Preparations and Challenges for micro financial service delivery in Nepal By Hem Raj Dhakal Managing Director IME Group a part of:

Micro Finance in the context of Nepal Micro finance is type of banking service that is provided to the individuals and groups under the lower income strata who may not have direct access to standard banking service. Micro finance refers to an array of financial services including savings, loans, insurance, money transfers targeted towards the lower income groups, micro-enterprises who are financially underserved. Microfinance is often seen as an effective strategy for countries like Nepal for extending financial services to the poor and disadvantaged groups not reached by the formal financial sector, which is estimated at about 60% of the total population.

Micro Finance in the context of Nepal Micro finance has played instrumental role in bringing positive impact on the economic status of the poor people who are unemployed and who would otherwise not qualify for standard banking services. It provides self-employment opportunity and helps to generate extra income for their family and helping them to access good sanitation, good food, education and health.  

Challenges and Limitations for Micro Finance Delivery Sustainability of the institution High overhead/operating cost High cost to the service recipients (high interest rate) High service delivery cost (Operating in the traditional branch based model with low technology adoptions) Lack of infrastructure

The best option to overcome these challenges is to go digital/mobile money.

Why mobile money?? Mobile money is available in 93 countries with 271 mobile money services Mobile money providers are processing more than 33 million transactions a day Registered account grew by more than 31% to reach 411 million in 2015 At least 19 markets have more mobile money accounts than bank accounts Mobile money deepens the financial inclusion particularly in countries where banking access is limited The rise of smartphones and greater internet access enhances the financial service delivery Due to mobile money, the number of unbanked adults has fallen to 2 billion from 2.5 billion in short period of 3 years in 2014

Case Study: M-Pesa, Kenya Service launched in 2007 18 million active user in 2016 287400 agents network 614 million transactions processed during December 2016 and 6 billion transactions over 2016 at a peak rate of 529 transactions per second 2% of Kenyans household lifted out of extreme poverty through access to mobile money services in 2016

Scope of Mobile Money in Nepal Environmental Factors favoring Mobile Money in Nepal Low Banking Penetration: More than 40% unbanked and under-banked out of total population. (Nepal Finscope Survey 2014) High Mobile Penetration: Mobile penetration has crossed 118% which indicates usage of mobile phone by virtually every Nepali. (NTA’s MIS report of November 2016) Increasing Internet Penetration: internet penetration has reached over 54% of the population indicating the increasing usage of internet and data services by the Nepalese. (NTA’s MIS report of November 2016) Increasing Literacy Rate: As per World Bank Report, adult literacy rate now stands at 62% of adult population which is another favorable signal for mobile money business. Enabling Regulation: Payment & Settlement Bylaw, Licensing policy for payment related institutions paving way for the banks and non-banks to introduce mobile money service; yet to provide operating license

About IME Digital Solution IME Digital Solution Ltd., a subsidiary of IME Group Our objective is ‘to create a sustainable wallet (financial) ecosystem by partnering with MNOs, Banks, agents, merchants in reaching out the under-banked and unbanked population and offer an alternative payment channel to them. Obtained LoI from Nepal Rastra Bank to introduce mobile money service under Licensing Guideline for Payment Related Institutions 2073. Developed the core platform based on international standard mobile money platform architecture, with basic mobile money features like customer enrollment, cash-in/cash-out, P2P, airtime top ups, recharge, merchant payment along with bank account linking. Entered in to technical assistance and performance based agreement with United Nations Capital Development Fund (UNCDF) Selected for UKaid Sakchyam’s Access to Finance Challenge Fund for mobile financial services.

Why IME Digital is venturing to MFS? Backed by Nepal’s No. 1 Remittance Company, operating since 2001 under NRB license, having an international presence spanning over 25 countries. In-house technological capabilities. Large customer base of remittance receivers. IME has a footfall of over 50,000 remittance receiving customers everyday at its agent locations. Large network of over 5500+ agents in Nepal of which 1000+ are private agent operators and 165 exclusive franchise locations (excluding cooperatives and financial institutions). These 5500+ remittance agents who are experienced in financial services delivery and most importantly cash-rich can be used in the mobile money business for customer enrolments as well as cash-in/cash-in out services

IME Pay Ecosystem

Major Immediate Challenges for mobile money business High cost, low margin business; cost of international standard platform and other technology cost; thin margins as revenues need to shared with partners and channel members. Customer education; mobile money adoption and uptakes requires a behavioral change for customers who are accustomed to highly traditional cash based/human assisted financial services. USSD interface and connectivity; USSD is the most widely used interface for mobile money (86% of mobile money deployments have USSD as the interface). However, access to USSD channel from telcos have been very difficult. Build the agent and merchant ecosystem; huge investment is required to create immediate as well as long term value for agents and merchants that are accustomed to Over-the-Counter (OTC) services.

THANK YOU.