Summary of the Last lecture
• Alternative vs. Bank Financing
• Remittances
MODELS AND
CORPORATE CHOICES
New Technology
• Even a bank with a vast network cannot
duplicate the reach of small retail stores—or
more, of cell phones—and that’s why
technology is the big story in remittances
today.
New Technology
• Debit and prepaid cards, which are easy to
place in retail outlets, provide an alternative
to cash-to-cash transfers. It’s estimated that
by 2007, 30 to 50 percent of remittance
recipients had debit or credit cards.
New Technology
• At the same time, only about 2 percent of the
total outbound U.S. remittances use prepaid
remittance cards, indicating an opportunity to
increase the use of cards in remittances.
New Technology
• Kiosks are another way to complete the last
mile. With remittance inflows to India totaling
$25.7 billion in 2006, ICICI Bank developed a
service called “Money2India,” which had over
670 agent locations.
New Technology
• To expand even further in rural areas, ICICI
adopted a kiosk system with both an ATM and
a human agent. The kiosks are independently
owned and operated, paid for by user fees for
other services.
New Technology
• The longest last mile occurs in rural areas with
limited infrastructure, but mobile phones can
reach right across this distance. G-Cash
(electronic money) is a mobile money-transfer
platform owned by Globe
Telecommunications in the Philippines.
New Technology
• Through a partnership with Maxis
Communications Berhad, the largest mobile
service operator in Malaysia, Globe developed
the first international mobile-to-mobile direct
remittance service.
New Technology
• Maxis to Globe remittance transfers are sent
without a bank or bank account and are
enormously convenient, especially for rural
populations. G-Cash received on the cell
phone of the remittance recipient can be
cashed out or used to pay bills, make loan
payments, or purchase goods.
New Technology
• With as much as 10 percent of its total
population working overseas, the Philippines
is highly dependent on remittances. Flows
from Malaysia alone amount to billions of
dollars, so G-Cash’s profit potential is as
impressive as its development impact.
New Technology
• For customers, G-Cash is cheaper than any
other method of transferring cash, averaging
about 1 percent of the transferred amount—
and it is faster, too. Globe is expanding this
service to other countries where there are
Filipino workers, such as the United Arab
Emirates.
CORPORATE CHOICES
• Before a company can enter the inclusive
finance market, it must choose the right
strategy. It must consider where it is best
suited to get involved and how its own
comparative advantages best address market
needs.
CORPORATE CHOICES
• The next few lectures introduces three
significant strategic choices companies may
face, which we will then explore in greater
depth in the chapters that follow. But first,
who is likely to make these strategic choices?
CORPORATE CHOICES
• In many cases it will be a corporate champion
with the vision and passion to persuade his or
her company to consider the BOP market from
a fresh perspective and the operational knowhow to turn that perspective into action.
CORPORATE CHOICES
• Every business venture needs an
entrepreneurial champion who builds a vision
with business sense and emotional
significance. This kind of vision will be critical
in an inclusive finance venture, where
champions may need to do more than the
usual share of convincing.
Champions of Inclusive Finance
• One such champion is Robert Annibale of
Citibank. In 2004, Annibale was an 18-year
veteran at Citi, known and respected across
the bank for his work in treasury and risk
management. His experiences in Africa
convinced him of the potential of
microfinance.
Champions of Inclusive Finance
• Annibale did not start from a blank slate, of
course. By the time he began thinking about
getting involved, Citibank had supported
microfinance for years, largely through its
foundation, but it had not yet made a
business commitment to the sector—nor had
many other major international banks.
Champions of Inclusive Finance
• However, after years of foundation-led
support, a number of leaders throughout the
bank understood and cared about
microfinance. Building on that base, Annibale
and a small group of colleagues convinced Citi
to create a business unit dedicated to
microfinance, which Annibale was appointed
to head.
Champions of Inclusive Finance
• The Citi microfinance unit has assisted MFIs
from Bangladesh to Mexico to raise funds in
capital markets and is conducting wideranging experiments in areas including
remittances and electronic payments.
Champions of Inclusive Finance
• At about the same time, Nachiket Mor and
Bindu Ananth played a similar role at ICICI
Bank, and the microfinance sector in India has
never been the same. A Ph.D. economist, Mor
was, like Annibale, a veteran respected for his
work in treasury and corporate finance when
he was given the added charge of the bank’s
inclusive finance work: a social initiatives team
headed by Ananth, a young academic idealist.
