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The challenges in the country are well known, but Zahir was quick to highlight the opportunities that come with advancing financial inclusion and developing important communication and payments infrastructure as the country rebuilds.
Paul Leishman: Zahir, can you start by providing us with a 10,000 ft view of M-PAISA in Afghanistan?
Zahir Khoja: We re-launched our service in October, 2008. When we piloted M-PAISA in Afghanistan, the idea was to bring a service to customers to repay their microfinance loans and serve those who didn’t have access to a bank because of distance. We created a trial partnership with First Microfinance Bank Afghanistan (FMFB) and today have about 5,000 customers using the service for microfinance loan repayments. From there, we moved the product into something similar to what you’d see in Kenya today - customers have the ability to send money, pay bills, receive salaries and buy Roshan airtime.
Over the last few months we’ve analysed our business and number of factors emerged. The first is that our tariff schedule was tiered and not easily understood. As a result, in August we launched a new tariff schedule which simplifies everything for the customer: sending money is now one flat fee regardless of how much a customer sends and the same goes for withdrawals. This simplifies the service for the average customer, who typically doesn’t have much education and 75% of whom are illiterate.
Paul Leishman: Where does M-PAISA stand by way of adoption today?
Zahir Khoja: Each month since launch we’ve seen an increase in gross registrations. As customers are interested to learn more about the service, the challenge of driving education still exists.
Paul Leishman: So your offering includes money transfer, MFI loan repayment, salary distribution and airtime purchase. What types of market conditions or customer needs were taken into account when designing this offering?
Zahir Khoja: First, we considered is access to finance. When you look at what Afghanistan has to offer today in terms of a banking environment, only about 3% of the population are banked and there are about 300 bank branches which are owned by 17 banks. So most of the country doesn’t have access to financial services unless you’re in a large city, and even those who do have access generally don’t trust banks given the history they’ve had with them over the last 20-25 years. We also considered the transportation infrastructure.
It’s very hard to get around in Afghanistan: roads aren’t developed like they are in Europe or North America, and buses or cars aren’t as common: donkeys or walking are often the preferred mode of transportation here.
The third factor we considered is security. When you’re travelling with large sums of cash, and when I say large I mean $100 or more, you stand the risk of meeting someone on the road who wants to take your money. In the last 6 months of 2008, there were about $30 million in transit robberies.
There are a lot of obstacles in Afghanistan, but these do vary in severity depending on where you are in the country. Take Southern Afghanistan for example, where the rules of engagement are different than what they may be in the North, it’s not safe to walk around there with money or conduct business. For women in particular it’s a lot easier for them to have a business in Central or Northern Afghanistan than it is in the South due to instability.
Opening up the movement of money is the first step to financial inclusion and alleviating poverty: that’s where the money transfer offering comes into play.
P2P payments break down boundaries between different villages or communities so that people can expand their trading partners.
The second thing is that these customers now have access to are microfinance loans without actually having to visit a specific bank branch. They can repay their loan by changing cash at an agent.
Once they take a microfinance loan, they’re probably using it to develop their business. If they’re developing their business they’re employing more people. If they’re employing more people they’re probably generating more revenue.
Through all of this comes savings, which will probably be the next thing we explore: once these people have money they want somewhere to put it other than under their pillow. You can see that over 10-15 years all of this plays into making the community self sufficient and alleviating poverty. At Roshan we don’t just look at products from a commercial perspective. We also consider economic and personal development perspectives and they were obvious in bringing M-PAISA to market in Afghanistan.
Paul Leishman: We read a lot about the challenges facing Afghanistan as the country rebuilds and stabilizes. What’s your on-the-ground assessment of the opportunities and challenges of doing business in the country?
Zahir Khoja: Security is clearly a major issue: it’s hard to ask an agent to walk around in the field and talk to people about mobile money. If you look at some of the activities we’ve had over the last 60 days, they’ve been limited or non-existent due to the election. Also, because of some of the political issues and the war in the country, we face security challenges with a number of our sites which are located in the volatile South. With an interruption of service, someone can’t check their balance. When someone can’t check their balance they freak out. These are the types of challenges we face operating in Afghanistan.
