Forum: ICT enabling rural financial services and micro-insurance for smallholders
Question 1 (opens 20 May) How are ICT being used in operations of rural finance and micro-insurance providers?
16/05/2013
Question 1In what ways are financial institutions/micro insurers using ICT in day to day operations? (For example, marketing, client assessment and relation management, credit scoring, loan analysis, underwriting policies, claims.)
How has automation through use of ICT impacted business outcomes in terms loans granted, loan volumes, savings efficiency or amount generated, non-performing loan rates, number of loans per Agri credit officer, claims agent, etc.?
Submitted by juliet Kyokunda on Mon, 05/20/2013 - 07:56
In day today operations, Micro insurers use ICT in:
i) Clients enrollment- the persons in need of micro-insurance can send and SMS on their mobile phones to a given number and they automatically get on cover. This of course builds on other processes that will have been put in place like client education which explains the product and its features and also the payment process- may be payments through a bank and you include the payment voucher number in the sms to comfirm a payment. This proces ensures that one is covered as soon as they pay and reconciliation becomes easy.
ii) Marketing some of the MicroInsurance products- products like Life which does not need a lot of explaining and also when you are dealing with a community that has previously been exposed to micro insurance. For products like Weather Index insurance, you can only use ICT (currently) to provide information but still you need face to face interactions to market it properly.
iii) Claims notification- for example when selling a life product, when the insured dies or looses a member of his fimily- who is under cover, an sms can be sent to the prior agreed number to report the incident. There and then the process begins to find out the details and also the insurers are notified to prepare the payment. this enables the insurers and the insured group/ institution to get the payment to the affected persons in the agreed time (usually 2-5 days).
This is similar to a trigger notification in case of a weather Index product. ICT can be used to notify the clients, the insurance companies, the concerned institutions and some times the regulators that the trigger levels of a product they bought/ or their clients paid for have been reached and therefore there is a payment coming. still ICT can be used to give the insured instructions on where and when to receive their payments when the triggers are reached.
iv) In claims payment - the quickest and most convenient ways of paying claims are aided by ICT. through mobile phones in some countries and through the banks in others. the phone numbers and bank accounts are provided on purchasing the cover which helps to avoid identification of the beneficiary issues. This has reduced the claims payment turn around time drastically and it helps the clients get the value of what they paid for, which has curbed down alot of other challenges thet would have other wise resulted from the delay in claims settlement like borrowing money from monel lenders to finance the burrial of a loved one or even selling the available piece of land.
v) ICT is essential in the generation of reports on who is on cover, when their polocies started and when they are expiring, sending renewal notifications and also ICT helps in quickening the verification process- you have to know that the person who is claiming paid the premium and how much. In micro insurance, the clients are many and the value of their premiums is small so without ICT, it may take longer to verify and also it becomes very expensive.
i) Clients enrollment- the persons in need of micro-insurance can send and SMS on their mobile phones to a given number and they automatically get on cover. This of course builds on other processes that will have been put in place like client education which explains the product and its features and also the payment process- may be payments through a bank and you include the payment voucher number in the sms to comfirm a payment. This proces ensures that one is covered as soon as they pay and reconciliation becomes easy.
ii) Marketing some of the MicroInsurance products- products like Life which does not need a lot of explaining and also when you are dealing with a community that has previously been exposed to micro insurance. For products like Weather Index insurance, you can only use ICT (currently) to provide information but still you need face to face interactions to market it properly.
iii) Claims notification- for example when selling a life product, when the insured dies or looses a member of his fimily- who is under cover, an sms can be sent to the prior agreed number to report the incident. There and then the process begins to find out the details and also the insurers are notified to prepare the payment. this enables the insurers and the insured group/ institution to get the payment to the affected persons in the agreed time (usually 2-5 days).
This is similar to a trigger notification in case of a weather Index product. ICT can be used to notify the clients, the insurance companies, the concerned institutions and some times the regulators that the trigger levels of a product they bought/ or their clients paid for have been reached and therefore there is a payment coming. still ICT can be used to give the insured instructions on where and when to receive their payments when the triggers are reached.
iv) In claims payment - the quickest and most convenient ways of paying claims are aided by ICT. through mobile phones in some countries and through the banks in others. the phone numbers and bank accounts are provided on purchasing the cover which helps to avoid identification of the beneficiary issues. This has reduced the claims payment turn around time drastically and it helps the clients get the value of what they paid for, which has curbed down alot of other challenges thet would have other wise resulted from the delay in claims settlement like borrowing money from monel lenders to finance the burrial of a loved one or even selling the available piece of land.
v) ICT is essential in the generation of reports on who is on cover, when their polocies started and when they are expiring, sending renewal notifications and also ICT helps in quickening the verification process- you have to know that the person who is claiming paid the premium and how much. In micro insurance, the clients are many and the value of their premiums is small so without ICT, it may take longer to verify and also it becomes very expensive.
