Thursday, March 18, 2010

Anti-poverty infrastructure at Wal-Mart?

It is always a humbling experience learning how much you don’t know. An article in yesterday’s Wall Street Journal about Wal-Mart’s plans to expand the number of its stores offering “bank-like services” really knocked me down a peg or two. I can’t recall that I’ve ever been in a Wal-Mart (and what does that say about me?) so I wouldn’t have been aware that some of their stores have what they call “Money Centers.” Places where people can cash checks for a nominal $3.00 fee; obtain pre-paid Visa Debit cards; pay bills and transfer money, all without having to have a bank account.

According to the article, government estimates 25% of U.S. households are essentially “un-banked.” The president of Wal-Mart Financial Services is quoted as claiming that banks are really not interested in this customer base and that they see a lot of space to “service customers’ basic financial needs.” She goes on to say that these money centers do three to five million (that’s million) transactions every week! Talk about “banking on the poor.”

In going through the Wal-Mart Money Center web sites, I came across another company I have never heard of that offers a product called Green Dot MoneyPak. Green Dot’s stated mission is “to be the leading provider of financial services to the large community of Americans underserved by traditional providers” (i.e. banks). Green Dot MoneyPak cards, which come with either the Visa or MasterCard logo, can be purchased at a number of retail outlets such as Walgreens, Radio Shack, K-Mart and 7-Eleven.

The charge for “opening an account” (buying the card) is $4.95. Re-loading the card is free with direct deposit or cost $4.50 per transaction. Up to $500 can be loaded at one time so this amounts to less than a 1% commission. Like the Wal-Mart Money Card, these are essentially cash top-up cards that individuals can use to store value (cash) until they need to use it anywhere Visa or MasterCard is accepted. They can also be used to fund PayPal accounts to enable on-line purchases and pay bills.

When I enquired at a local Walgreens I was told they do not require any identification for purchasing the Green Dot product with cash. The cards can be registered to ensure against loss and this may require standard government identification. Companion cards can also be purchased so funds deposited by one party can be withdrawn by another. Both Wal-Mart and Green Dot work with MoneyGram to effect money transfers both domestically and internationally.

So the question is: do these products provide the poor with access to bank-like services at a reasonable cost and convenience? They certainly provide a way for the poor to convert their cash to virtual funds and this is a big step in gaining access to payment type- financial services. Storing money on cards is certainly safer than carrying cash and the ability to remit funds to another party, say a family member in another state or country safely and at a reasonable cost, also seems of great value.

Wal-Mart and Green Dot do not have banking licenses so they cannot make loans or provide savings accounts. But they do seem to have scalable access to the un-banked working poor. Perhaps this infrastructure could be partnered with MFIs to provide working capital micro-loans and/or with banks or credit unions to provide access savings accounts? I think it is an idea worth exploring.

Tuesday, March 9, 2010

"Build it and they will come"

The March 8th edition of the Financial Times contained an op-ed piece that caught my attention. Entitled “How banks can better help the world’s poor” I thought it would be particularly appropriate to the theme of this blog. In the article the author, Alexander Friedman a former investment banker and chief financial officer of the Bill & Melinda Gates Foundation, outlines four steps he believes the financial and social sectors can take together to help the world’s poor:

1. Foundations could “carefully lend” against a portion of their assets they do not give away each year;
2. The private client and wealth management businesses of financial institutions could work with foundations to syndicate grant-making opportunities;
3. Banks could expand “on their current, limited efforts in community lending” to “structure deals that serve the poor;” and
4. Governments could “bring about a revolution in giving and investing” by providing tax incentives for “high quality social impact investments…”

After giving the article some thought, however, I found myself disappointed in this prescription for helping the poor which, in essence, is all about raising money. Certainly we can agree that more funding for anti-poverty programs would be a good thing and that eliminating global poverty will require a lot more of it. Nevertheless, if we have learned anything in the effort to date, just throwing money at the problem won’t make poverty go away.

