June 2010 Conference in Francophone Africa to Promote Branchless Banking

August 3, 2010    

Policymakers, private sector representatives, and investors gathered in June 2010 to promote financial inclusion through branchless banking in Francophone Africa.

Harnessing the power of technology offers new potential for dramatically increasing access to financial services for poor people around the world. For this to materialize, it is necessary to have a dynamic private sector and regulatory frameworks that strike the right balance between protecting customers and promoting the innovation of branchless banking.

“Poor people need a safe way to save and send money, and African innovations like M-PESA and M-KESHO are showing us all how to reach the billion people worldwide who have a cell phone but not a bank account,” said Alexia Latortue, acting CEO of CGAP. “Across Francophone Africa, mobile phones and other front-end technology solutions can bring low-cost financial services to poor people, giving them opportunities to build financial security and improve their lives.”

The potential of technology-enabled banking, or branchless banking, holds a strong appeal in sub-Saharan Africa, where in many countries the cost of expanding financial access is often prohibitively high due in part to low population density and poor transportation infrastructure. 

To discuss how to seize this potential as well as address the challenges that inevitably also exist, CGAP and the Alliance for Finance Inclusion (AFI), a global network of policymakers in developing countries, organized a seminar with representatives from BCEAO (Central Bank of West African States), BEAC (Central Bank of Central African States), Burundi, Cameroun, Côte d'Ivoire, Democratic Republic of Congo, Madagascar, Mali, Mauritania, Niger, and Senegal. Participants included policymakers (e.g., central banks, ministry of finance, financial intelligence unit), the private sector, mobile network operators (e.g., Orange, Vodafone), banks (e.g., Societe Generale), MFIs (e.g., Kafo Jignew), technology providers, and funders (e.g., AFD, KfW).

Discussions throughout the seminar were vigorous, with some disagreement on both the speed and content of regulation, and how much private sector developments should help inform any new regulation. However, one thing was certain—banking as usual is not likely to continue and all actors will need to adapt. With that consensus, several key messages emerged from this first branchless banking seminar in francophone Africa:

• Business models have become increasingly complex and the models from other countries can inform both the private sector and regulators in Francophone Africa. However, cookie-cutter approaches that are cut and paste from other countries will likely fail.
• The objectives of anti-money laundering and combating financing of terrorism (AML/CFT) and branchless banking are complementary, and useful lessons can be learned from South Africa and the Philippines, both of whose risk-based approaches have been approved by a financial action task force (FATF)’s mutual evaluation process.
• The right—and delicate—balance between regulation that is current with developments in the market and regulation that holds innovation back must be found.
• Various approaches can be used to regulate non-bank actors, and policymakers should stay open to the advantages that non-bank models offer to customers.

During the meeting, four themes with questions central to branchless banking were discussed:

1. The logic behind branchless banking. Branchless banking addresses certain barriers (e.g., the high cost of financial services and management of physical branches) by offering financial services through alternative networks which are already in existence. How can branchless banking be used as a tool for expanding access to financial services? How can it help overcome obstacles related to the service delivery cost especially to those in remote or sparsely-populated areas?

2. Business models. Different business models were analyzed, including those applied by MTN, Vodafone, and Orange Money across sub-Saharan Africa where specific regulatory frameworks are in force. How do current models create value for customers? How does market structure influence branches banking models? These issues need to be well understood when formulating related policy and regulations.

3. Use of agents. Besides technology, agents are a key component of branchless banking. The use of retail agents introduces new or enhanced risks policymakers and regulators should consider seriously. That is why it is crucial to understand what an agent is, minimum qualifications to become an agent, what activities an agent can undertake, and how much of the agent business should be regulated.

4. AML / CFT. The development of branchless banking poses a new series of regulatory issues around AML/CFT. AML/CFT measures should be tailored to the domestic environment and the domestic risks of money laundering and the financing of terrorism. Adopting a risk based approach for combating money laundering and terrorist financing, and to alleviate the constraints is a key priority for policymakers.

Djibril Mbengue, Microfinance Specialist at CGAP, highlighted the need to consider country-specificities while drafting or revising branchless banking regulations. "In some cases, a ‘wait and see’ approach might be useful to better understand the main issues to deal with."

Due to the sensitivity of branchless banking regulation in countries where this topic is relatively new, the second day of the seminar was designed specifically for policymakers (central banks, FIU, and ministries of finance) in order to discuss emerging regulatory issues, including:

Nonbank operators: A proportionate regulatory regime can be fashioned through a combination of maximum allowable transactions, and protections for turnover, balance thresholds, and liquidity and solvency. Other issues to be addressed are related to the categories and operations authorized, the minimum capital requirements, and prudential security systems.

For example, Article 9 of BCEAO instruction # 01/2006/SP of July 31, 2006, mentions: “Commercial activities of E-money companies are limited to the provision of services related to the issuance, the provision or management of electronic money, and the storage of data on electronic devices on behalf of other corporations."

Interoperability and Competition: With the successes enjoyed by nonbank operators, interoperability and competition are becoming important issues. A coherent response for healthy competition among different actors and a level playing field is needed.

Policymakers compiled questions that need to be addressed in order to develop action plans for regulatory issues in their country, including:

• What are the opportunities (for branchless banking to extend financial inclusion) in my country?
• What are our goals in relation to these regulatory opportunities?
• What are the key issues to deal with?
• What information do we need?
• Who should be consulted to make the decisions?
• What could be an obstacle to the implementation of our decisions?

CGAP also took this opportunity discuss with policymakers the state of the microfinance sector, main trends in branchless banking, and how CGAP and other key actors (like AFI) can help with establishing branchless banking systems.