Submitted by Saripalli suryanarayana on Mon, 05/20/2013 - 19:16
ICT-in agriculture-micro finance and insurance-
This field in Africa cannot be filled by the local corporations.There has to be a policy as to how foreign investors from same business or from a different type of business.
There needs to be a regulation authority for both the finance-Banking and insurance companies.
2]Unless there is [a] Enhanced productivity the farmer cannot pay for the insurance,hence initially the state has to cover some extent of insurance,and enter in to the banking operations in remote areas ,with guidelines for agriculture finance.Developed countries and lending agencies have to lend for this venture to the state corporations.[b]The farmer crops have to be bought by the marketing group at proper prices ,so that the farmer is taught about saving and use of his surplus money for better farming insurance,and better living standards.[c] International groups,developing countries needs to lend to the nations,agriculture farming business services people from their pool of government servents free of cost.[d]These developing countries have to encourage their talent to go and take up farming in these African countries,like in Ethiopia,Kenya etc,where now you will find the indian community taking up horticulture work.
In essence ICT is the source for all these ,with good governence practices.Checks and balance are vital to the civil society,and e-commerce,e-governance are the modern tools which need to be used in these communities.
In essence ICT is the source for all these ,with good governence practices.Checks and balance are vital to the civil society,and e-commerce,e-governance are the modern tools which need to be used in these communities.
Submitted by Michael Riggs on Mon, 05/20/2013 - 19:25
In question 5, which opens for discussion next week, we'll look at regulatory issues in detail.
Question 5 will ask:
- What are the key regulatory challenges, both on the mobile phone and banking/insurance, in using ICT to deliver agri loan and insurance products?
- What does it take to overcome these challenges?
Submitted by Michael Riggs on Mon, 05/20/2013 - 19:16
Hello Julie, and thank you for starting off this discussion!
As the facilitator for this two week forum, I would like to welcome everyone and encourage everyone to share their own ideas and experience.
If you have any questions or need assistance, you can write to me directly at [email protected]
Cheers,
Michael
Michael Riggs
e-Agriculture Team Leader
Food and Agriculture Organization of the United Nations (FAO)
www.e-Agriculture.org | Twitter: e_agriculture | Facebook: e-Agriculture.org
Submitted by Saleh Gashua on Wed, 05/22/2013 - 08:04
Hi Julie.
AFRACA in partnership with CTA is organizing a forum named Afraca Southern Africa Sub Regional (SACRAT) Workshop which is expected to bring together AFRACA member institutions, Development partners and other stakeholders within and outside the Continent. The forum will involve two days of critical discussions on Value Chain Finance - Functional Models; Focusing on Livestock Value Chains – emphasis on successful Livestock Insurance cases. The third day is slated for field visits to share practical livestock insurance experiences at work. May 19 - 21, 2013, Burgers Park Hotel, Pretoria, South Africa. Would you or any of the experts within reach be available to share experience on the theme ? Asante sana. (Thanks)
Submitted by juliet Kyokunda on Wed, 05/22/2013 - 10:13
Hello
We would love to come and discuss insurance issues, but i fear that this is so short a notice and we may not make it as we have prior arrangements for those days.
Please keep us informed on future arrangements. Thanks for the interest.
We would love to come and discuss insurance issues, but i fear that this is so short a notice and we may not make it as we have prior arrangements for those days.
Please keep us informed on future arrangements. Thanks for the interest.
Submitted by Anita Campion on Wed, 05/22/2013 - 15:28
Thanks Julie, That is great coverage of the role of ICT in microinsurance. In 1999, I wrote “Automating Microfinance” for the MicroFinance Network when ATMs were the new thing, we have come a long way since then! There are now so many ways microfinance providers use ICT in day to day operations, such as:
http://www.iadb.org/en/publications/publication-detail,7101.html?id=684…), we found that most successful rural microfinance providers were achieving significant volume through the use of ICT and innovative distribution systems, which allowed them to cost-effectively cross subsidize the higher costs of rural outreach. At the same time, we found that competition (not regulation) was the greatest driver of lower interest rates. So one of the questions we need to look at is how do we balance the need for achieving scale to cost-effectively serve rural clients with the need for competition to keep costs reasonable for those clients? I welcome any thoughts and examples of ways in which we have documented to cost savings of using ICT. Thanks!
