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Background notes on interview with Mr. Konstantin Peric, Deputy Director, Financial Services for the Poor, Bill & Melinda Gates Foundation

Background notes on interview with Mr. Konstantin Peric, Deputy Director, Financial Services for the Poor, Bill & Melinda Gates Foundation

Host: Emmanuel Daniel, Chairman, The Asian Banker

Guests: Konstantin Peric, Deputy Director, Financial Services for the Poor, Bill & Melinda Gates Foundation

• Opening access to payment and financial services to the poor
• How is the foundation helping to deliver digital payment solutions driving financial inclusion?
• Best practice case studies from Nigeria, Indonesia, Pakistan, India and Bangladesh etc.
• Konstantin Peric’s Profile
• Bill & Melinda Gates Foundation profile:
• Relevant news on Bill & Melinda Gates Foundation

Opening access payments and financial services to the poor:

• Based on an analysis of payment systems in more than thirty countries — including China, India, Kenya, Nigeria, the Netherlands, and the United States — a Bill & Melinda Gates Foundation and McKinsey report, Fighting Poverty, Profitably: Transforming the Economics of Payments to Build Sustainable, Inclusive Financial Systems, found that digital payment systems like mobile money and electronic account deposits can reduce transaction costs by as much as 90% and offer the greatest potential for financial inclusion.
• Given that 84% of the 2.5 billion people living on less than $2 a day have no access to formal bank accounts — which makes it difficult for them to receive payments, pay bills, or send money to relatives — expanding access to financial services is a key element in fighting poverty. And while there is little economic incentive at the moment for financial providers to serve the poor, lessons drawn from developed countries suggest that digital payments are cheaper, more efficient, and ultimately more sustainable.
• Among other things, the report recommends that a solid economic baseline be established for any digital payment system already in use as a way to improve oversight and better guide further development of those systems; that "best of breed" payment systems be embraced as a way to foster competition and lower costs; that innovations from other markets be applied to existing systems; and that private sector players, policy makers, and regulators should focus on the digital payment ecosystem rather than just individual institutions or systems.
• Peric has been vocal about billions of people being shut out of the modern financial system. “The economics of it simply don’t work—not for the poor, who can’t afford the services; and not for providers, who face problems of access and cost. So progress stalls because under the current system, it is just too costly for all involved. And the poor remain stuck in a cash-based system with limited or no access to financial services that can help protect them in the event of a crisis or disaster. Thus, the cycle of poverty continues.”
• People who only deal with cash are generally very poor. “It costs a lot to be poor,” notes Peric. When you only have cash, it's up to you to make arrangements. If the son of the family works in a big city and wants to send money, he has to find someone who will physically transport him, it will be expensive and there is a danger that the money will arrive not. He also gives as an example the cleaning lady who has to walk a day or half a day to pay for her child's school, which makes her waste time that she could spend working.
• This unbanking has an impact on people, but also on governments in countries where large numbers of citizens do not have access to banking services. Today's economy is digital, and countries will struggle to progress until a large part of the population is not connected. “With the COVID pandemic, a lot of governments want to help people and households by sending money,” said Peric. “It is nonsense that today 1.7 billion people do not have access to the economy. It is a problem for them and for governments.”
• Beyond the personal aspect, having access to a financial system can also help very small companies, as entrepreneurs realize the importance of being able to make transactions. It can also allow entrepreneurs to offer new services. Konstantin Peric gives an example of the possibility, in Africa, of buying a solar battery with small payments in the form of a subscription.
• Today, more than six billion people have access to a cell phone. Considering that just 4.5 billion have access to a safe, hygienic toilet, that number is all the more remarkable. And this mobile revolution promises to have repercussions across industries, countries, and cultures.
• In the financial industry, for example. Technology is allowing companies to be more efficient, convenient and responsive to their customers. With a phone, people can access money anytime, anywhere, making and receiving payments on the go without the hassle of a visit to your local bank branch.
• Obviously, the digitization of banking systems raises security questions. However, the services offered online are much safer than putting money or jewelry under a mattress. The electronic wallet is in the cloud, recalls the specialist, so if you lose your phone, you don't lose your money. Also, from the moment payment platforms take root, this raises two major considerations for governments: the fight against fraud and regulation to counter money laundering. We must also ensure that the systems remain stable.
• Gender equality is at the heart of the Foundation's values. Women must take ownership of technologies, if only through the possession of a mobile phone, usually in the hands of men. For example, in Pakistan, men have more access to technology, ie 20% more men own a mobile phone than women. This disparity is based on various reasons and an important part of the Foundation's action aims to ensure gender equality so that it reaches 50/50.

