Banking on the Poor

The three weeks with PT Ruma in Jakarta was an educational experience on several levels. I learned much about micro-finance in general and how it works Indonesia in particular. I also learned about the people who are so passionate about working in micro-finance and the need to adapt financial products and services that work for the more affluent to serve the needs of the poorest. Of course I also managed to acquire some meager new tech skills by blogging about my experience. Now I would like to turn these skills, and what I have learned, to a more general subject: how to make banking more accessible and useful to those at the “base of the pyramid.” Hence, the change in the title of the blog to “Banking on the Poor.”

In coming up to speed on PT Ruma’s business model it was immediately clear how critical the banking system in Indonesia is to their ability to execute on their plan. The faster the village phone operators (VPOs) could convert their sales of air time to credits with the air time wholesaler, the greater their sales volume and subsequent profits. Working in their favor is the basic infrastructure of the banking system itself. Banks in Indonesia transfer funds among themselves using a highly efficient, real time clearing system that insures virtual instantaneous credit. Theoretically, a VPO working just outside a bank branch could make a sale, deposit the funds from that sale in her account and then transfer the funds to the account of the wholesaler and replenish her inventory for the next sale.

Unfortunately, things aren’t so easy for the poor. PT Ruma’s VPOs do not have their own bank accounts and even if they did, they rarely live in easy proximity to a bank branch. They must rely on PT Ruma’s field officers to physically pick up their receipts and make the deposits for them. This leads to delays in having the sales proceeds credited to the wholesaler and the replenishment of their inventory. To increase sales, the VPO must increase the amount of her “working capital” on deposit with the wholesaler.

To mitigate this situation, PT Ruma has limited capacity to assist the VPOs’ sales with temporary inter-day bridge loans. But this is not a sustainable, long-term solution. Although the VPOs need to be encouraged to build up their working capital over time, they also need more efficient access to the banking system and access to working capital credit.

PT Ruma is working on three fronts to address the financing needs of the VPOs. First, field officers are being trained and rewarded to educate their VPOs on the virtue of building up their own capital. Having working capital in the form of air time inventory is actually a very effective form of saving for the VPOs, much safer and more useful than cash in the cookie jar. Secondly, working with Grameen Foundations “AppLab” and Qualcom, a new technology application called the “Top Up” app is being developed that will improve the delivery and speed of information on the VPOs sales between PT Ruma, the banks and the wholesaler. Finally, PT Ruma is developing new channels of financing for itself and the VPOs to facilitate higher sales volume and greater profits for the VPOs.