digital financial services · proclamation p no. 592/2008 market trends & overview nbe allows...

DigitalFinancialServices(DFS)

MarketStrategyMarch2017

2

1. Market Trends & Overview2. Opportunities3. Market System Analysis4. Vision & Interventions

Annexes

3


Annexes

4

MarketTrends&Overview

BoP remainsalargelyuntappedmarketinEthiopia

Source:WorldBank(2014);EthiopianInclusiveFinanceTrainingandResearchInstitute(2014);FinAccess,FSDKenya (2016)

Fig.1:SubsaharanAfricancomparison:percentageofadultsreportinghavingan

accountatafinancialinstitution

6 The 2016 FinAccess household survey

5.2: Access strand over the years (%)

2016 42.3 17.47.232.6

0.4

32.4 25.37.833.7

0.8

21.0 32.726.815.4 4.1

15.0 41.332.14.0 7.7

2009

2013

2006

Formal prudential Formal non-prudential Formal registered Informal Excluded

75.3% of Kenyans are now formally included; a 50% increase in the last 10 years. Financial exclusion, which is now down to 17.4%, has more than halved since 2006.

While formal inclusion for men has risen steadily since 2006, for women, formal inclusion leapt between 2009 and 2013 driven by the spread of mobile financial services (MFSs).* This has lessened women’s exclusive reliance on the use of informal services. Compared to men, however, women still have lower access to formal prudentially regulated services such as banks (35% for women compared to 50% for men).

* MFS providers include Airtel Money, M-Pesa, MobiKash, Orange Money & Tangaza Pesa.

5.3: Access strand by men (%)


50.4 28.9

0.4

4.1 16.2

25.7 17.6 4.8 19.5 32.4

39.1 31.1

1.0

4.7 24.1

19.6 4.2 26.09.4 40.72006

2009

2013

2016

5.4: Access strand by women (%)

2006

2009

2013

2016 34.6 36.1 10.2

0.5

18.6

16.7 13.4 3.6 33.3 33.0

26.1 36.0 10.7

0.7

26.5

10.7 3.7 6.1 37.7 41.7


è ThefiguresindicateadoublingoffinanciallyincludedinKenyaoverthelastdecade.

BanksandNBFIsovertakeinformalinstitutions.

Fig2:Kenyancomparison: percentageofadultsreportinghavingananaccount(formal,informal, excluded)

6 The 2016 FinAccess household survey

5.2: Access strand over the years (%)

2016 42.3 17.47.232.6

0.4

32.4 25.37.833.7

0.8

21.0 32.726.815.4 4.1

15.0 41.332.14.0 7.7

2009

2013

2006


75.3% of Kenyans are now formally included; a 50% increase in the last 10 years. Financial exclusion, which is now down to 17.4%, has more than halved since 2006.

While formal inclusion for men has risen steadily since 2006, for women, formal inclusion leapt between 2009 and 2013 driven by the spread of mobile financial services (MFSs).* This has lessened women’s exclusive reliance on the use of informal services. Compared to men, however, women still have lower access to formal prudentially regulated services such as banks (35% for women compared to 50% for men).

* MFS providers include Airtel Money, M-Pesa, MobiKash, Orange Money & Tangaza Pesa.

5.3: Access strand by men (%)


50.4 28.9

0.4

4.1 16.2

25.7 17.6 4.8 19.5 32.4

39.1 31.1

1.0

4.7 24.1

19.6 4.2 26.09.4 40.72006

2009

2013

2016

5.4: Access strand by women (%)

2006

2009

2013

2016 34.6 36.1 10.2

0.5

18.6

16.7 13.4 3.6 33.3 33.0

26.1 36.0 10.7

0.7

26.5

10.7 3.7 6.1 37.7 41.7


5


TheBoPlivefarfromFIs&MFIbranches,makingitunattractivetouseformalfinancialservices

BoPlives inancash-basedenvironment,beingmoreexpensive

• BoParegeographicallyremote,havelowerlevelsof(financial)literacybutneedaportfolio offormal&informalfinancialservices

• Branchesper100Kinhabitants:2.95• WithdrawalthroughBankTeller:82.87%• 97%offarmers receivedpaymentincash

• BoPhaveaneedfor“anamountofmoney”tofulfill certainneeds:

• Lifecycleevents• Emergencies• Business opportunities• Acquireassets

AverageSavingsBalanceincashETB3,311inkindETB4,279

Source:WorldBank(2014) 6


AddressingtheneedsofBoP requiresinnovationinfinancialchannelsandproducts

BoPpeople adoptandusesavings, credit,andinsuranceservices in

digitalform.

