Bill & Melinda Gates Foundation drive to expand financial inclusion net globally

For Kosta Peric, overcoming finance's last mile means looking for ways to do so from the ground up.

As deputy director of the Financial Services for the Poor initiative for the Bill & Melinda Gates Foundation, Peric is the forefront of the organization’s efforts to build what he calls a digital financial system that, if successful, would connect everyone to financial services.

Inclusion isn’t simply a matter of opening the door to products such as microloans or insurance policies geared toward low-income families and individuals, he said in a new interview with CoinDesk. Rather, inclusion means creating channels of financial support during times when people need it the most.

“These include challenging shocks like debts, death in the family or some expense that has to be taken care of,” Peric said. “Having access to an affordable and secure, reliable financial system is very important.”

As part of its efforts, the Gates Foundation is working in a number of African and Asian countries to foster the development of digital money systems, with the overarching goal of building interconnected webs of finance that enable poor households to connect with the wider global financial system.

It’s within this context that Peric and others at the Foundation see the blockchain playing a powerful role.

He told CoinDesk:

“The very powerful thing about bitcoin in general and specially the technologies behind it, is they are essentially leapfrogging all the technology and providing a new system for processing these huge amounts of transactions for very small costs.”

The organization recently published materials for the Level One Project, an umbrella initiative for the Foundation’s various development projects around the world.

The goal, according to Peric, is to spur local private stakeholders, government agencies and everyday people to support the creation of interoperable financial pipelines.

New channels for old problems

As part of its broad research efforts, the Foundation has looked closely at how blockchain technology can be implemented to make such networks fast, simple and secure – characteristics that Peric said would align it with existing money systems like M-Pesa in Kenya and bKash in Bangladesh.

As outlined on the Level One Project website, the blockchain, within the context of the Foundation's work, could theoretically be used to provide a crucial means of settlement between payment systems being established in developing economies.

The site notes the blockchain can be "used as an alternative to current transaction switching and settlement models. In theory, it could also be used to lower the costs of providing these functions".

This fits in with what Peric described as a need for a system that can is capable of supporting large amounts of small transactions, which are typically the norm for value amounts sent by people in developing nations.

"What we try to foster is national systems that are, essentially connecting providers together in an interoperable system that can reach out to the entire population and can serve huge amounts of small value transactions every day," he continued. "That's the primary goal we are trying to achieve."

Bitcoin's utility

Peric has said in the past that he is far more interested in bitcoin the technology versus its use as an alternative currency.

When asked in interview whether his view has evolved on this question, he cited the work of the Foundation in developing digital financial systems and looking for ways to utilize innovative technologies for doing so.

Citing feedback from individuals in some of the countries that Foundation works in, Peric says that bitcoin can't quite meet the needs of those regional because people in those countries are accustomed to using local currency.

He explained:

"You receive your salary in your national currency so you can pay your schools, the bills for your house, in your national currency. So that's what is most required at this moment, and that's where bitcoin the currency cannot really help right now."

However, he went on to clarify that bitcoin "can help in other contexts like international remittances, international money flows".

Investing in the future

Peric has said that the key to jumpstarting financial inclusion isn't simply a matter of throwing money at an idea or providing support for a particular project. Most important, he said, is fostering self-sustaining ideas that can continue to grow as support mechanisms subside.

"We can help bootstrap the system, to get it over, until the scale works, so that at the end of the day, the providers have a valuable and profitable business case to bring this forward and their systems become self-sustainable," he said.

In conversation, Peric touched on the recent awarding of a $100,000 grant to Bitsoko, a Nairobi-based digital currency startup that focuses on payments and wallet provision, as part of the Foundation's Grand Challenges Exploration (GCE) initiative.

Peric framed the grant as one component of the Foundation's broader efforts to support innovation and entrepreneurship in developing companies, reiterating how the organization sees financial inclusion growing out of a diverse ecosystem of initiatives rather than one central effort or another.

This, he suggested, means providing grants to startups and initiatives that can contribute to that broader goal of bringing financial tools and services to developing communities.

"I don’t want to leave any stone unturned," he said.

Source: coindesk.com

Putting $18 billion back in the pockets of Asia’s migrants

Money is the next most important liquidity of the world which needs clean & smooth flow to keep the world moving after Water.  Stagnant money can cause major economy hazards like stagnant water can cause major environmental hazards.

