Market Research on Youth � Central java, Indonesia by N99wsBl0



Under the Auspices of the Southern Sudan Microfinance Forum
                                                                            ABOUT MICROSAVE
• MicroSave provides advice on market led financial services, either as a
  donor project or as a consulting company.
• Currently we have 68 technical staff world wide based out of offices in
  Kenya, Uganda, India and the Philippines.
• In Africa we now serve more than 55 corporate clients in 15 countries,
  and we are growing our staffing so that we can continue to provide
  excellence to our customers.
• Our services are wide and varied and include the Applied Microfinance
  Institute and :
        • Strategic Business           Customer Service
        Planning                       Deposit Mobilisation
        •Market Research               Electronic Banking
        • Process Re-engineering       Corporate Branding and
        • Institutional Assessment     Identity
        • Credit Management            Product Marketing
        • Individual Lending
        • Loan Portfolio Audit
        • Product Development
                                                           MICROFINANCE IN KENYA
• Relatively highly developed financial sector in Kenya:
   – 44 Banks
   – 3,500 SACCOs (Credit Unions)
   – 205 FOSA based SACCOs
   – c.40 MFIs registered with AMFI
   – Financial Service Associations
   – ROSCA’s, ASCA’s, Merry go Rounds
   – Managed ASCAs (VSLA, SILC)
   – Large number of insurance companies
   – Mobile phone based money transfer services
                                                      CHANGING PATTERNS OF ACCESS
                       High levels of exclusion
                       32.7% of the adult
                       population with no access to
                       financial services.

                       There has been a significant
                       increase in financial
                       inclusion in 2009

                       Unpublished research
                       suggests that this is still
                       banking the easy to bank
                       population, which has
                       similar characteristics to
Source FinScope 2009   those already banked.
                                                                 DEVELOPMENTS IN THE KENYAN SECTOR
• There have been major changes in the Kenyan financial
  sector in the last five years.
• New delivery channels
   – Safaricom’s M-PESA mobile phone money transfer
   – ATMs, Point of Sale devices
• Deposit led growth
   – Equity Bank has grown rapidly to host over 54% of all the
     deposit accounts in Kenya
• Transformation into deposit taking microfinance institutions
   – Faulu (Kenya)
   – KWFT
• But very high levels of concentration
                                                             REGULATORY ENVIRONMENT
Rapid development of a supportive regulatory environment

Microfinance Act
SACCO Societies Act
Payments Systems Regulation
Agency Banking Regulations

• Capacity constraints are evident though, particularly in
  respect of the regulation of SACCOs.
                            NEW DYNAMICS - M-PESA

Said to be: 11 million
registered users.

Approximately 18,000

Relatively high levels of
usage particularly in
                                                                 ATMS AND BANK BRANCHES IN KENYA
Competition and the awakening of the mass market is leading to
notable increases in outreach, particularly in terms of ATMs.
                                                                                TRADITIONAL MICROFINANCE PROGRAMS
High concentration in the Kenya microfinance industry
• 70% concentration in three regulated institutions
    – KWFT
    – Faulu Kenya
    – Jamii Bora

   KWFT and Faulu Kenya are regulated under the Microfinance Act and
   have invested heavily in developing deposit taking networks.

   Jamii Bora ‘purchased’ a small bank. Jamii Bora is very interesting, as it
   serves very poor people, and has automated its systems using biometric
   based point of sale devices.
                                                              THE UGANDAN FINANCIAL SECTOR
• 22 Commercial Banks (Some recently licensed)
• 3 Finance Companies
• 3 Microfinance Deposit Taking Institutions
• Many unregulated MFIs and Cooperatives
• MTN money transfer (c.850,000 clients)
• Growth in SACCOs (under the Prosperity for all program of
  the GoU)
• Uganda has proportionately much lower levels of financial
  access than Kenya, there are believed to be only 2million
  deposit accounts in the formal sector, representing only
  1million depositors (meeting with the BoU).
• Total banking sector assets around $4bn, which is roughly
  equivalent to the top 3 Kenyan banks.
                                                           REGULATORY ENVIRONMENT
• Significant changes in the legal environment
   – Microfinance Deposit Taking Institutions Act
   – Mandatory Credit Reference Bureau registration
   – Introduction of the Financial Identity Card
   – Mobile Money as a product of financial institutions
                                                                A CHALLENGING ENVIRONMENT?
Whilst the Ugandan financial sector is growing rapidly, there
  have been heavy losses in newer financial institutions
   – KCB
   – Equity Uganda,
   – Ecobank
   – Fina Bank
   – UBA
   – Global Trust Bank.
• Are these losses due to rapid expansion and set up costs or
  are there other reasons?
• Its not only new institutions that have suffered
   – Losses in Barclays Bank Uganda
• Uganda has three microfinance deposit taking institutions
   – FINCA, PRIDE and Finance Trust
• Transformed after lengthy and costly processes
   – Significant increase in range of skills
   – Large increase in costs
• Deposit ‘dividend’ not as significant as expected
   – Convincing the market that they are safe places to save
   – Competing with more credible institutions (banks)
   – History of failed institutions
   – Wish to avoid taxation (by avoiding financial records)
   – Low returns to savings compared with other options
                                                                   MDI REGULATION
– There are criticisms that the MDI Act has not led to
  significant increases in financial sector participation
– MDI Act is not very different from the regulation of
  formal financial institutions, in many cases it is tighter and
  more restrictive!
– No new MDI licenses granted by the BoU since the initial
– Opportunity Uganda chose to be regulated as an NBFI.
                                                                               DIFFERENCES KENYA AND UGANDA
• So what are some of the differences between Kenya and Uganda and what
  can we learn from these differences?