Poorpeopleconductamajorityof

transactions(includingsmallin-store

purchases) digitally.

BasicConnectivity

FullRangeofDigitalFinancialServices

DigitalIn-StorePurchases

2015

BoPpeople adoptandusedigitalmoneyforperson-to-persontransfers,billpayments, and

governmenttransfers.

Acriticalmassofmobile coverageandpenetrationisachieved

amongruralpoor.

DigitalRemotePayments

Source:BillandMelindaGatesFoundation,FinancialServicesforthePoor, (2012)

Farmerswithtraditionalhabitsdonoteasilychangethewaytheylook atanddealwithmoney

2018

Inclusive,cash-lightsociety

7


DFS isacoreenablerofadigitaleconomy,whereaccesstofinanceisaprimaryarea.

8

LargeEnterprise

8

Promotion of electronic transactions to drive a cashless economy.Twomajorareasofsupport include- thedevelopmentofagentnetworks and- thedigitizationofP2PP2GandG2Ppayment

Advantages to DFS- DFSdrivessignificant

reductioninthecostofphysicalinfrastructure

- DFScangeneratesignificantcostoffundsreduction

Theseadjacenciesenablebankstooffercheapertransactions.

Convenientaccesstoservices

Rapidlyexpandingoffering

Low-Barrierformalaccounts

ValuepropositionforDFSbeingprovidedbynonBanks

- LowerKYCthanbankaccount

- Remotesignupviaagentsordirectlyonamobilephone

- Transactonphone24/7- CICOatthousandsofpoints

- Datadrivencreditandinsurance

- Evolvingecosystemofservices


DFShasvariousStagesofMarketDevelopmentandEthiopiaisinanearlystage

Source:CGAPTheRoleofFundersinDigitalFinance:PeerExperience,March2016.Ethiopia’spositionisanestimationandnotpartoftheCGAPstudy

99

BasicConnectivity

EnablingEnvironment1

DigitalPaymentPlatform2

DigitalPaymentEcosystem3

HighImpactDigitalFinancialService

4

Poorpeoplegetmoney, spendmoneyandconductfinancialtransactionsdigitallyincludingbulk,many-to-on,payasyougoandproximitypayments

PoorpeopleadoptanduselowcostdigitalsystemsforP2P,G2P,basictransfersandinteroperability

Enablingregulationthatsupportpoorpeopletoopenaccountandproviderstooutsourcedistributionandprotectusers.

PoorpeopleadoptandusedigitalfinancetomoveoutofpovertyandstayoutofpovertyCriticalmassof

mobilecoverageandpenetrationamong theruralpoor

Kenya

Tanzania

Bangladesh

Uganda

Indonesia

NigeriaPakistan

Ethiopia

India


Financial inclusion,throughdigitalfinancialservices,resultsinreducedvulnerabilityandimprovedresilience

MsTsigereda,46,fromLibo KemkemAmhara,receiveselectronicProductive

SafetyNetProgramme(PSNP)paymentsfortwoyearsnowatYifag.

“NowIcanaccessthemoneywithmyfingerandnooneelse.Ihavebeenabletosave

someandItrustit”

Source:EFIPproject(2014)

Digital financial services totargetunbankedEthiopianswithafocusonBOP(87%ofthepopulation)

10

Womenareparticularly marginalised.Financial inclusionwillresult in• Accesstoresourcesandassets• Opportunitiestoearnaliving• Increasedbargainingpowerandreduced

vulnerability

- Improvedlivelihood&income opportunities(fromsavings&increased returnoninvestment)

- Reducedvulnerability fromeconomicshock

- Increasedability tosmoothencashflows

Financialinclusionwillresult in:


IntheEthiopiancontextBanksandMFIsaremeanttoleadbyregulation,butarenotcurrentlydrivingDFS

Source:www.nbe.gov.et 11

LargeEnterprise

11

Banks andMFIs have generally been overly cautious and slow in rolling out agent networks, despite the factthat they can more easily chart an incremental path anchored on purposeful business expansion strategieswith a clear business case.Managing indirect channels over which they have less than full control does not come naturallyto bankers.

Poor incentivesweakening supply-side deployments• Banks have been reluctant to develop extensive agent networks• Banks reluctant to make investment in new developments• Some TSPs made investment, did all the work but were limited by the regulation.

RegulationofMobileandAgentBankingServices1. DirectiveNo.FIS/01/20122. CircularFIS/01/2014

1. PROCLAMATIONNo.718/20112. APROCLAMATIONTOPROVIDE

FORNATIONALPAYMENTSYSTEM

BANKINGBUSINESSPROCLAMATIONPNO.592/2008


NBEallowsTSPstoonlyprovidetheirtechnologytoFIonaleasebasis,ortransferthetechnologyoveradefinedperiodoftime.