- Use of smart phone and IPads for loan analysis in the field
- Cell phone banking, primarily for fund transfers and savings storage, but increasingly used for loan payments, which usually starts in urban areas before gradually expanding to rural areas.
- Weather-based index insurance used to remove moral hazard related to traditional crop insurance.
- Real-time information on portfolio quality information for active monitoring and collections.
http://www.iadb.org/en/publications/publication-detail,7101.html?id=684…), we found that most successful rural microfinance providers were achieving significant volume through the use of ICT and innovative distribution systems, which allowed them to cost-effectively cross subsidize the higher costs of rural outreach. At the same time, we found that competition (not regulation) was the greatest driver of lower interest rates. So one of the questions we need to look at is how do we balance the need for achieving scale to cost-effectively serve rural clients with the need for competition to keep costs reasonable for those clients? I welcome any thoughts and examples of ways in which we have documented to cost savings of using ICT. Thanks!
Submitted by Anita Campion on Wed, 05/22/2013 - 15:30
Thanks Julie, That is great coverage of the role of ICT in microinsurance. In 1999, I wrote “Automating Microfinance” for the MicroFinance Network when ATMs were the new thing, we have come a long way since then! There are now so many ways microfinance providers use ICT in day to day operations, such as:
http://www.iadb.org/en/publications/publication-detail,7101.html?id=684…), we found that most successful rural microfinance providers were achieving significant volume through the use of ICT and innovative distribution systems, which allowed them to cost-effectively cross subsidize the higher costs of rural outreach. At the same time, we found that competition (not regulation) was the greatest driver of lower interest rates. So one of the questions we need to look at is how do we balance the need for achieving scale to cost-effectively serve rural clients with the need for competition to keep costs reasonable for those clients? I welcome any thoughts and examples of ways in which we have documented to cost savings of using ICT. Thanks!
- Use of smart phone and IPads for loan analysis in the field
- Cell phone banking, primarily for fund transfers and savings storage, but increasingly used for loan payments, which usually starts in urban areas before gradually expanding to rural areas.
- Weather-based index insurance used to remove moral hazard related to traditional crop insurance.
- Real-time information on portfolio quality information for active monitoring and collections.
http://www.iadb.org/en/publications/publication-detail,7101.html?id=684…), we found that most successful rural microfinance providers were achieving significant volume through the use of ICT and innovative distribution systems, which allowed them to cost-effectively cross subsidize the higher costs of rural outreach. At the same time, we found that competition (not regulation) was the greatest driver of lower interest rates. So one of the questions we need to look at is how do we balance the need for achieving scale to cost-effectively serve rural clients with the need for competition to keep costs reasonable for those clients? I welcome any thoughts and examples of ways in which we have documented to cost savings of using ICT. Thanks!
Submitted by Saleh Gashua on Mon, 05/20/2013 - 12:28
Statistics show that 60 – 70% of the population in Sub Saharan Africa live in rural areas, majority of who are engaged in agricultuture.
Sadly, most of this population does not have access to formal financial services. With the recent breakthroughs in ICT, there has now been an increased role of ICT technologies to improve access to rural & agricultural financial services.
It worth noting that a number of AFRACA member intuitions, especially in Eastern Africa, have made significant inroads in the use of Mobile technology in improving access to agricultural financial services, and in particular regarding lending and payments transactions. Some examples include:-
- Mobile payment systems for farmer savings through mobile money platforms
- Micro (Agri) insurance systems linked to farmer outputs and marketing activities
- Micro lending platform
- Reduced transaction costs to both lenders and borrowers.
- Better Farmer profiling systems for agricultural credit
- Improved farmer access to credit and financial services (due to credit history, better productivity and income profiling, access to information)
- Improved access to credit for farmers and other rural populations.
- Greater protection for farmers in times of bad weather or disaster.
Submitted by Michael Riggs on Wed, 05/22/2013 - 17:03
Following this comment by Saleh Gashua, Secretary General, AFRACA, there is an interesting graph from data found in Financial Access 2010 (CGAP and the World Bank Group report on statistics for financial access).
The labels to the left of the vertical axis are:
Commercial banks
State institutions
Microfinance insitutions
Cooperatives
The image is also created in Module 7 of the ICT in Agriculture Sourcebook.
