft-launch,
learnings capture
d) quarterly operational & strategic reviews
Purpose: Design, prepare and roll-out a fully scalable
banking offer for target segments among un- and
underbanked, low income population (urban & rural)
Content: Full strategic assessment (market and
bank), assessment of distribution channels (incl. JV
with Telcos, MFIs, informal groups), business case
and financial modelling, design of processes and
products, assistance in selection of technologies, set-
up of program structure, knowledge transfer
IFC_FinNet2010-Presentation_final_19102010_part1.pptx 36
 Our work with EFInA in turning
FinScope data into relevant low-income retail
business cases can set an example

RB two step analytical approach for FinScope survey data

1 ANALYSIS OF SURVEY RESULTS

> Analysis of mass market trends and consumer
patterns on formal and informal financial products
> Detailed analysis of financial services & penetration
by income, location and regional biases
> Analysis of market potential of low income group
> Assessment of implications for strategic entry into
the Nigerian mass market

2 DEVELOPMENT OF BUSINESS CASE

> Development of a preliminary business case for
Nigerian & international financial institutions, ou- Successful project on 2008
tlining opportunity in Nigerian mass market data, will be repeated and
deepened with 2010 survey
> Profitability assessment for deposits, loans and
remittance services to low income groups Full RB FinScope analysis
> Consideration of two business models – expansion partial RB FinScope analysis
for commercial clients
of the branch network versus an agent-based
other FinScope surveys 37

banking strategy

Source: Roland
EFInA;
Berger
Roland Berger IFC_FinNet2010-Presentation_final_19102010_part1.pptx 37