1212

BasicRegulatoryEnablersinDFS

BroadConsensusaboutshortlistofmostcriticaltopics

MainIssues

E-money issuance àAgents àAML/CFT à

Competition à

Consumer protection à

Ø Non bank playerspermitted?

Ø Bank and non bank agents?Ø Tiered, risk based KYC

structures?Ø Different types of

institutions?Ø Tailored to specific risks?

Source:CGAP,theEnablingEnvironmentforDigitalFinancialServices,March,2016 ,DFSmarketassessmentbyIgnacioMas

N.B.Despite the hype, many telcos have struggled to create viable mobile money propositions.Where it has been successful, the market has usually been takenby the largest operator.


DFS marketinEthiopiahasyettomoveinadecisivewayhavingaclearroadmap

13

Increasing the knowledge and capacity of government/public institutionsparticularly regulators and policy technocrats can chart the course

In line with seizing the broader purpose of DFS, there is a need to reset someof the basic assumptions on which DFS policy is premised.

13

A review is required to assess the laws, regulations, directives, and circularsguidelines.

Itisimportanttodrawclearlinesbetweenpayment,e-moneyanddeposits

Payment ElectronicMoney Deposit

Definition Transferbetweentwoparties

Specialtypeofrepayablefundswithtransactionfocus

“repayablefunds”Intermediation

Whocanissue? Paymentserviceproviders E-moneyinstitutions;regulatedfinancialinstitutions

Regulatedfinancialinstitutions

Prudential Requirements Low Medium High

DepositInsurance NA Inmost casesNot Typically Yes

Legislative gaps need to be identified to foster harmonization


AhealthyDFSEcosystemrequiresspecializedplayerscomplementingeachother

Source:ClientSurveyMckinsey, (2011) 1414

DigitalFinance+Readiness

1

2

34

5

6

DimensionstoAssessReadinessforDFSBuilding full DFS systems requires a verybroad range of competencies, andinvolves components with very differenteconomic characteristics.

Interoperability has usually been taken tobe a “second generation” issue, ratherthan a core enabler of a branchlessbanking/mobile money market.- This has tended to reinforce the feelingthat mobile money may be a “naturalmonopoly.”

For most countries, DFS is largely aboutmaking payments.- Most digital accounts are empty: theelectronic store-of-value proposition doesnot seem so compelling to people.


Annexes

15

Opportunities

EventhoughtheBoPhasalowindividual income,addedup,itisasignificantmarketsegment

Source:Worldbank (2014),EthiopianInclusiveFinanceTrainingandResearchInstitute(2014)Poverty lines,HH’sandPPPrate:SimplePovertyScorecardEthiopia(Jun2016);PPIEthiopiabasedon2010dataupdatedforJune,2016.

16

Duetoitssheersize(20millionHHs),despitetheirlowassets(ETB7590) èTotalassetsattheBoPisETB151billion(US$6.9billion),asattractiveas

highersegmentsofthepyramid.

Only22%ofadultpopulation(and21%women)haveaccesstoformalfinancial services

HighIncome

MediumIncome

BaseofPyramid

MSME

Populationgrowth3%p/a

14.8%HHabovepovertylineETB13.9

65.2%HHbelowETB4.47/US$PPP

Economicgrowth9%p/a

ENTITIES INCOMELEVEL

BaseofPyramid86.7%ofpopulation80%ofhouseholds

LargeEnterprise

16

Opportunity

Thereisalargepotentialtostimulatechange,andmanyactorsarealreadyinvolved

Activestakeholdersinvolvedinthesector

Regulatory(Macro)Coordinating effortsofNBE,GoEAgentandMobile bankingregulation2012

DonorCommunity,Telco&TSP(Meso)

WorldBank/DfID• WEDP/SMEdevelopment funds• SupportNationalFinancial Inclusion StrategyAlsoincludes:UNCDF,ILO,IFAD,CIDA,IFC,BMGFUSAid,IFC,KFW,SNVandothers

ETC,TechnologyServiceProviderse.g.M-Birr,Belcash,Kefiya FinancialTechnology

.

