Lecture 2: Non-Traditional Forms of Finance

GII Booklet Series, PART II: Institutional Case Studies

Meet the Speaker: Professor Dilip Soman

Dilip Soman is the Corus Professor of Strategy, Professor of

Marketing and Senior Fellow, Desautels Center for Integrative

Thinking™ at the Rotman School of Management, University

of Toronto. His research is in the area of behavioural

economics and its applications to consumer wellbeing,

marketing and policy. He is also the director of the India

Innovation Institute at the University of Toronto. He works

with ideas42 and serves as advisor to a number of welfare

organizations. Prof. Soman received his PhD from the

University of Chicago; his MBA from the Indian Institute of Management; and his BE from

the University of Bombay.

His research expertise includes behavioral economics, consumer and managerial

psychology, public policy, spending and saving behaviors, decision-making, marketing

strategy and pricing. Professor Soman’s current research focuses on “helping people help

themselves.” In this work, he used informational (e.g. financial literacy), facilitative (e.g.,

budgeting tools, communication devices like mobile phones and the Internet) and behavioral

(e.g., self-control guidelines) interventions to help people achieve financial sufficiency. He

also does similar research in the area of health behaviors, energy conservation, garbage and

recycling, and time management.

Professor Soman’s book, Managing Customer Value: One Stage at a Time (co-authored

with S. N-marandi) has just been published by World Scientific Publishing. He has

published over 50 scholarly articles, book chapters, and papers in publications like

the Harvard Business Review, Journal of Marketing Research, Journal of Consumer

Research, Marketing Science, Marketing Letters, Journal of Behavioral Decision Making,

and Journal of Advertising. Dilip is also a sought-after executive trainer, applied researcher

and consultant.

Feature Case Study: Grameen Foundation The Grameen Foundation’s Microsavings Initiative is a project that aims to expand access to savings accounts for the poor. Grameen, with support from the Bill & Melinda Gates Foundation, works with some of the largest microfinance institutions in Ethiopia, the Philippines and India with the goal of creating 1.45 million new savers. Why has Grameen Chosen to Partner with Microfinance Institutions? Microfinance institutions have an established relationship with the community and can utilize their existing field network to provide banking services to those in need. In addition, microfinance institutions can use the money earned from these banking services to support their loan products as opposed to solely relying on grants and donations.

Though microfinance is an excellent tool, people at the very

bottom of the economic ladder are often excluded from microfinance. They are often served by a series of safety net programs, which are

unable to develop income-generating activities.

The Grameen Foundation’s: Solutions Innovation Process

Grameen Foundation’s Solutions Innovation Process combines an innovative approach to product development using the AppLab Incubator with deep expertise helping financial institutions implement a go-to-market strategy to test and scale financial products for the poor.

There are six phases: research and ideation, concept development, prototyping, pilot readiness / planning, pilot testing, product roll-out and launch.

Human-Centered Design

Grameen Foundation uses the principles of human-centered design to create solutions that meet the unique needs of the poor. These users face

numerous challenges when accessing and using new products and services. Their needs and preferences are given extensive attention at each stage of the process and result in solutions that are designed for wide scale adoption.

To achieve that scale, we identify commercial partners that are serious about serving poor clients and ensure that our solutions are also commercially viable.

Case Study #2: Kiva

1 Kiva connects with a Field Partner Kiva works with a range of organizations- Field Partners- to find borrowers and administer loans. Field Partners work at the local level, within the communities where loans are being used to make a difference. While most of them are microfinance institutions, we also work with schools, NGOs, social enterprises and more.

2 Field Partners disburse loans and post stories on Kiva Kiva’s Field Partners disburse loans to borrowers, as they’re needed. Most of them give out the loan before it’s even posted to Kiva. Pre-disbursing loans means that borrowers don’t have to wait for their loans to get funded on the Kiva website when they need money immediately.

3 Lenders browse profiles and choose borrowers to support Kiva gives anyone with an Internet connection the opportunity to make a loan as small as $25. Kiva aggregates all of these small amounts of money to crowd fund loans to borrowers and backfill the loans already disbursed by the Field Partners. And lenders assume the risk for the loans they choose to support.

4 Field Partners receive Kiva lenders' funds via wire transfer When Kiva sends lenders’ funds to Field Partners, it’s not all about backfilling loans that have already been disbursed. Because Kiva provides Field Partners with capital at 0% interest, we enable these organizations to expand their lending programs, reach new, even more marginalized borrowers, and increase the number of awesome wraparound services they offer, like health care, child vaccinations, financial literacy classes and more.

5 Borrowers repay their loans Field Partners collect repayments from borrowers and any interest they charge to help cover their operating expenses. 80% of the partners we work with are non-profits that simply charge interest to cover their overhead. Kiva does not charge any interest to its Field Partners and does not provide interest to lenders. Kiva also gives Field Partners the option to cover currency losses.

6 Kiva returns repayments to lenders When lenders receive repayments, they have the option to withdraw the money into a PayPal account, donate it to help Kiva cover its operating expenses or lend it to more borrowers to make an even bigger impact.

Case Study #3: M-Pesa M-Pesa is the world’s most successful money transfer service. It enables millions of people who have access to a mobile phone, but do not have or have only limited access to a bank account, to send and receive money, top-up airtime and make bill payments. Customers register for the service at an authorised agent, often this is a small mobile phone store or retailer, and then deposit cash in exchange for electronic money which they can send to their family or friends. Once they have registered all transactions are completed securely by entering a PIN # and both parties receive an SMS confirming the amount that has been transferred. The recipient, who does not have to use the same network, receives the electronic money in real-time and then redeems it for cash by visiting another agent. M-Pesa has been authorized by Reserve Bank of India (RBI) under Payment and Settlement Systems Act, 2007 for Setting up and Operating a Payment System in India. M-Pesa is also a business correspondent of ICICI Bank- one of the Big Four banks of India, along with State Bank of India, Punjab National Bank and Bank of Baroda.

Case Study #4: Beam Beam is a revolutionary mobile marketplace and wallet which enables its customers to transact, with any one, at any time, from anywhere, without necessarily needing a bank account or

credit / debit card. Beam uses an IVR system. IVR is short for Interactive Voice Response System a very convenient way to transact using your mobile or landline phones. All you have to do is call Beam and a friendly voice in IVR System will guide you how to do any transaction step by step.

The MasterCard Center for Financial Inclusion was established in 2006 with one simple goal: to promote financial inclusion and advance youth learning in the developing world. The Center for Financial Inclusion is part of the MasterCard Foundation, and partners with organizations in 49 countries, creating opportunities for prosperity. Although the Center’s main operations are in Africa, it has an important project and partnership in India with the BRAC Development Institute and BRAC USA, in collaboration with the Ford Foundation and Consultative Group to Assist the Poor. The purpose of the project was to test out a new model to move people out of extreme poverty, through the use of microfinance institutions.

http://www.mastercardfdn.org/Projects/brac-development-institute-and-brac-usa?map=true&country=india&continent=asia

 

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