Rwandan microfinance partner VFC  goes mobile

Claude Mansell, KF10, Rwanda

Microfinance is rarely associated with high technology. Neither is Africa. Yet here is Rwandan Microfinance Institution Vision Finance Company about to launch its pilot in mobile payments, in two of its 9 branches.

In a partnership with World Vision and MTN, the leading phone company in Rwanda, Vision Finance Company (VFC) has started a 12 month project that will lead to 30% of its customers doing their monthly repayments via mobile phone. VFC will be the first microfinance institution (MFI) in Rwanda, a country that is making great progress in the application of ICT, to implement mobile payments in partnership with Triple Jump Advisory Services (a global capacity-building NGO for MFIs that operates under the umbrella of the Netherlands-based microfinance investment manager Triple Jump).

CEO of VFC, Shem Kakembo: “We are proud to be leading in this field, it gives us a competitive edge. It will greatly help our customers, and reduce our costs and business risks. Actually, it was Kiva who talked to us about the benefits of mobile payments and brought us in touch with Triple Jump”.

Significant benefits for the customers, for VFC, for the phone company and indirectly for Kiva and its lenders.

To understand the sources of benefits, let’s take a look at the current processes. Microfinance loans (which are around $1000 in size) are usually disbursed in cash to customers at one of the local branch offices of an MFI. Repayments plus payment of the interest are done on a monthly basis. In 60% of the cases, a customer has to go to the local branch office to make the monthly repayment and in the other 40% a credit officer goes to the customer to collect the cash.

Especially in the rural areas, travel time for customers and credit officers can be significant (one hour back and forth is no exception). At each branch, a cashier and an accountant deal with the physical cash and administration of the transactions.  Currently, at VFC 60% of all repayments take place in the last 4 days of the month. This means that during those days much cash is in the hands of the credit officers and/or in the local branches.

View from VFC's branch in Byuma, Rwanda

View from VFC's branch in Byuma, Rwanda

Mobile payments will eliminate the monthly travel by customers and credit officers. At VFC one calculation of transportation costs (excluding  the opportunity costs of a customer’s travel time) is Rfr 1000, or about $2 per month. This is about 8% of the interest charged to a customer. A mobile payment would cost only Rfr 200, or $0.40.

Focus group results show that customers respond enthusiastically to the new technology. Project Manager at VFC, Jean-Marie Musangwa: “Customers see the monthly travel time as a real burden. Also, they do not like to carry much cash with them each time. Credit officers will not only save travel time but also much time making reports on repayments. The time freed up by use of mobile payments can be used to reach more customers and provide better quality of service.”

Other benefits for VFC are a less time spent on repayments by cashiers and accountants at the branches. In addition, the risk of holding cash money will be reduced, which is an important element in avoiding theft and fraud.

For Kiva and its lenders, the benefits are an improved management of the repayments, and possibly an increase in the repayment rate. Ben Elberger, Kiva’s Regional Director on Anglophone Africa, said: “since 2007, we have been excited to see the propagation of mobile payments by our MFI’s. Thus far, in Africa, 4 of our MFI’s are engaged in pre-studies or projects implementing mobile payments. Long term, mobile payments have the potential to bring down costs for MFIs and thereby benefit clients”.

Investments will be carried by MTN, VFC and the Customers (who buy the phones)

Investments in the infrastructure, equipment and the implementation program will be shared by MTN and VFC. The mobile phones will be sold to the customers for $6 each. The phones can be used for the payments as well as for normal voice communication via the MTN network.

Once operational, the customers and VFC will both pay for the transaction costs.

The downside of the new technology must be properly managed

The main downside to mobile payments is the reduced number of interactions between the credit officer and the customer, specifically in the 40% of the cases in which credit officers went to collect the repayments on a monthly basis. These interactions strengthen the ties between VFC and its customers, and are believed to be beneficial for the repayment rate. Jean-Marie Musangwa on how VFC will ensure its customer intimacy once mobile payments have been introduced: “The follow-up with the customer will be maintained. We will make sure that our credit officers stay in touch with the customers, both for the social and economic reasons. However, we can be more selective in doing so.”

VFC is innovating in line with Rwanda’s technological vision

While VFC may be the first MFI in Rwanda to engage in mobile payments, it definitely will not be the last one. Rwanda is making a massive move to implement mobile technologies and is heavily investing in its internet infrastructure. Watch Rwanda catch up and leap-frog into the next decade!


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