FinancialInstitutions(Micro)Privatefinancialtechnology growsorentersmarket- FIsfeelpressuretoactè DFSmarkethasyettomoveinadecisiveway

17Source:EthiopianGovernmentGTPII(2016);EthiopianGovernmentNFIS(2015)

Aclearneedforfinancial servicesthatextendbeyondbranches

GTPII&NationalFinancialInclusionStrategy(NFIS)

Opportunity

GovernmenthassetambitioustargetsforaccesstofinanceandmobilepenetrationunderGTPII

Source:WB,2015(http://data.worldbank.org/indicator/IT.CEL.SETS.P2) 1818

103.7millionSubscribers

56 millionInternetSubscribers

85%MobileNetworkCoverage

50Agent/yearAgentExpansionbyBanks(NBE)

Encouragingunderlyingconditions

50% Youth literacy rate

43% Mobile phoneownership

Improved mobile network allowingfor digitizing additional paymentstreams.

HugeG2P paymentsPSNP Rural and Urban14 million HHs

GTPIIPlansfor2020


Annexes

19

SectorConstraints

Knowledge,technologyandpolicyarekeyissuesinDFS

Noforeigninvestmentallowedinthesector(lackof

innovationandfunding

Limitedoutreachduetonewtechnologyandbusinessmodels Support Functions

Rules

AccountServiceProvider

BOP(women)

Infrastructure&Technology

BDSServices

RelatedServices

MarketInformationand

knowledgeResearch&Development

Associations

Marketing&Promotion

CulturalNorms

SavingsNorms

Standards

PolicyandRegulations

Minimalinnovation&capacity

LowDFSknowledgeLackofBDSservices:businessplandevelopment,strategy,

productdevelopment, trainings

LimitedTechnologyServiceProviders&

ProjectManagement

Savingsin-kind,cashandinformal(iqub)

Culturalrulesandnormsonwomenutilisingtheservices

Limitedcapacity,professionalism,innovation&fundingofFIAssociation

Lackofsuitablemarketing&channels

20

Criticalconstraint

KYCFIbranchdesignstandards,andotherrequirementssetby theNBEtobe

metiscostlyandrestrictive

LackofproportionalityKYCexcludingpeoplewithoutIDs

MarketConstraints

ItisunsustainabletooperatebranchesinruralareasfortheBoP

Technology

• Highcostofopeningandoperatingbankbranchesinruralareas• Ruraltransactionsareoflowvaluethoughhighvolume

Henceitisunsustainabletooperatebranchesinruralareas

Infrastructure(Branch)

SupportFunctions

• Inadequatefront- (e.g.tellers,agents)andback- office(e.g.corebankingsystems)technology

• Lackofinvestmentcapitalfortechnology/noappetitetoinnovate• LackoftechnicalandITskillstoupgradeorusesystemsand

technology

Research&Development

Infrastructure(Telco)

• Networkcoverageimprovedsubstantiallyover2015/16howeverreliabilityisstillchallenginginruralareas

• Lackofinnovationinreachingtheruralpoorwithsavingsproducts,dueto lackofincentivesandcompetition

• Lackofinnovationdueto limitedcompetitionandrestrictedforeignownership, limitingproductinnovationandincentiveforincreaseoutreach

21

MarketConstraints

KnowledgeandmarketinformationlimitsDFSeco-system

• Lackofdemandsidemarketinformation(e.g.informationontransactiontypes,pricepoints,usecases)

MarketInformation

SupportFunctions

Finance

DFSTraining&Knowledge

• LackofgeneralunderstandingofDFSeco-system(e.g.agents,management,productuptake,marketinformation,technology)

• Toachieverequireddensityofagentsinthemarket,substantialinvestmentinagentnetwork isneeded

22

Marketing&Promotion

• BoP haslimitedinformationandknowledgeoftheofferofproductsandservicesofFIs

MarketConstraints

RegulationconstrainstheenvironmentforgrowthofDFS

Regulation

Rules

Norms

• Restrictionsinforeignownership,resultsinlessinnovationandlesscapital

• TechnologyandagentownershiprestrictedtoFIsonly• Noclearroad-mapforDFSecosystem

• Savingpracticesorientedoninformallocalproviderse.g.Iqib,butcarriesmoreriskandislimitedintermsoflongtermsavingsandassetaccumulation.

