Friday, July 10, 2009

Microcredit doesn't stop at small loans

The microcredit revolution isn't stoping with small loans. Many microcredit lenders are offering more services such as savings and checking accounts, life insurance and more. All the new services can help to economically empower those in poverty.

In this commentary that we found at MarketWatch, Elisabeth Rhyne from the Center for Financial Inclusion at Accion International, details some other "micro-banking" advances that have helped the poor of the developing world.

Partnerships for last-mile delivery: In 2001, Brazilian banking authorities introduced the banking correspondent model, a regulatory innovation that has radically transformed access to financial services in Brazil and is being adopted, with regional variations, across Latin America and to a limited degree in India. Brazil allows any enterprise, including supermarkets, lottery kiosks, pharmacies and post offices to act as an agent to one or several banks.

In Brazil today, 95,000 agents are conduits for services such as new accounts, deposits, withdrawals and bill payments. Before the banking agent revolution, almost a third of Brazil's municipalities had no banking services; now they all do. At least 13 million new savings accounts have been opened.

The agent model may be the single most powerful means of localizing banking services. Banking authorities in Peru report that a bank branch costs about $200,000 to set up, while an agent costs just $5,000.

-- Technology: One engine of the agent model is the pre-paid bank card and the humble point-of-sale machine, the device that reads your card at the supermarket checkout counter. A point-of-sale machine typically costs less than $100 vs. thousands for an ATM. Customers can use cards at locations with the point-of-sale machine to make deposits, withdraw cash and pay bills as well as make purchases.

The pre-paid card model avoids risks of over-indebtedness and the problems of complex fees currently bedeviling the U.S. market. For poor people, liberation from the need to pay every bill in cash and in person at the bank branch saves a tremendous amount of time, cost and risk.

An even more flexible and user-centered payment device has taken off in parts of Africa and Asia: the cell phone. In Kenya, the Philippines and South Africa, millions of cell-phone customers use text messaging to withdraw and deposit cash at the same retail outlets where they buy airtime for their phones. They also use the phones to receive their salary, pay off loans and store money, as well as make retail purchases.

-- Product design: Microinsurance providers have proved especially creative in designing products tailored to specific cultural needs. In Latin America, many women balk at buying life insurance because they don't want to enrich their husband's imagined second wife. "Education life" policies therefore provide benefits in the form of school vouchers. Other policies pay out vouchers for food at large grocery chains.

Often, major insurers seeking to crack the low-income market rely on microfinance or microinsurance specialists to design and distribute products that they underwrite. Zurich Financial Services recently announced a partnership with microfinance group Women's World Banking to offer "caregiver insurance," covering a range of expenses arising from a woman's hospitalization.

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