Mobile Money

We understood from the beginning that PT Ruma’s initial micro-franchising product, retailing cell phone air time, would not be the only product it would use to enable poor entrepreneurs to lift themselves out of poverty. There would be other products that would be both commercially viable and socially relevant to the entrepreneurs’ communities. We have learned that the VPO networks PT Ruma is developing are valuable access points to the so-called “base of the pyramid” market segment in Indonesia. I Believe we now need to learn how to use these networks to deliver essential financial products such as savings accounts, micro-insurance, and safe money transfers (payments) through their mobile telephones.

This is certainly not an original or even new idea. Such capabilities are already widespread in developed and even some developing markets. However, the difficult part is providing these products to “unbanked” populations such as the VPOs and their customers. While doing some on-line research on this issue I came across a statement by a telecommunications executive in a presentation at a recent conference on mobile banking. She stated that it is “quite a leap between selling air time top-up cards and rolling out a distribution network that can handle cash-in and cash-out and meet know your customer requirements…” She also observed that telecommunications “operators are learning the difference between their business model and that of a financial institution…especially when it comes to systems and internal process…”

As a former banker, these statements really resonated with me. She put her finger on several key issues that inhibit the development of mobile banking for the unbanked poor. First is the issue of getting the poor’s cash into the system or converting it to “mobile money.” Second, there is adhering to anti-money laundering (AML) and combating the financing of terrorism (CFT) rules with workable know your customer (KYC) procedures. Third, is having robust systems capable of combating the inevitable attacks of cyber criminals and accurately accounting for both the cash and electronic ins and outs of customers financial resources. And finally, ensuring adequate regulatory supervision and consumer protection.

This is certainly not an exhaustive list of the challenges to bringing mobile banking and mobile money to the poor but it does illustrate some of the primary challenges. PT Ruma’s current franchise operation is already converting customers’ cash into an electronic product that, in some ways can function as electronic or mobile money. This is mostly true for the VPOs who can store value in the form of air time credit. By retaining their earnings with PT Ruma or the wholesaler, they are effectively increasing a current asset—working capital—which can be turned into cash when they sell to their customers and retain some of the cash, rather than replenishing all their working capital. In fact, this may be the safest, most convenient method the unbanked VPOs currently have for accumulating savings.

For the accumulation of air time to function as a savings vehicle for the customers of the VPOs the matter is a little more complicated but certainly not impossible. One possible solution is the issuance of stored value cards to which the air time purchaser can transfer from his mobile phone the value of his air time. This is where the need for robust systems comes into play. Again, not an insurmountable obstacle, but one that must be dealt with effectively by an entity with sufficient technology resources. There are many at work in this space, including Grameen Solutions, the applications development arm of Grameen Foundation. PT Ruma would be a perfect venue for testing the mobil money applications Grameen Solutions and Obopay are working on. (See http:www.bankabillion.org).

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.

Heading home (at least for now)

The three week assignment with “Bankers Without Borders” has passed quickly and today I return to San Francisco. It has been a fascinating experience. I know I have not done it justice in this attempt at a blog. Jakarta has certainly changed since I was last here in the mid ‘80s. Back then the Japanese had a joke about Indonesia that went: “Indonesia de wa hito oran, go-han nashi.” This is a play on words. “Hito” means person in Japanese. The word for person in Bahasa is “orang.” “Oran” in Japanese means lacking. “Go-han” is Japanese for rice. Rice is “nasi” in Bahasa and “nashi” means “nothing” or not there in Japanese. So, to the Japanese in the 1980s, Indonesia was a country with no people (worth anything) and no rice (worth eating).

I doubt this joke has much currency in Japan anymore. It is truly impressive to see the development of a strong, well-educated middle class that is creating a truly modern, multi-cultural, secular society in the world’s fourth most populous country where Islam is the largest religion. The young people working at PT Ruma are technologically, linguistically and culturally as competent as their peers anywhere else in the world. They are intellectually curious, eager for new ideas, quick to adapt, and intent on ensuring that their country takes its place among the modern, developed nations. With its vast natural and human resources there seems little doubt they will achieve this goal.

The food is also delicious and world class. I was pleased to see that The Oasis, a restaurant I had fond memories, is still going strong. It is located in an old Dutch colonial home that is full of art and artifacts from around Indonesia. They serve Indonesian cuisine in the “Rijsttafel” tradition. It is both a visual and culinary experience not to be missed. It was somewhat disappointing, however, to see that the restaurant seems much more “upscale” these days. Seems to have become a little stuffy and lost some of its old charm. Nevertheless, still a treat.

There is still much to be done to assist PT Ruma achieve its goal of becoming a sustainable social enterprise assisting the poor to lift themselves out of poverty. I have been very privileged to work with them on this endeavor and look forward to continuing helping them in the future. Perhaps there will be more chances to post from Jakarta in the future.