23


Annexes

24

Increased financial inclusion(withboth increased savings and

account holders)

Technical/Technology

innovation insettingagentlinks(Mobilewallets,SAACOs,

MFIs)

Policy andregulationcreating

anenablingenvironment

BetterKnowledgeandMarketinformation

STRATEG

Y80% of BOP are financially included with appropriate products & services through innovativesolutions, namely digital financial services

DFS:MarketVision

Increased incomeand improvedlivelihood

Reduction ofvulnerabilityand increasedresilience

Financial servicesaremoreefficient andcost effective

Womeneconomic

empowerment

25

Active

Pipeline

Intervention

Constraint

P

A

CONST

RAIN

S&INTE

RVEN

TIONS

InformalRules

Marketing&Promotion

Policyandregulation

Infrastructure(Agentnetwork)

Infrastructure(Telco)

TechnologyMarket

Information

DFSKnowledge

Association

FIN01:SABandMBP

FIN16:Transactionpoolassessment

FIN17:Communityofpractice

Limitedoutreach

LowDFSKnowledge

UnfavourablepoliciesandregulationsforDFS

implementers

FIN14:SharedCoreBankingSystemsforMFIs

LackofautomationinMFIs

FIN18:Road-mapforDFS

DFSMarket

(Technology)ServiceProvider

FinancialInstitutions

SupportFunctions

Rules

Sector-specificStandards

A

A

A

A

Blue circle in support functions and rules indicate critical constraints.Colour code in support function and rules relate to respective colours in strategy boxes.

StringentKYC(knowyourcustomer)policy/procedure

FIN21:TieredKYCA

P

4.Strategy

AsnapshotofEPinitiativesDigitalfinan

ce

servicesm

arket

(techno

logy&infra

structurefocus)

SABagencybanking

Studytourforpolicymakers

MBPMobilepayments

Transactionpool

Community ofpractice

SharedMFIcorebankingsystem

26

Digitalfinan

ce

servicesm

arket

(Policya

ndre

gulatio

nfocus)

DFSroad-map

CoordinationwithWB

DFSassessment byIgnacioMas

Moreinterventions

RiskBasedKYC

Intervention1

FIN01:SAB(SACCOAgencybanking)

InterventionStoryline

Partners

Objective:PromoteruralagentsandlinkFI’swithSACCO’s

Outcome: 15,000additionalclients(75%women)inSACCOs in2017

Innovation

Amhara CreditandSavingsInstitution(ACSI)

KifiyaFinancialTechnology (KFT)

SACCO’s inNorthGonder area

Technicalinnovation insettinguptheagentlinkageforACSIandtheCoreBankingSysteminSACCOsThecommercialproposition forclientsneartheSACCO includes FisproductsTheimproved low-costoutreachforACSI

Toincreaseoutreachtotheunbanked ruralpopulation (BoP, particularlywomen)andprovide themwithaccesstofinancialservices, primarily savingsandcredits.Thisisachievedbytwosystems:

1) SACCOs asagentsoftheFIbyutilisingMobileFinanceServices (MFS)platformthatallowsruralunbanked tosaveanduseotherservicesoftheFIsintheirownSACCO

2) Alightcorebanking systemwillbedeployed ataSACCOs toimproveSACCOs administrationleadingtobetterquality, transparencyandefficiencyatSACCOlevel

Thetechnology improvesSACCOs ability toofferefficientandreliableservices totheirmembersfromitselfandfromtheFI.Thetrustbuilding betweenbothcould leadtoalendingrelationshipwithSACCOs leadingtocapitalisation.

27

Intervention2

FIN01:MobileBillPayment(MBP)


Partners

Objective:Developurbandeploymentofagents

Outcome: 20,000mobile accountholders bySeptember2017300,000 mobileaccountholders bySeptember2018

Innovation

Inurbanareas,suchasAddisAbaba,theunbankedpopulation remains20-30%,despitethewidespreadnumberofbranches.

The34utilitybillpaymentcentres(Lehulu Centers)haveastableandgrowingclientbaseofonemillionhouseholds. EPsupports therolloutofmobilebill paymenttothesehouseholds. Asadditional productsareadded, thisevolvesinabroadagentandmobile paymentservicewithmobilewallettransactionstoopen-loopmobilewallet,expandingtoperi-urban andruralareas,hencegreateroutreach.

KifiyaFinancialTechnology (KFT)Technicalinnovation insettingupthemobilewallet,agenttransactionsandagentmanagement

Commercialinnovation insustainingtheagentnetworkandmakingconsumers usemobilewallet

28

Intervention3

Fin16:Transactionpoolsstudy


Partners

Objective:MarketinformationtopromoteinvestmentsinDFS

Outcome: 1)Improvedunderstandingofthetransactionpoolsinthesupplyside2)Stocktakingondemandside(customer)onTransactionPoolsandidentifyingpainpointsandpricepointsforDFS3)Future(investment)opportunitiesforFI’s4)MarketinformationcompletedbyApril2017

Innovation

Supplyanddemandsidemarketinformationcouldinformbusinesscasesoftheprivateplayersontheopportunityandcanunleashinvestmentsinthesector.

