Banking on Technology - India

Alternative Channels Workstream

December 2009 Number 27

Accelerating Financial Inclusion through Innovative Channels

10 Obstacles for MFIs Launching Alternative Channels— and What Can Be Done About Them

Rarely a day goes by without someone mentioning how financial inclusion can be boosted by new delivery channels, such as ATMs, banking agents, and mobile phones. Yet for all the talk about reaching the “unbanked” and other low-income groups, it is banks, mobile operators, and retailers that have been experimenting with new delivery systems to reach the poor. As the group that is closest to the niche segment, microfinance institutions (MFIs) seem conspicuously absent from the discussion. Or are they? Based on ACCION’s experience in working with over a dozen microfinance partners on delivery channels in Latin America, Asia, and Africa, as well as observations of other MFIs (see interview list in the acknowledgements), it appears that while some experimentation is indeed occurring, significant obstacles remain. This paper outlines ten challenges that are holding MFIs back from deploying alternative channels and provides a roadmap for MFIs—and broader stakeholders—who seek to overcome these hurdles. This roadmap is relevant not only for MFIs and MFI networks but also for those who provide the enabling environment for financial inclusion, including social investors, banking regulators, grant-making institutions, and prospective partners, such as commercial banks, mobile operators, and technology vendors. The paper concludes with a description of competitive advantages that MFIs have in this space to make them more effective in reaching low-income groups using innovative channels.

Introduction to Alternative Channels

Defining Alternative Channels For much of its 30-year history, microfinance has been limited to the standard branch-and-loanofficer model of delivering credit. Currently, microfinance institutions are considering nontraditional, or alternative,...