How is the foundation helping to deliver digital payment solutions driving financial inclusion?

• The Bill & Melinda Gates foundation has been working on addressing this problem – and with both the advent of mobile technologies and new business models, the foundation sees an opportunity to drive progress through the use of digital payments in the developing world.
• By utilizing existing infrastructure and technology, digital payments can lower the cost of transactions by up to 90%, putting innovative financial services and safeguards into reach for the first time.
• The Bill & Melinda Gates foundation announced the latest in its Grand Challenges Explorations series of grants, with the goal of unlocking the full potential of digital payments for low-income people through widespread adoption by merchants and service providers. Approved grants will receive $100,000, and successful projects are eligible for a follow-up grant of up to $1 million.
• Peric belives that it can bring a huge, currently untapped market – more than 2.5 billion people, or a third of the total number of human beings on this planet – into the financial system for the first time. This is a colossal opportunity that’s waiting to be seized.
• Africa Digital Financial Inclusion Facility:
  • Africa saw double-digit growth in mobile phone ownership in the first half of this decade, triggering a surge in innovative digital tools and services across the continent. Yet, the benefits are not shared equally. It is estimated that only 43% of adults across Africa have a banking account.
  • Africa Digital Financial Inclusion’s opening project, which serves as a pilot for the facility, is a $11.3 million grant from the Bill & Melinda Gates Foundation to the Bank and the Central Bank of West African States. The grant will create an interoperable digital payment system that will allow consumers to send and receive money between mobile wallets, and from these wallets to other digital and bank accounts.
  • The goal is to ensure that at least 320 million more Africans, of which nearly 60% are women, have access to digital financial services. The fund will deploy $100 million in grants and $300 million in the form of debt from the Bank’s ordinary capital resources by 2030, to scale up electronic financial services for low-income communities.

• Level One Project and MojaLoop:
  • The Level One project, backed by the Bill and Melinda Gates Foundation, has a similar approach to India’s UPI. The Level One Project lays out a playbook to create a national digital financial services system built on top of shared, open standards-based components and governed by its participants.
  • “Many of these people are either geographically remote, live in rural areas that are not served by banks, or that are not covered by branches and ATMs. The traditional banking services are not adequate or too expensive for these people,” says Peric. To that end, Peric and a few other partner companies have built MojaLoop, an open-source software that can be used to build national digital payments platforms. In Swahili, Moja means One. Projects that use Moja Loop are underway in Kenya, Uganda, Tanzania, and Nigeria in Africa, and in Indonesia, India, Bangladesh and Pakistan in Asia.
  • India’s UPI, Peric says, has a lot of similarities with Level One Project. That way, Indian fintech companies are likely to gain an edge in markets where the project has been implemented.
  • “Most of the focus today on our side is to foster interoperability. Because that grows the market,” says Peric. By launching a layer that makes mobile payment systems interoperable, he hopes to unlock competition without hurting users.