NationalBankofEthiopia(NBE)CentralStatisticsAgencyPrivateBanksMicrofinance InstitutionsTechproviders

Improvedpractice inmarketassessmentandbetterDisseminationofdataonthemarket

29

Intervention4



Partners

Objective:KnowledgeandunderstandingonDFSecosystem

Outcome: KnowledgeonDFSwithkeystakeholderssuchasNationalBankofEthiopia(NBE), AgriculturalTransformationAgency(ATA),MinistryofCommunicationandInformationTechnology(MCIT),

MinistryofFinanceandEconomicDevelopment (MoFED),privateplayersInstitutionalizedcompetencecenterbySeptember2017

Innovation

DFSisnottakingoff,despitethelargeopportunityandregulation.OvercomingthelackofunderstandingwithkeystakeholdersonthecomplexityofaDFSecosystemandembeddingthisinaknowledgecentre(NBE,AEMFIorAddisAbabaUniversity).Thisleveragesonanon-line12weekcourseonDFI.

DigitalFrontiersInstituteAssociationofEthiopiaMFI(AEMFI)NationalBankofEthiopia(NBE)PrivateFI’s

Broaderunderstandingtheopportunity/ecosystemforbusinessandtechnical innovationinDFSEstablishedCommunityofPracticeinthemarket

30

Intervention5

FINTBD:DFSRoad-map


Partners

CoordinatingeffortsincreatingtheDFSEcosystembyvariousstakeholders

Outcome: Readinessassessment bySeptember2017RoadmapforDFSinEthiopiabySeptember2017TrainingandexposureonDFSenablingpolicyforpolicymakers

Innovation

31

DFSisnottakingoff,despitethelargeopportunityandregulation.Tocreate therightDFSecosystemthereisaneedtounbundlerolesandresponsibilities ofvariousstakeholdersandcoordinateeffortsbetweendifferent(government)stakeholders.AlignedwiththeNationalFinancial InclusionStrategy,theinterventioncreatesaroadmapto“makeDFShappen”.

NationalBankofEthiopia(NBE)BanksMicrofinance InstitutionsTechprovidersWorldbankandotherdonors

Collaboratedefforts,betterunderstandingoftherequiredecosystem,clear rolesandresponsibilities

Intervention6

FINTBD:TieredKYC/RiskBasedKYC


Partners

IntroduceproportionalityKYCforfinancialinclusiononpeoplewithoutID

Outcome: - NBErevisingtheConsumerDueDiligenceDirectiveandrelatedsupervision toallowbankstoconductriskbasedKYCforprospectiveclientswithoutID.- ApartnerFIpiloting riskbasedKYC.- Amarketserviceprovidersupporting banks todevelop/deploy risk basedKYCmechanism/technology

Innovation

32

Majorityofthelabourforceengagedintheinformaleconomyarenotregistered,hencearewithoutIDs.IDsareprimarilyusedbyFIstocarryoutidentificationofclients intheirKYCprocedures.AsaresultpeoplewithoutsomeformofIDareautomaticallyexcluded fromfinancial service.ThisinterventionaimstointroduceariskbasedKYCproceduretobefollowedbyFIs,allowing themtoprovidefinancial service toprospectiveclientswithoutID.

NationalBankofEthiopia(NBE)AddisInternationalBank&/orCBEMarketservice providerFederalFinancial IntelligenceCentre

RiskbasedproportionalityKYCallowingFIstoproperlyidentifyandprofileclientswithoutrelyingonthirdpartyIDs

Intervention7

FINTBD:DepositmobilisationforMFI


Partners

IntroduceenhancedmarketingandbrandingforMFIstostrengthendepositmobilisation

Outcome: - Business caseformarketingbrandingandbranchupgradeforMFIs- ApartnerMFIpilotingmarketingandbranding.- AmarketserviceprovidersupportsMFItodevelop/deploy brandingandmarketing

Innovation

33

TodemonstratethatMFIscanuseacommercialapproachtomobilisemoredeposits byimproving theirmarketingstrategyandinvestingincommunications.Thetargetgroupincludes thebetter-off,urbangeneralpublic orevencorporates.EPpartnerswithamarketingcompanythathasexperiencewithmarketingforbanks.Brandbuilding isnotaone-offactivitybuyaprocesswhichcontinues throughoutthelifeoftheinstitution sotheMFIshouldprepareacomprehensive, proactivebrandbuilding planbased aroundtheinputs.

