10 Obstacles for MFIs Launching Alternative Channels – and What Can Be Done About Them

Posted by Amitabh Saxena

I was in the Philippines last week at the Mobile Money Transfer conference, participating on a panel on “Making Mobile Money work for Microfinance.” Many people who follow microfinance know that one of the obstacles of reaching the “unbanked” or underbanked for MFIs is linked to a branch infrastructure: they are extremely costly to set up and maintain, and it rarely makes economic sense to do so in sparsely populated areas. The excitement of MFI’s using alternative channels such as mobile phone banking but also ATMs, cards, and banking agents is based on the hypothesis that financial services outreach can be extended at a fraction of the cost.

Yet thus far, it seems that retail banks, big mobile operators, and innovative start-ups are playing in this space, not MFIs. In the Philippines, for example, I counted only a handful of MFIs in attendance. Why does that appear to be? I’ve recently written an InSight, titled “Accelerating Financial Inclusion through Innovative Channels” (download here) that discusses ten things currently holding MFIs back from implementing a multi-channel strategy and what the broader industry can do to help MFIs surmount those obstacles. Some, like regulatory frameworks and technology infrastructure, come quickly to mind, but others, such as making the channel economics work and the difficulty of managing third parties, are less obvious. I also add a number of advantages that MFIs carry, such as the ability to quickly set up a banking agent network, and a deep knowledge of the low-income customer.
If done properly, an MFI’s alternative channels have enormous potential at transforming its business model and bringing a range of financial services to the poor. We’re hoping this paper kickstarts a discussion on what can be done to remove the roadblocks in developing these channels. If you have any comments or ideas, feel free to post on this blog, or write to me at asaxena@accion.org



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