Best practice case studies from Nigeria, Indonesia, Pakistan, India and Bangladesh

Progress based on the Bill & Melinda Gates foundation GoalKeepers Report 2020:

• Expanded the global Better Than Cash Alliance to 75 members, a 25% increase since 2017. The alliance is committed to digitizing payments. These include national governments from Africa, Asia-Pacific and Latin America, global brands across the agriculture, garment and fast-moving consumer good sectors, UN agencies and humanitarian NGOs.
• COVID-19 and women: Alliance members leading emergency response & G20 policy options
  • Women are hardest hit by COVID-19’s economic fallout. A new G20 report, launched by the Alliance and partners, outlines 10 policies for reaching 1 billion financially excluded women, as Alliance members lead on a number of fronts to mitigate the impact of the pandemic. In Colombia a new digital transfer program has reached 3 million vulnerable households, 60% of them headed by women and 1 million previously unbanked. In Jordan, 200,000 households, including refugees, received financial assistance through e-wallets, with Sudan taking forward key lessons as part of its commitment to providing digital basic income for over 30 million citizens.
  • Bangladesh: Effective public and private collaboration
    • Around 60% of Bangladesh’s 4 million garment workers are women. In Bangladesh, at the Digital Wages Summit—convened by the Alliance and partners in Dhaka in 2019— four leading brands and new Alliance members— Gap Inc., H&M, Marks & Spencer and Inditex (Zara)— endorsed a strong call to action to move away from cash. H&M announced digital payment systems for all its supplier factories in Bangladesh by 2020. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) committed to digitizing 90% of payments made to garment workers in the country by 2021. The Ready-Made Garment (RMG) sector opened 2.5 million new accounts after the government’s COVID-19 RMG Wage Relief Fund mandated that all salaries be paid digitally.
    • Senegal: Government leadership at the highest level
      • Senegal's Prime Minister issued a decree creating a national coordination body to drive digital payments, following the 2018 Alliance Country Diagnostic. In 2019, the government launched SunuCMU, a digital payments platform, to help expand health insurance coverage to 75% of the population by 2021. It is expected to save the government 6 billion CFA Francs (US$ 10 million) every year. This is all the more important in times of COVID-19 response.
      • Peer learning, hosted by India and Kenya
        • The Government of India as an Alliance leader hosted governments from West Africa to learn about its digital infrastructure in early 2020. The Direct Benefit Transfers (DBT) Mission of the Government of India partnered with the Alliance to organize two inter-state workshops on digitizing social protection payments. Representatives from 22 out of 36 states and union territories participated in the exchanges that focused on farm and food subsidies. The Government of Kenya also hosted nine members of the Alliance in 2019 to share good practices on digitizing water utility payments.

Interoperable Digital Financial Services for Credit Unions in Indonesia and the Philippines (October 2018 – December 2020):

• The Interoperable Digital Financial Services for Credit Unions is a one-year planning-phase project for the design of an interoperable, open-loop, low-cost, real-time payment platform for its network in credit unions across Asia, supported by the Bill & Melinda Gates Foundation. The first phase will focus in Indonesia and the Philippines, where the numbers of underserved and unbanked people are approximately 95 million and 69 million, respectively. As part of this first phase, WOCCU is conducting assessments in both countries, focused on several key dimensions: governance, operations, business model, regulatory, and technology.
• Credit Unions in the the Philippines (2019)
  • 1,658 total credit unions
  • 12.3 million members (17.74% of the population)
  • USD 5.6 billion in assets
  • Credit Unions in the Indonesia (2019)
    • 784 total credit unions
    • 3.4 million members (1.87% of the population)
    • USD 3.5 billion in assets

Konstantin Peric’s Profile:

Konstantin Peric, deputy director, Financial Services for the Poor leads the team that focuses on digital payments. He is a technologist, and his interests lie at the point of fusion between technology, finance and innovation. From governance through business models to technology - from ideas through architecture to development: he oversees the strategy and grants to deliver digital payment solutions for the poor. Current focus countries include Nigeria, Indonesia, Pakistan, India, Bangladesh. He is leading the Level One Project initiative to foster deployment of payment platforms to serve the poor (http://leveloneproject.org), and the open source Mojaloop software (http://Mojaloop.io).