MarketingserviceproviderMFI

Marketingandotherpromotionalactivities lead toahighershareofdepositsforMFIs

34

Sequenceofinterventions

Interventions

Year(EC)

2008 2009 2010 2011 2012

Fin16:Transactionpools study


FINTBD:DFSRoad-map

Moreinterventionsbasedon road-map

FIN01:SAB(SACCOAgencybanking)

FIN01:MobileBillPayment(MBP)

FIN14:SharedcorebankingsystemforMFIsFINTBD: RiskBasedKYCFINTBD: marketingforMFIs

KeyMilestonesforE.C2009(DigitalFinancialServicesMarket)

35

InterventionsE.C. Q2 Q3 Q4

Oct- Dec Jan- Mar Apr-Jun Jul-Sept

Revise sectorstrategy;withfocusonDFSwork

Update DFSmarketstrategy

Priority 1:Governmentdelivery

FINTBD:StrategyonDFSEnablingEnvironment

Consultationwithstakeholderonintervention idea

CN andIGdeveloped

Intervention launched

Priority2:Knowledge and Information

FIN16:Transactionpoolassessment

Market assessmentcompleteandsharedwithstakeholders

Review interventiontoassesseffectivenessandnextcourseofaction


DFS courseends

Studytour forregulators

Review interventiontoassesseffectivenessandnextcourseofaction

KeyMilestonesforE.C2009(DigitalFinancialServicesMarket)

36

InterventionsQ1 Q2 Q3 Q4

Oct- Dec Jan- Mar Apr-Jun Jul-Sept

Priority 3:Businessinnovations

FIN10:Mobile billpayment(MBP)

Monitor interventionprogressandreview,basedonreviewredesignorwinddown

FIN10:SAACOagencybanking (SAB)

Monitor interventionprogressandreview,basedonreviewredesignorwinddown

FIN14:SharedMFICoreBankingSystem

Feasibility studycompleted

ET Inclusivestartstheprocessofmobilizingcapital


Annexes

37


TheoryofChange

Source: 38

LargeEnterprise

38

Trainingandexposurevisit forGov’tpolicymakers 80%ofhouseholds

ProvideTAtodevelopDFSroadmap%ofhouseholds

Gov’tPolicymakersenlightenedtotheDFSmarketandlearnhowpolicy canbeused toharmonizeandpromotefinancialinclusion

AclearroadmapputinplacetoprovidedirectionforadoptingDFSforaccessto

financeinEthiopia

Developaclear,pragmaticandflexibleregulationthatwouldenableandfosterahealthyenvironment

forfinancial inclusion tosucceed

DFSmarkettransformingaccesstofinance

TheBoP havingaccesstodigitalaccounts

Inte

rven

tion

INTERVENTIONS

Impa

ctSy

stem

leve

l ou

tcom

es

2014 2020

Strategy

DFSsupportsprivateplayersandimprovesbroadknowledgeonDFSandthemarketopportunity

Busin

ess

innovatio

nsDF

Seco-system

Bringing350Kpeopleinthefinancialsystem

Enhancedecosystemanddiversity ofprivateplayers

1000agentpoints inSACCOsImprovedSACCOoperation

ThroughMBP20KaccountsopenedinAddisAbaba

Privateplayersupport

Allstakeholdersknowledgeandinformation

DFSCommunity ofPracticeoperationalandinstitutionalised

Mobilewalletinuseby50K

OverallDFSmarketassessmentDemandsidesurveyontransactionpools

Moremarketinformation

25%ofpopulation adoptmobilewallets

39

Annex

FinancialSectorProfile

MICRO (CoreMarket)

• Transitionawayfromdirectsupportformicrolevelplayersasfinancialmarketsdevelop• Focusonmicro-levelwork,althoughmacroandmesoarealsoimportanttomarketdevelopment• FIsfacecompeting prioritiesandwillofteninvestwheretheysee lessriskorhigherreturnsinsteadofservingpoor

clients, ruralconsumersorsmallbusinesses• Wherepovertyishighandinclusionlow,opportunitycostsofreachingmarginalisedconsumersarelowerbecausethe

up-marketpie issosmall

Commercialbanks• Highlyprofitable(RoE)ofmorethan50%(approx.)originsfromtradeservices.• 18banks(2public);totalcapitalETB30.2billion• Bankbranches/100K:2.95(2,502branches,highexpansion);ATMs/100K:0.463• CommercialBankofEthiopia(CBE)35%ofbankcapitaland1170branches• Branchgrowthishighoverrecentyears

MFIs• 35MFIsreaching3.5millionclients,ofwhich46%women• 5large,regionalgovernmentaffiliatedonescaterfor95%oftheclients(3.1millionclients),totaldeposit13bn