Another major challenge is that of building a team - specifically from an agent perspective. The approach to team building is very different here than most developed countries. Like many emerging markets, Afghanistan is very transactional - ‘if I give you a dollar, you give me a good’ and that’s the end of our relationship. The idea of ‘customers for life’ doesn’t really exist here. This plays out in recruitment of agents.Paul Leishman: What would be your biggest barrier to scale or growth at the moment?
Zahir Khoja: Development of our agent network. The reason I say that is because getting agents to invest in the business so they can keep a float balance isn’t easy. Agents look at this and say, ‘well that’s $500 that I could use to do something else with.’ As I said, the country is very transactional (i.e. give me a dollar and I’ll give you a good). What we’re asking agents to do is put $500 into float and manage that as your business grows with the customer base. They’ll see returns on the money, but it would be over a period of time. That concept is hard for agents to understand. The concept of sending money over a phone also doesn’t yet register with an average customer. When we talk about getting agents to explain this to customers, agents look for the quick hit. They look for opportunities to maximize commissions today, which makes education really challenging.
Paul Leishman: MFIs play an important role in your model. What advice would you offer around selecting and working with MFI partners?
Zahir Khoja: MFIs are looking at this from an expansion perspective as well as a cost reduction perspective. They can now send a loan officer out into a village and sign up customers to MFI loans. Their loan officer then disburses the loan on site. The customer knows where the village agent is, and is able to make their payments. These are people who may never have considered getting an MFI loan because they a) might not have known about it, or b) the distance to an MFI was too hard. So we’re giving the MFI an opportunity to get more customers and customers the opportunity to access financial services. In the future, we’d like to integrate all of the MFIs on the M-PAISA system so the back end functions more efficiently.
Paul Leishman: What are the unique things that a mobile operator can contribute to an MFI?
Zahir Khoja: First, I think it’s the ability to communicate with customers using various communication channels offered by Roshan. Second, MFIs now have an ability to look at a customer’s transaction history - do they make loan payments, do they qualify for incentives, etc. In Afghanistan, we don’t have a credit bureau, so there’s no way of checking if someone is a good or bad applicant. This allows the customer to develop some type of credit history, and allows the bank on the other end to give $1000 instead of just $100 because they know that they’re dealing with a good customer.Paul Leishman: What’s been your experience from a regulatory perspective launching M-PAISA in Afghanistan?
Zahir Khoja: Mobile money products are a brand new concept to Afghanistan. Roshan, along with USAID, World Bank, CGAP and many other entities are working very closely with the Central Bank of Afghanistan (the regulator) in the development of new regulations. Best practices from Kenya, Philippines and other countries where mobile money has been successful are being taken into account.
Paul Leishman: Does the Central Bank see opportunity in gaining better visibility into financial flows in Afghanistan?
Zahir Khoja: Yes. One of the things the Central Bank asked us is ‘how can you be sure that criminals, won’t use this system?’ We have an Anti Money Laundering Officer that monitors transactions on a daily basis. Any transactions that look suspicious is flagged immediately. This enables the Central Bank to deal with these matters instantly rather than waiting for the outcome of what these funds would be used for.
Paul Leishman: What about other elements of regulation. Can non-bank agents perform account opening and cash in/out? Is there proportionate KYC in Afghanistan?
Zahir Khoja: To open an M-PAISA account, you need to have a valid passport, or a national ID card. You also need to have 2 colour photographs, name, fathers name, birth date, mobile phone number. We also ask whether the applicant is involved with any political party or if they’ve ever been involved in terrorist activity. All of our customers are screened through various sources, like the Dow Jones watch list, to make sure that applicants are legitimate.
Paul Leishman: What types of tactics do you use to convert registered customers into active users?
Zahir Khoja: There are a number of tactics, but the primary one is educating and training M-Paisa agents so that they are well equipped to talk to customers about the service.
That’s our main focal point. There are also a number of marketing initiatives utilizing the Roshan mobile network that we use to communicate with customers. The marketing services we deploy take into account the fact that 75% of the Afghan population is illiterate. These types of initiatives have been recently launched so we are still in the process of evaluating their effectiveness.
Paul Leishman: So your offering includes
- money transfer,
- MFI loan repayment
- salary distribution
- airtime purchase.
What types of market conditions or customer needs were taken into account when designing this offering?