Prior to joining the foundation in 2013,  he was the chief architect of SWIFNet, SWIFT’s global secure network connecting 10,000 financial institutions and corporates in the world, and co-founder of Innotribe, SWIFT’s initiative to enable collaborative innovation in financial services.

Peric holds a master’s degree in computer science from Free University of Brussels, Belgium. He is the author of The Castle and the Sandbox, a book on how to innovate in conservative companies using open innovation.

Bill & Melinda Gates Foundation profile:

The Bill & Melinda Gates Foundation works to help all people lead healthy, productive lives. In developing countries, it focuses on improving people's health and giving them the chance to lift themselves out of hunger and extreme poverty. In the United States, it seeks to ensure that all people—especially those with the fewest resources—have access to the opportunities they need to succeed in school and life. Based in Seattle, Washington, the foundation is led by CEO Mark Suzman, under the direction of Bill and Melinda Gates and Warren Buffett.

• Current number of foundation employees: 1,602
• Total grant payments since inception (through Q4 2019): $54.8 billion
• Total 2019 Direct Grantee Support: $5.1 billion
• Total 2018 Direct Grantee Support: $5.0 billion
• Foundation Trust Endowment: $49.8 billion

In 2019 the foundation funded grantees in 48 states and the District of Columbia. Internationally, it funded work in 135 countries.

Funding Allocation for Financial Services for the Poor (2017-2019)

Source: Gates Foundation Annual Reports

Relevant news on Bill & Melinda Gates Foundation:

Google and Gates Foundation to help spread digital payments in developing countries

6 May 2020

For more than a decade, Kenyans from the bustling capital of Nairobi to far-flung farms have had access to a digital payments service that was ahead of its time. M-Pesa, introduced in 2007 by Vodafone and Kenya’s Safaricom mobile provider, lets users send and receive money on their mobile phones, providing bank-like services for millions who had relied on cash and informal networks.

By 2012, Kenyans had registered 17 million accounts. And by making saving easier and small businesses more efficient, M-Pesa had helped lift 194,000 Kenyan households out of poverty, a study in 2016 concluded.

Now, a coalition of nonprofits and tech companies including Google and the Bill and Melinda Gates Foundation want to repeat those outcomes worldwide by making it easier for developing countries to build real-time digital payments systems. On Wednesday, they announced the formation of the Mojaloop Foundation, which will develop and promote a free, open-source real-time payments platform intended for nations and central banks. The Mojaloop Foundation’s founding sponsors also include the Rockefeller Foundation, the philanthropy and investing group Omidyar Network, and the financial technology startups Coil and ModusBox.

The initiative would help tie together a growing array of digital financial services. M-Pesa, which has expanded from Kenya to countries including Ghana, Egypt, and India, has inspired hundreds of imitators worldwide. But these largely privately-run systems are fragmented.

“Systems [like M-Pesa] are silos,” says Kosta Peric, deputy director of financial services for the poor for the Gates Foundation. That can mean friction and high fees to transact between systems. “Imagine a mobile phone system where you can only talk to people connected to the same provider. It’s useful, but only so much.”

But national payments systems based on Mojaloop, as the new platform is called, may be even more beneficial because they would connect many different banking and payments systems. That could allow M-Pesa to interact seamlessly with other digital wallets, traditional bank accounts, or remittance services like Western Union, likely enhancing the value of existing payments services rather than competing with them.

Beyond individual impacts, expanded digital payments could also boost the global economy. A 2016 McKinsey study concluded that widespread and affordable digital finance tools could grow the economies of developing nations by 6%, or a total of $3.7 trillion, by 2025. That would be the equivalent of adding another Germany to the world economy.

Mojaloop is modeled on digital fast-payment systems such as the U.K.’s Faster Payments Service and Australia’s New Payments Platform. Building those systems, however, often involves big up-front technology development costs and politically difficult negotiations among a variety of players. Those challenges have slowed or stalled digital banking advances not just in developing countries, but even in the United States.