I believe we also need to be building anti-poverty infrastructure and banks can make huge contributions in this effort. In an excellent recent book, "Portfolios of the Poor", the authors meticulously document the need for safe, reliable financial services that are tailored to fit the needs of the poor.

Although micro-loans are playing a vital role in helping to lift the poor out of poverty, increasing attention these days is being given to micro-savings and mobile payment products. However, serving those at the base of the pyramid with such products is difficult and expensive. Banks should work with local MFIs (Micro-Finance Institutions) and social enterprises such as PT Ruma and Microfinance Solutions (mentioned in previous posts) to reach poor clients and provide them with the basic financial services they need to run their businesses and protect and grow their families’ assets.

Today social entrepreneurs use the internet to raise increasing amounts of money for a wide range of anti-poverty programs. In fact, some commentators fear that the fund raising ability of such social enterprises as Kiva, in the near term, may be out-pacing the ability of MFIs to deploy the funds effectively. Without sound anti-poverty infrastructure such well intentioned efforts to help the poor can flounder.

So what else should the financial and social sectors be doing to help the poor? Briefly I would offer the following:
1. Foundations should invest more in the human capital required to run social enterprises that focus on the needs of the poor;
2. Wealthy individuals who utilize private client or wealth management services should invest some of their time and resources in these social enterprises;
3. Banks should find ways to tailor their products services to meet the needs of the poor and create greater access to the banking system; and finally,
4. Governments should enact effective consumer protection regulations for the poor while also encouraging and enabling banks to work with the poor.

Mr. Friedman is correct that now is the time for the financial and social sectors to work together to change philanthropy. But we also need to create the capacity to absorb and effectively deploy increasing levels of funding. Build the right anti-poverty infrastructure and the investors will come.

Wednesday, March 3, 2010


An unanticipated yet highly gratifying effect of writing this blog has been the reactions, feedback and new contacts it has generated. You don’t see this in direct comments on the blog itself, but I do receive comments by e-mail and on discussion boards where I have posted links. I have been learning a lot from this communication with others who have the same interest in creating access for the poor to financial services.

For example, just yesterday I had a fascinating conversation with the founder of a US based social enterprise, Microfranchise Solutions LLC, (MFS) that is very similar in concept to PT Ruma, the micro-franchise company I am advising in Jakarta. The mission of both of these firms is to create and support business opportunities for poor entrepreneurs. As I have reported in previous posts, PT Ruma is initially focused on establishing poor woman as retailers of cell phone airtime. MFS’s first franchise business is a taxi company in Lima, Peru.

Although there is quite a difference in the relative size of the two franchise operations, in concept they are very similar—create jobs for the poor, not handouts. Give the poor access to the capital resources required to run a business and the training to be successful. Another commonality is that the use of technology is absolutely critical to their success. Ruma is using mobile telephone technology to link Village Phone Operators to their accounts with airtime wholesalers, allowing them to deliver airtime to their customers via SMS.

MFS is no less innovative in its use of technology. First, the taxis they finance are fitted with special GPS equipment which allows them to track the vehicles they have financed and disable them if they are stolen or misused. This technology has the added benefit of allowing social investors who have provided financing for a discreet vehicle to literally see the impact of their investment via Google Earth! Secondly, the vehicles also have an embedded microchip that allows for the collection of loan repayments every time the driver fills his car with fuel.

It was this feature that really caught my attention because it is another example of using innovative technology to provide a financial service, in this case loan repayments. That the repayment is effected via a surcharge on a resource the driver needs to run his business neatly matches his revenue with two of his expenses, fuel and financing. I don’t know how the arrangement with the gas station works but it is ingenious and could probably be expanded to allow for the driver to pay money into a savings account or a stored value card or virtual card in a “mobile wallet.”

Both PT Ruma and Microfranchise Solutions are looking for the next franchise product to layer onto the networks they are building into the base of the pyramid. Because both of their current businesses address the “cash-in” problem of serving the unbanked, a financial product, such as mobile savings may be a good option for both.

One final word about MFS, they do offer social investors with an interesting value proposition spelled out on their web site at: I encourage readers to take a look at it.