Champions of Inclusive Finance
• The internal conditions were fertile for ICICI to
support their work, because of Indian
government priority sector lending targets
and the bank’s overall strategy to become
India’s leading bank in most if not all market
segments.
Champions of Inclusive Finance
• Through pilot experiments (not all successful,
but all providing valuable learning), and
dialogue with microfinance industry players,
Ananth and Mor created new ways of working
with MFIs, which allowed ICICI to migrate its
support to microfinance beyond a small CSRtype unit and put several hundred million
dollars into the sector during the next few
years.
Champions of Inclusive Finance
• Innovations coming out of this effort included
the ICICI partnership financing model, the
Centre for Microfinance at the Institute for
Financial Management Research, and FINO (a
technology company serving MFIs), among
other initiatives.
Champions of Inclusive Finance
• Annibale and Mor had earned trust and
political capital in successful mainstream
operations, and they knew how to work the
cultural and political systems in their
organizations in order to win sponsorship and
resources for their projects.
Strategic Questions
• Before they set out to rally internal support,
would-be corporate champions need good
answers to some of the many questions their
colleagues are likely to raise. In addition to
questions about the market opportunity,
which we treated in earlier lectures,
Strategic Questions
• colleagues need to be convinced of the
company’s own relevant capabilities, and they
need to see the outlines of a successful
strategy. Among the questions a corporate
champion may have to answer are these:
Strategic Questions
• 1. Do we possess unique knowledge or
infrastructure in the market that will give us a
competitive advantage?
• 2. Do we have the infrastructure and
technology to reach clients directly? If not,
would we build it or would we use someone
else’s?
• 3. Is reaching the BOP market compatible with
our branding and image?
Strategic Questions
• 4. Can the BOP market become part of our
long-run client base?
• 5. Does our internal corporate culture
facilitate working with BOP clients?
• 6. Can our cost structure support working with
BOP clients and their small transactions?
Strategic Questions
• 7. What will the regulatory environment allow
us to do? What will it require us to do?
• 8. How should we position this work with
respect to corporate social responsibility? Will
we do this for profit or citizenship or other
reasons?
Strategic Questions
• 9. Where will the income streams come from?
Fee income? Any crossselling opportunities or
increased customer traffic?
• 10. Will this be profitable or financially
sustainable?
• 11. What are the risks? What are the
unknowns?
Strategic Questions
• In short, what are we uniquely positioned to
offer and how could we make this a business
success?
• Mor, Ananth, Annibale, and leaders in each of
the 16 businesses profiled in the cases
answered these questions and made effective
choices, though not without a certain amount
of trial and error.
Strategic Questions
• Although there are many strategic decisions to
be made, we focus the rest of these lectures
on three critical choices that set the direction
companies will take: whether to engage the
BOP sector as a service deliverer or as a
financier, whether and how to employ
partnerships, and how to position financial
inclusion on the corporate social responsibility
spectrum.
Strategic Questions
• Service Delivery vs. Financing
• In-House vs. Partnerships
• Social Responsibility Positioning
Financiers
• For organizations that lack any other direct
contact with low-income clients, and who do
not have a deep understanding of the market,
becoming a financier may be the easiest—or
only—choice.
Financiers
• Financing microfinance requires little in the
way of new capacities for large commercial
and investment banks.
• They simply do what they already know how
to do: finance successful businesses, in this
case MFIs. Their main task will be to learn
enough about MFIs to conduct due diligence
with confidence.
Financiers
• Many large and especially international banks
take this path. At ICICI, for example, Mor
recognized that his bank’s high-end and
middle-class branch infrastructure and
product suite did not equip it to serve lowincome clients. Instead he got to know MFIs
across India that operated at the grassroots
and needed a financial backer.
Financiers
• Mor and Ananth developed the ICICI
partnership model, which tweaked the
standard strategy of private banks toward
microfinance— lending to leading
microfinance institutions
Financiers
• —but still kept ICICI out of direct service
delivery. Under the partnership model, the
official lender to the client was ICICI, and MFIs
were their service agents. Through this model,
ICICI profitably financed inclusion at an
unprecedented scale, allowing the leading
MFIs in India to grow rapidly.
Financiers
• The partnership model had tremendous
influence on inclusive finance in India. It
orchestrated new terms under which banks
and MFIs interacted, until ICICI suspended the
model over regulatory issues.
In the Next Lecture
• Service Delivery vs. Financing
• In-House vs. Partnerships
• Social Responsibility Positioning
Summary
New Technology
Corporate Choices