How can a wallet-sized plastic card with an embedded computer chip that can store data or process information increase security, save time and money and overcome limits caused by illiteracy, local languages or remote locations? Microfinance institutions working in the Bolivian highlands and in remote rural areas in Uganda have been experimenting with the use of smart cards for their clients and profit from the benefits of this state-of-the-art technology.
The Uganda Microfinance Union (UMU) aims to provide quality financial services in a fair and transparent manner to entrepreneurs and low-income earners in the Republic of Uganda. Since its establishment in 1997, UMU has strived to apply a flexible, innovative and client-oriented approach, which is reflected in the various saving and loan products offered with, for example, flexible payment schedules or informal guarantee requirements. UMU has a head office in Kampala and 20 service centres across the country which ensure accessibility throughout Uganda, although, recent developments gave new meaning to UMU’s operating procedure and accessibility.
Together with two other Ugandan Microfinance Institutions (MFIs) UMU is involved in a pilot, testing Remote Transaction Systems (RTS) that allow clients in remote areas without service centres to carry out transactions using a Point of Sale (PoS) terminal supported by a GSM line for online communication.
UMU conducts the pilot with independent third-party agents who act as ‘human Automated Teller Machines (ATMs)’ or virtual extensions of UMU’s business providing financial services to UMU clients. The two current agents are local merchants who have some daily financial liquidity through their business operations. Each agent has a PoS terminal and a special agent smartcard, and transactions are handled predominately in an online mode. UMU clients travel to the agent where they perform financial transactions, all of which are captured electronically through the PoS terminal.
Cash is exchanged between the agent and the client depending on the type of financial transaction. Maximum and minimum limits are built into the system as they are in an ATM system to control the amount of money that can be withdrawn on a given account in a day.
When a transaction occurs, the agent is actually distributing and collecting cash and a corresponding electronic cash transaction is executed at the MFI. Client and agent accounts are debited and credited as the transaction requires. Since this is done internal to the financial institution no clearinghouse authority or functionality is required. At the end of the day, all the transactions still on the PoS terminal are uploaded to the RTS back-end through the cellular network. Since the agents are also UMU clients, funds are reconciled nightly through UMU accounting procedures. The management information system handles the transaction similar to a teller transaction.”
This unique solution was developed by a consortium of public-private microfinance leaders, technology specialists and business thinkers assembled by Hewlett-Packard, to increase the scale of microfinance by addressing issues related to operation costs, financial costs and industry dynamics, aiming to create new ways to offer better service to more rural and remotely placed clients. The RTS allows clients to easily access information about their account balances and account statements using their own smart cards.
The benefits of the RTS solution are experienced at all levels of the microfinance chain. The clients have simple and safe access to a secure and confidential means of payment; save time and travel costs and experience convenience of payment at nearby locations and speed of transactions. The agent of the PoS attracts more customers; has increases related sales; builds customer relations and generates a fee revenue. The MFI benefits from the improved data quality; reduced delinquency or fraud; expended client services; reduced operating costs and secured expansion of delivery channels.
Imagine an ATM that identifies its users by a digital fingerprint scan, operates with a touch screen, gives spoken instructions in local languages and that saves all client information on a personal smart card. Eduardo Bozzaberry, general manager of PRODEM FFP Bolivia, introduced this idea to several ATM manufacturers, but couldn’t find anyone interested in bringing such a machine into production. PRODEM FFP decided to develop the machine themselves and presented the first prototype in 2001. It is a globally applicable and extremely innovative approach, extending banking services to rural villagers excluded from the banking system. To date, 55 machines are installed and operating in remote areas, with another 10 to be placed this year. 60 percent of the ATMs are located in rural areas, 40 percent in urban areas.
PRODEM FFP is a well-managed private financial fund (FFP) that operates as the legal vehicle for microfinance entities in Bolivia. It is dedicated to micro lending for small entrepreneurs and indigenous populations and has developed rural finance activities. It has its main portfolio in the remote areas of Bolivia where there is little access to microfinance but nonetheless has the largest network of branches (62 in total) throughout the country. PRODEM FFP aims to offer financial products with uptodate technology and excellent services to permanently satisfy the needs of their clients in urban and rural areas. PRODEM FFP is strongly engaged with the quality of changes, innovation, efficiency and profitability of their services.
PRODEM FFP offers a wide range of high-tech, non-credit services, amongst which the saving accounts operated with smart card technology. Rather than adapting the circumstances in rural areas to the requi-rements of operation for a regular ATM, such as a 24 hour online connectivity, PRODEM FFP designed an ATM that suffices the conditions and needs in remote rural areas. The service only costs $ 7 a year per client. These low costs are possible through the local production of the ATM, which make the machine twice as cheap as conventional ATMs. The use of smart cards brings down the costs as well, because the machine does not have to be permanently online.
The ATM developed by PRODEM FFP is designed with specific technology that makes its use as simple and safe as possible. The fingerprint recognition is far more safe than the 4 number PIN that regular ATMs operate with. The spoken instructions in Spanish, Aimara or Quechua make it even possible for illiterate people to use the machine.
The smart card saves all the clients information such as personal data, account number and transactions realised.
All the client has to do is go to the nearest ATM, insert his/her smart card, press their fingertip against the fingerprint identification screen and follow the spoken instructions on when and where to touch the screen in order to carry out the desired service. In Bolivia, 40 percent of the people live in rural areas. Of these, 29 percent are illiterate of whom 70 percent are women. Increasingly, MFIs are becoming interested in the ATM and several deals are soon to be closed to implement the machine in quite a few other countries to make banking services accessible in rural areas.