• Regulations
   – Regulation matters – but its difficult to get the balance right between
     control and access
      • Compulsory credit reference bureau should decrease credit risk
         over time, but watch how this is implemented so that it does not
         exclude financial access through costs!
      • Regulation of mobile money as a product of a bank verses product
         of an MNO
      • Agency banking innovations expected
      • Microfinance deposit taking – what is missing?
   – Attitude of the regulator matters
      • Kenya verses Uganda
                                                                               DIFFERENCES BETWEEN KENYA AND UGANDA
• Geography
   – Kenya has a larger population which is more highly concentrated.
   – Uganda’s population is widely disbursed
       • Iganga is a small town with ten different financial institutions on
         the same street!
   – Low cost approaches will be needed outside major towns in S. Sudan
• Trust
   – Trust is a major factor in deposit mobilisation
       • Kenya had banking collapses in the late 90s, but no major bank
         has recently failed
       • Uganda has a history of even very large banks failing
   – When should S.Sudanese MFIs move into Deposit Taking?
• Products
   – Uganda has shifted more completely to individual micro-lending, and
     often larger loans which naturally carry higher lending risk
   – Kenya has split its products more evenly
                                                                          DIFFERENCES BETWEEN KENYA AND UGANDA
• Importance of Localised Research and Product Development
   – Kenya has produced many products and services as a result of
     extensive market research and pilot testing
   – M-PESA (was developed over 18 months – MicroSave and Faulu
     Kenya were part of the team)
   – Equity Bank (many of Equity Bank’s products were pilot tested with
   – Centenary Bank Uganda’s Home Improvement Loan
   – More recent developments tend to be copies and have not done so
      • Equity Bank Uganda
      • M-PESA Tanzania
   – Or have been developed based on very limited testing
      • Barclays Bank
                                                                              KENYA VERSES UGANDA
• Experiences with Credit Bureau have been mixed
   – It will take time to properly evaluate the impact of the CRBs.
   – In Uganda - high costs of credit bureau participation for microfinance
       • High initial costs (mandatory)
       • Charges per branch
       • Charges are per loan (not on loan size)
            – Could be pushing up average loan size and actually
               increasing risk!
       • High costs in performing Financial Identity Card Registration
   – In Kenya the CRBs have until recently been hampered by legal
     constraints on the sharing of client data.
                                                                               KENYA – UGANDA INSTITUTIONAL GROWTH
• Most growth has been highly institutional specific
  – Centenary Bank in Uganda
  – Equity Bank in Kenya

    – Suggesting that getting the formula right is extremely important in
      any market for significant institutional growth

    – In these institutions deposit mobilisation has enabled the creation of
      stable institutions able to grow from their own resources. Equity Bank
      has more active loans in Kenya than the next three largest
      microfinance providers.

    – Brand building, products and services, market research, systems
                                                                             EXPERIENCES FROM OTHER MARKETS
• MicroSave’s experiences in other markets, specifically India and West
  Africa suggests that both institutions and markets take time to develop.
• The recipe for successful institutions changes as the market and
  institutions grow.
• Initial focus on core competencies
   – Internal controls, audit
   – Credit management
   – Delinquency management
   – Core lending products
   – Staff Incentive Schemes
• Evolving into more market responsive institutions
   – Market research
   – Product refinement
   – Product development
• Finally
   – Deposit mobilisation and payment systems
                                                                            LESSONS FOR SOUTHERN SUDAN
• Experience with Regulating Micro Deposits has been mixed
   – Becoming a licensed deposit taking microfinance program is
     expensive, even for larger institutions.
       • High costs for establishing branch networks
       • High costs for developing systems
       • High costs for employing specialist staff
   – Expected large scale deposit mobilisation yet to occur
       • Promise of using mobile technology to reduce costs especially in
         Kenya where there are agency banking rules.
   – However, Kenya and Uganda already have highly developed financial

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