(+41%/year),loanportfolio18bn(+23%/year)totalassets26.7bn(April2015)

SACCOs(SavingsandCreditCooperatives)• 18000+SACCOscoveringaboutallkebeles,48%Urban,lendETB245Mioto529,000BoP-membersofwhich47%

women

Informalsector• IquibandIdirserveabout80%oftheadultpopulation;informalmoneylendingisexpensivebutused

Remittances• Remittance USD2Billionp/a,ofwhichhalfarrivesthroughformalchannels

40

Annex

FinancialSectorProfile

MESO(SupportFunctions)

• Limitedprofessional skill development institutes• Fewserviceproviders existinthemarketbutservice isdefragmented• HighcultureofaidandFIsarereluctanttopayforsupport services• Lessdeveloped, andinneedofheavysupport: nationalpaymentssystemsandcreditbureausthough

existarenotyetwell-functioning• Manysystemsmustbebuiltfromscratch,butwiththebenefitoflearningfrommistakesinothermarkets

MACRO(RulesandRegulation)

• Restrictedforeigninvestmentpolicy forfinancialsectorresultsinlowcompetitivepressureandlowinnovation

• Reliablefinancial institutions, nobankruptcy inthefinancialsectortodate• LimitedknowledgeandawarenessoftheDFSmarketbytheregulators• Limitedmarketinformationonaccesstofinanceandtherelatedgapbetweendemandandsupply• Strongregulation,howeverlackingcompetenciesininnovativesegmentsandnotproactive

41

Annex

MarketStrategiesandInterventions

Category Specific Risk Impact Probability Mitigation MonitoringBusiness environment

High inflationandnegativeinterestratesmakingformalsavingwithFIsunattractiveforthepoor

Medium Medium Focusonadditionalbenefitofsavingsinformalinstitutions(includingsafety,diversification)

Regularlymonitortheincentive fortargetgrouptosaveinformalinstitutions,includingsavingsratesandinflation

Financial risk

Costtoprovide formalruralfinancialservicestoohighforFIs

High Medium Exploreinnovative lowcost/affordablesolutionstostrengthenbusinesscase.Costshareinitialinvestmentstoprovebusiness.

Regularmeetingswithstakeholdersandbudgetreview.

Regulation Lackof regulationorspeedofimplementationofnewregulationsslowingdowninnovations

High Medium TheprojectwouldworkwiththeFIsandNBEto expeditetheprocess

Managed relationshipswithindustryassociationsandtheregulator

Project risk Inability ofaselectedpartner(s)tocontinuewithpilotdue tovariousreasons

Medium Low Selectpartnerswho havetherightincentiveandcapacity(includinghumanresource,financial)

Regular partnermeetingsandreviewperformancereport

42

Annex

Abbreviations

Abbreviations

ACSI AmharaCreditandSaving Institution

FEM Financial EducationalMarketing

DFI DigitalFrontiersInstitute (http://www.digitalfrontiersinstitute.org )

FI FinancialInstitution

GoE GovernmentofEthiopia

KFT Kifiya FinancialTechnology

MFI MicrofinanceInstitution

MFS MobileFinancial Services

NBE NationalBankofEthiopia

SAB SACCO AgentBanking

SACCO Saving andCreditCooperative

TSP TechnologyServiceProvider

43

Reference

BillandMelinda GatesFoundation, EthiopianFinancialInclusionProject(2014)

BMGFFinancial ServicesforthePoorStrategy(2012)

EthiopianGovernment,NationalFinancialInclusion Strategy(2015)WB,2015(http://data.worldbank.org/indicator/IT.CEL.SETS.P2)ClientSurveyMckinsey,(2011)CGAP,theEnablingEnvironmentforDigitalFinancialServices,March,2016

Ethiopian Government,The GrowthandTransformation PlanII

EthiopianInclusiveFinanceTrainingandResearchInstitute,(2014)CGAPTheRoleofFundersinDigitalFinance:PeerExperience,March2016FederalCooperativeAgency,(2014)

Financial SectorDeepening Kenya(2016)Pandeetal,(2012)WorldBank, GlobalFindex(2014)

Annex

References

44

ThankYou

ENTERPRISEPARTNERS

Bole,adjacenttoMillenniumHall,behindRelianceHotel;Bel AmourBuilding,2nd - 5th floors

Phone: +251-116-186-601Fax: +251-116-672-588P.O.Box 27374/1000

AddisAbaba,EthiopiaE-mail: [email protected] www.enterprisepartners.org

Followuson:

@EP_Ethiopia

Enterprisepartners1

www.enterprisepartners.org

45

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