The labels to the left of the vertical axis are:
Commercial banks
State institutions
Microfinance insitutions
Cooperatives
The image is also created in Module 7 of the ICT in Agriculture Sourcebook.
Submitted by Saripalli suryanarayana on Mon, 05/20/2013 - 14:42
This field in Africa cannot be filled by the local corporations alone.There has to be a policy as to how foreign investors from same business or from a different type of business can enter and participate in this sector.
There needs to be a regulation authority for both the finance-Banking and insurance companies.
2]Unless there is
[a] Enhanced productivity the farmer cannot pay for the insurance,hence initially the state has to cover some extent of insurance,and enter in to the banking operations in remote areas ,with guidelines for agriculture finance.Developed countries and lending agencies have to lend for this venture to the state corporations.
[b]The farmer crops have to be bought by the marketing group at proper prices ,so that the farmer is taught about saving and use of his surplus money for better farming insurance,and better living standards.
[c] International groups,developing countries needs to lend to the nations,agriculture farming business services people from their pool of government servents free of cost.
[d]These developing countries have to encourage their talent to go and take up farming in these African countries,like in Ethiopia,Kenya etc,where now you will find the indian community taking up horticulture work. In essence ICT is the source for all these ,with good governence practices.
Checks and balance are vital to the civil society,and e-commerce,e-governance are the modern tools which need to be used in these communities.
There needs to be a regulation authority for both the finance-Banking and insurance companies.
2]Unless there is
[a] Enhanced productivity the farmer cannot pay for the insurance,hence initially the state has to cover some extent of insurance,and enter in to the banking operations in remote areas ,with guidelines for agriculture finance.Developed countries and lending agencies have to lend for this venture to the state corporations.
[b]The farmer crops have to be bought by the marketing group at proper prices ,so that the farmer is taught about saving and use of his surplus money for better farming insurance,and better living standards.
[c] International groups,developing countries needs to lend to the nations,agriculture farming business services people from their pool of government servents free of cost.
[d]These developing countries have to encourage their talent to go and take up farming in these African countries,like in Ethiopia,Kenya etc,where now you will find the indian community taking up horticulture work. In essence ICT is the source for all these ,with good governence practices.
Checks and balance are vital to the civil society,and e-commerce,e-governance are the modern tools which need to be used in these communities.
Submitted by Michael Tarazi on Mon, 05/20/2013 - 16:03
I'm really encouraged by all the emerging uses of technology to meet the financial services needs of smallholders. I'd be interested in hearing more though on the key obstacles. For example I understand in Kenya, M-PESA is still too expensive for many smallholders. Is cost the only obstacle or are there others? Any first-hand insights would be most appreciated.
Submitted by Saleh Gashua on Wed, 05/22/2013 - 07:45
To the contrary. MPESA is the cheapest form of transaction for small holders. In fact they constitute 60% - 70% of MPESA users mostly because its cheap to use and cellphone penetration is quite high - 30.8 million subscribers out of a population of 43 million. This is also evidenced by the increase in the profits of the Cooperative Bank of Kenya whose agency banking model using MPESA caters for a majority of the small holders. Therefore to say that MPESA is expensive for small holders is a gross misrepresentation.
Submitted by Michael Riggs on Wed, 05/22/2013 - 17:31
Thanks for this comment. Two follow up questions:
Would you give more information about the transaction cost of MPESA versus other finanical services? (So others have an idea of the difference.)
Is it possible to attribute some of the low cost to the use of ICT (mobile phones or other tools) in the MPESA service?
Thank you.
Would you give more information about the transaction cost of MPESA versus other finanical services? (So others have an idea of the difference.)
Is it possible to attribute some of the low cost to the use of ICT (mobile phones or other tools) in the MPESA service?
Thank you.
Submitted by Michael Riggs on Mon, 05/20/2013 - 19:19
Hello everyone, and thank you for starting off this discussion today!
As the facilitator for this two week forum, I welcome everyone and encourage everyone to share their own ideas and experience.
If you have any questions or need assistance, you can write to me directly at [email protected]
Keep in mind that this discussion is building on the ICT in Agriculture Sourcebook, published by the World Bank. It is an excellent resource.
Please focus on the issue in question 1 when answering here. There are 4 more questions coming that will allow for the discussion of many more issues. The upcoming questions will be:
Question 2: Identify some of the critical actors/stakeholders in agricultural and rural finance or micro-insurance, and how they can use ICT to extend the positive impact of these products and services in rural areas.