With increasing globalization, millions of emigrants work in foreign countries to earn their living while supporting their families & communities back home by sending money periodically. Around 4% of world population live & work in other nations for better employment opportunities and other settlement reasons.

Considering World Bank global average remittance cost of 9%, a whopping $50+ billion are being charged for remittance services in moving money across nations. Next two paragraphs provide a quick overview of Remittance economy.

A remittance is a transfer of money by a foreign worker to an individual in his or her home country. Workers' remittances are a significant part of international capital flows, especially with regard to labour-exporting countries.  

In 2014, $436 billion went to developing countries, setting a new record. Overall global remittances also totalled $583 billion. India with the world’s largest emigrant workforce of 14 million people was in top slot, attracting about $71 billion in remittances. Other large recipients are China ($64 billion), the Philippines ($28 billion), Mexico ($24 billion), Nigeria ($21 billion), Egypt ($18 billion), Pakistan ($17 billion), Bangladesh ($15 billion), Vietnam ($11 billion) and Ukraine ($9 billion). World remittance is expected to grow around 5% rate.

Remittances remain an especially important and stable source of private inflows to developing countries, as they bring in large amounts of foreign currency that help sustain the balance of payments. Still many countries have not done enough to accelerate money remittance infrastructure and individual continue to bear high costs of remittance especially for smaller volume transactions. 

Asia emigrants alone are losing $18+ billion annually on account of remittance charges.

How person to person money transfer is being done currently

While banks handle 70 percent of money receiving volume globally, Money Transfer Organizations have the largest share of sending volume.  One of the major problems with international person to person remittances has been at the receiving end (location coverage, communication connectivity, person identification authentication etc). Almost two billion adults globally don’t have bank accounts, they are mainly dependent on MTO services for receiving money.

Western Union with its 500,000 agent locations & Money Gram with its 334,000 agent locations provides money transfer services across 200 countries at a significant remittance costs.

New players in remittance space

Considering high friction costs and growing remittance transaction volume, many new players have emerged to offer low costs remittance solutions mostly for bank account recipients:

·    WorldRemit
·         Remitly
·         TransferWise
·         Azimo
·         Xoom
·       TransferFAST
·         iRemit

·        eTranzact 

·       ·     HomeSend

Some of them operate on transfer fee plus fix forex spread or only on forex spread however their coverage is quite limited for unbanked persons who mainly use MTO services. Emergence of these players and their steady growth has attracted new interest in providing more efficient solutions for remittance market. Visa, MasterCard & Paypal are also offering consumer to consumer remittance services. 

A significant portion of remitted money is used to offset various utility bills in recipient country.  Cross-border payments processor service such as iSend where a customer can pay an overseas bill from US can help reduce remittance volume thus reducing transfer costs.

Now Digital currency aim to address high remittance costs, speed & coverage

Person to Person Cryptocurrency is also being used to provide faster and cheaper remittance solutions. Bitcoin firms such as BitPesa, PayFast, BitPagos, Coins.ph and BitSpark have built money remittance solutions using different business models in line with local regulations and compliance and offering an alternate remittance channel in few markets.

Some of them allow persons to convert their money in bitcoins at best forex rates possible and get money transferred to their bank account after converting back to local currency from a bitcoin exchange in recipient country. Some of them keep bitcoin under the hood while money agents handle money transfers (using cash-in & cash-out settlement methods) offering lowest transfer charges.

As per BitPeso, remittance transactions are “twice as fast and 75% cheaper” than competitors, because it uses bitcoin to transfer funds. They aspire to bring the transfer price (of sending remittances) as close to zero as possible.

By using such remittance platforms, MTO like Western Union & Money Gram can also reduce their operational costs significantly thus lowering remittance charges.

Many global organizations like Word Bank, FATF, OECD , IFAD, GFRD & AFI are implementing programs to coordinate various initiatives to bring security, efficiency and speed to remittance industry however developing nations must take a lead in driving these efforts as it helps to improve their economy.

As Asia cannot be described as a single market due to significant differences among sub-regions and even between urban and rural markets in the same country, Remittance to Asia often moves at slow pace with high remittance costs.

To put $18b back in the pockets of Asia’s migrants, Government policy making & regulation bodies need to work with global organizations and industry leaders (finance & technology) to remove hurdles in bringing down remittance costs.