Zahir Khoja: First, we considered is access to finance. When you look at what Afghanistan has to offer today in terms of a banking environment, only about 3% of the population are banked and there are about 300 bank branches which are owned by 17 banks. So most of the country doesn’t have access to financial services unless you’re in a large city, and even those who do have access generally don’t trust banks given the history they’ve had with them over the last 20-25 years. We also considered the transportation infrastructure.
It’s very hard to get around in Afghanistan: roads aren’t developed like they are in Europe or North America, and buses or cars aren’t as common: donkeys or walking are often the preferred mode of transportation here.
The third factor we considered is security. When you’re travelling with large sums of cash, and when I say large I mean $100 or more, you stand the risk of meeting someone on the road who wants to take your money. In the last 6 months of 2008, there were about $30 million in transit robberies.
There are a lot of obstacles in Afghanistan, but these do vary in severity depending on where you are in the country. Take Southern Afghanistan for example, where the rules of engagement are different than what they may be in the North, it’s not safe to walk around there with money or conduct business. For women in particular it’s a lot easier for them to have a business in Central or Northern Afghanistan than it is in the South due to instability.
Opening up the movement of money is the first step to financial inclusion and alleviating poverty: that’s where the money transfer offering comes into play.
P2P payments break down boundaries between different villages or communities so that people can expand their trading partners. The second thing is that these customers now have access to getting a microfinance loan without actually having to visit a specific bank branch. They can repay their loan by changing cash at an agent.
Once they take a microfinance loan, they’re probably using it to develop their business. If they’re developing their business they’re employing more people. If they’re employing more people they’re probably generating more revenue. Through all of this comes savings, which will probably be the next thing we explore: once these people have money they want somewhere to put it other than under their pillow. You can see that over 10-15 years all of this plays into making the community self sufficient and alleviating poverty.
At Roshan we don’t just look at products from a commercial perspective. We also consider economic and personal development perspectives and they were obvious in bringing M-PAISA to market in Afghanistan.
Paul Leishman: What other payment options exist in Afghanistan, given that just 3% of the country is banked?
Zahir Khoja:
If you want to send money today from one district to another, you’ll personally deliver that money by walking, taking a taxi, or taking a donkey.
Alternatively you would give the money to a friend, what’s referred to as a trusted agent, and say ‘please deliver this for me and you can keep 5-10% for yourself.’
Or finally you would go to a Hawala market and pay a set fee for the money to be sent to the recipient in a corresponding district, village or province.
These are the money transfer options that exist today, and we’re trying to educate people on how to send money on their mobile phone. 25% of the population in Afghanistan have a mobile phone and this is the group we’re targeting. The challenge we have is that people don’t trust banks, let alone the idea that their money is now just on an SMS. But recall that 75% of Afghans can’t read: that’s where our IVR comes in.
Paul Leishman: What have you done to driving understanding of the benefits and functionality of an IVR?
Zahir Khoja: That’s the challenge we’re having now: getting the IVR message into the marketplace. What we’re trying to do now is address the market based on their needs. Afghanistan just went through an election period which was an unsafe time for the country. In response, the campaign we’ve launched is ‘buy Roshan airtime using your M-PAISA wallet from the convenience of your home.’ This gets a customer to say ‘Yes, I’d like to continue to have airtime, so I’ll figure out how this M-PAISA thing works because I don’t want to leave my home and risk my safety.’
It’s important to use tactics like this that will make a customer say ‘Yes, I really need this’. Right now if you talk to the average Afghan person, there’s no desire to put money into a bank. In some sense, we need to create the need for them - illustrate how these services can make a difference in their lives. Right now we charge 50 Afghani, which is the equivalent of US$1, to send money.
The average person today sends between US$30 and US$50. The pitch to these people to justify our fee is that they no longer need to leave their home, take a taxi or donkey, or spend time going to a Hawala market. Yes, there is a fee but it’s cheaper than all other methods used today.
Paul Leishman: You’ve chosen to use the word ‘Hawala’ in your tagline: ‘The Hawala on your Mobile’. What is the significance or thought behind this?
Zahir Khoja: Hawalas have been around for hundreds of years and everyone knows that this is where you go to send money. Rather than recreate the wheel, we decided to go with what people understand. Our pitch is that we’re bringing the Hawala to you through your mobile.
Paul Leishman: Thanks Zahir.
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