Beirut - May 2009 BRANCHLESS BANKING: WHY & HOW? MICHAEL TARAZI Senior Policy Specialist Sanabel 6 th Annual Conference CGAP

What are the factors that limit access? Long distances / low population density High bank costs relative to income Low education and illiteracy Poor product / channel design

HOW DOES BRANCHLESS BANKING WORK? Use of non-bank retail agents and information technology to deliver financial services to low income people beyond traditional banking channels. Cash in/out Receipt/ Cash Bank Agent Client Credit/Debit Client Account Debit /Credit Agent Account

ANY STORE CAN BE AN AGENT

The Power of the Existing Infrstructure. ~25m ~1m 600k 500k 250k Western Union Bank branches Post offices ATMsPOS Mobile Phones Philippines  1,000 branches  7,000 ATMs  25,000 POS terminals in stores  1.1 million prepaid airtime resellers Panama  Largest bank has 65 branches  850 shared ATMs (many in branches!)  12,000 prepaid airtime resellers Worldwide points of presence

Benefits Along the Value Chain Bank Agent - Leverage agents’ infrastructure: minimize capex to expand - Change economics of serving poorer clients, remote areas - Enables rapid drive to high- volume required for profitable payments business - Proximity of service point: saved time and cost - Comfort of dealing with corner merchant - Access to services via regulated entity - Increase walk-in business - Fee revenue from bank - Differentiated service offer - Bank brand strength rubs off Client

BENEFITS FOR MFIs As Agents: Differentiated but complementary service Increased revenue As Lenders: Cost efficiencies in loan disbursement Cost efficiencies in loan collection Automated ability to track payments and build credit Ability to track where loan spent

Five Themes Central to Branchless Banking Regulation Necessary but insufficient: Proportional AML/CFT Agents Other Themes: Competition and Interoperability in the Payment Systems E-Money Issuance Consumer Protection

REGULATING AGENTS Who is permitted to act as agent? The Philippines (just about any retailer) Brazil (retailers, post offices) India (cooperatives, NGOs, post offices) Who is liable for the agent? Kenya (mobile network operators expressly disavows liability for the agent) Brazil (banks legally liable for agents)

Need for AML/CFT proportionate regulation: a “risk-based approach” SOUTH AFRICA Exemption 17 Proof of residence no longer required to open accounts (subject to daily and monthly transaction limits) Circular 6 Permits non “face-to-face” account opening for cell phone banking without documentary evidence – only national ID number, name and date of birth needed which is then checked against 3 rd party database Subject to Exemption 17 daily and monthly PHILIPPINES Circular 471 Mechanism by which KYC/CDD can be conducted by agents Agents register with Central Bank, Training by Philippine AML Council Verify identity during KYC/CDD, Maintain records for 5 years, Report suspicious transactions Circular 562 Multiplicity of formal identity documents can be presented for verification purposes

What is e-money? Bank Agent - Proximity of service point: saved time and cost - Comfort of dealing with corner merchant - Access to services via regulated entity - Increase walk-in business - Fee revenue from bank - Differentiated service offer - Bank brand strength rubs off Client MOBILE PHONE COMPANY MICROFINANCE INSTITUTION Welcome to the World of E-MONEY

Regulating E-Money E-Money and other stored value instruments challenge policy makers around the world – if it’s not a bank account, what is it? Bank Account vs. Payments Service: What is being done with the funds? (intermediated?) Is there a limit to the amount which can be « deposited »? Is there a limit to the length of time the funds can be stored? Is there a limit to the frequency of transactions? Is interest paid? Are « deposits » insured? Are funds held isolated from issuer creditors in the case of issuer bankruptcy?

THANK YOU.