Question 3: ICT is quite important in value chain finance. How can ICT play an even greater role in enabling strategic VC partnerships to work in facilitating efficiency and/or inclusiveness in agricultural finance and insurance? What are the key challenges in getting partners systems to operate seamlessly, including VC players and VC service providers, including financial institutions, insurers, warehouse managers, agri market information provider, etc.?
Question 4: In what ways other than discussed in questions 1 and 2 does ICT enable rural financial services, agricultural investment, insurance and technical support?
Question 5: What are the key regulatory challenges, both on the mobile phone and banking/insurance, in using ICT to deliver agri loan and insurance products? What does it take to overcome these challenges?
As the facilitator for this two week forum, I welcome everyone and encourage everyone to share their own ideas and experience.
If you have any questions or need assistance, you can write to me directly at [email protected]
Keep in mind that this discussion is building on the ICT in Agriculture Sourcebook, published by the World Bank. It is an excellent resource.
Please focus on the issue in question 1 when answering here. There are 4 more questions coming that will allow for the discussion of many more issues. The upcoming questions will be:
Question 2: Identify some of the critical actors/stakeholders in agricultural and rural finance or micro-insurance, and how they can use ICT to extend the positive impact of these products and services in rural areas.
Question 3: ICT is quite important in value chain finance. How can ICT play an even greater role in enabling strategic VC partnerships to work in facilitating efficiency and/or inclusiveness in agricultural finance and insurance? What are the key challenges in getting partners systems to operate seamlessly, including VC players and VC service providers, including financial institutions, insurers, warehouse managers, agri market information provider, etc.?
Question 4: In what ways other than discussed in questions 1 and 2 does ICT enable rural financial services, agricultural investment, insurance and technical support?
Question 5: What are the key regulatory challenges, both on the mobile phone and banking/insurance, in using ICT to deliver agri loan and insurance products? What does it take to overcome these challenges?
Submitted by Calvin Miller on Wed, 05/22/2013 - 08:16
We tend to think of ICT as mobile money, texting, etc. but it is at the heart of modern technology which has opened new doors for financial access to small holds -- farmers, micro-savers, insurance services and the like. But I also want to note three areas we sometimes overlook:
a. Communication between financial institutions and their clients, between clients, and between staff
b. Back-office communication, which allows for agile decision-making and monitoring, improving efficiency and timeliness
c. Business efficiency, which improves the buying, selling and market competitiveness of the clients which in turn makes them better clients. A strong client is one with a strong, sustainable business.
a. Communication between financial institutions and their clients, between clients, and between staff
b. Back-office communication, which allows for agile decision-making and monitoring, improving efficiency and timeliness
c. Business efficiency, which improves the buying, selling and market competitiveness of the clients which in turn makes them better clients. A strong client is one with a strong, sustainable business.
Submitted by Michael Riggs on Wed, 05/22/2013 - 17:25
Hi Calvin,
Would you give us some examples of the three areas you describe above? Organizations active in these areas, ICT tools, reviews of the success, etc. would all be of interest.
Thank you.
Would you give us some examples of the three areas you describe above? Organizations active in these areas, ICT tools, reviews of the success, etc. would all be of interest.
Thank you.
Submitted by Eija Pehu on Thu, 05/23/2013 - 16:49
I am on mission in Uganda and the colleagues here are very interested in good practice examples of ICT integration into provision of finanacial services in East Africa, especially Uganda. Pointing us to some of these would be much appreciated. Eija
Submitted by Michael Riggs on Mon, 05/27/2013 - 16:14
Hi Eija. Are you familiar with Mercy Corp’s work in Uganda? They are integrating financial services along with other information services delivered to smallholder farmers via mobile phone. It sounds like just the sort of initiative your colleague are looking for. They’ve written about it just last week here: http://www.e-agriculture.org/blog/mercy-corps%E2%80%99-agri-fin-mobile-program-goes-live-indonesia-uganda-and-zimbabwe
Wri
Submitted by Michael Riggs on Wed, 05/29/2013 - 11:28
Eija, another lead that might be helpful if you are still in Uganda is the Mobile Monday Kampala Chapter. They meet periodically. The last meeting seems to have been in February when they discussed “How can ICT help farmers”. Unfortunately, there does not seem to be a summary of that event online yet.
You can contact them through Daniel Stern, e-mail address: [email protected]
I hope your mission is going well!
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