Visa encourages banks to partner with microfinance institutions
Thursday, November 9, 2006
Microfinance can provide tangible commercial opportunities for banks in the region notably if they partner with a microfinance institution, said Debbie Arnold, VP of Emerging Markets at Visa International, the world’s leading provider of electronic payments.
“Local commercial banks can benefit in various ways from commercial microfinance opportunities. They gain access to a new customer segment, can cross-sell non-competitive products and also benefit from new deposits and new income streams from the increased use of Visa debit, credit and pre-paid cards at the point-of-sale.’
Arnold explained how electronic payments solutions can support microfinance activities and how partnerships can overcome challenges in the sector. ’Banks have the electronic payments infrastructure but lack the appetite and ability to manage risk and train the target market,’ she said. ’Microfinance Institutions (MFIs) have the one-to-one consumer relationships but no access to electronic payment infrastructure to get to scale. Our strategy, therefore, is to encourage bank partnerships with MFIs thereby uniting the convenience and security of cards and electronic payments with the powerful grassroots outreach of MFIs. All of this supports our global efforts to bank the unbanked and increase access to the formal financial sector for low income consumer segments.’
Arnold said that the initial costs of engaging with a large scale, low-income client base may not initially appeal to banks but that by using one example, the Visa’s pay-roll model, these can be avoided. ’This kind of card structure means that the bank only has to set up one account – that of the MFI – and can then issue multiple cards from this account. It is commonly used for issuing salary cards for a single corporate that wants to capitalize on the scale efficiencies of electronic payments. It allows the bank to have a single point of account management. It is also often the catalyst for a bank to expand from a commercial to a retail focus,’ she said.
Kamran Siddiqi, General Manager of Visa International in the Middle East, who attended the conference noted that using debit and pre-paid cards in microfinance not only benefits the banks but also the customers themselves. ’They gain access to the banking system that they may not previously have been eligible for and also the possibility to save money and earn interest on it. And with the advent of new innovation in technology, such as contactless chip and mobile payments, increasingly we expect to see even the most isolated of communities able to remotely access banking services,” he said.
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