Mojaloop is meant to reduce such roadblocks by providing a standard digital-payments blueprint. The software, which is publicly available via Microsoft-owned software repository GitHub, includes a directory for identifying account holders, a transfer system for routing payments, and a clearing and settlement layer that transfers funds among users’ financial institutions. The routing system relies partly on a technology called Interledger that was originally developed by Ripple, a company that aims to use Bitcoin-derived blockchain technology to connect banks.

Providing that technology isn’t a magic bullet, though. Building systems also requires navigating national regulations, training staff, and making sure new financial tools are accessible to people who need them, according to ModusBox CEO David Wexler. So in addition to the software, the Mojaloop Foundation will connect experts with countries and development agencies to tackle problems and help guide government policies that promote privacy and other user-protection measures.

Mojaloop-based systems are intended to be hosted by each country’s governmental or financial authorities. But because they use a shared standard, Peric says the systems could eventually become interoperable across borders, further easing the global flow of funds.

Rodger Voorhies, president for global growth at the Gates Foundation, says the current pandemic shows how powerful expanding fast-payments infrastructure could be. “In times of crisis, [poor people are] pushed deeper into poverty.” That’s often answered by local and international charitable donations, but the coronavirus is disrupting international relief and conventional remittance payments.

But digital payments can rapidly deliver funds directly to people in need. “You [would] have a way for social engagement,” says Voorhies, “You could send money to protect people in times of crisis, really rapidly.”

Source: MORRIS, D. Z. (2020, May 6). Google and Gates Foundation to help spread digital payments in developing countries. Retrieved November, 2020, from https://fortune.com

Global Organizations Join the Mojaloop Foundation to Advance Financial Inclusion

16 Sept 2020

The Mojaloop Foundation announced that India’s leading digital payments platform PhonePe and enterprise blockchain solution provider Ripple have joined as Sponsor members, the highest level of the organization. In their role as Sponsor members, they will join the Mojaloop Foundation Board of Directors and help provide the strategic vision, governance, and technical guidance to ensure the long-term health and growth of the Mojaloop open source software and development community.

The Mojaloop Foundation also welcomed new Promoter members to support the advancement of Mojaloop, including: Giori Digital SA, a Swiss company providing central banks with a unique digital banknote form of retail Central Bank Digital Currency (CBDC) to drive greater access to safe currency for the underserved; and Sybrin, a leading global provider of payment solutions, financial services solutions, and a low-code development platform for digital transformation.

To achieve universal financial inclusion, digital financial services need to be affordable and accessible to all. Despite mobile money services emerging in nearly 100 countries, 1.7 billion people still lack access to digital financial services, according to the World Bank’s Global Findex. Many payment providers struggle with the high cost of creating no-fee or low-fee, cross border payment systems that interoperate with others. The Mojaloop Foundation’s newest members will support the advancement of Mojaloop as a public good, enabling different types of digital financial service providers – large and small – to use the open source blueprint to help lower the cost and technical hurdles involved in creating interoperable payment models that serve all.

“Mojaloop Foundation’s financial inclusion mission has resonated loudly with many organizations. We are very pleased to welcome our newest members, including PhonePe and Ripple as Sponsor members, and Giori Digital and Sybrin as Promoter members,” said Paula Hunter, executive director of the Mojaloop Foundation. “We continue to advance and support Mojaloop open source software, collaborate with our community and hold convenings to serve as a path forward for organizations creating interoperable payments platforms to connect all digital financial providers and customers within an economy. We welcome any organization that has an interest in advancing digital financial inclusion to join the organization.”

With the support of Mojaloop Foundation Sponsor and Promoter members, Mojaloop open source software will serve as a model for how to simplify and reduce the cost of payment interoperability. If more payment models were interoperable, more banks and other digital payment providers could develop digital financial services that meet the needs of emerging markets and the unbanked. According to McKinsey Global Institute, if widely adopted, interoperable digital financial services could provide more of the population with access to important financial tools, while adding $3.7 trillion to emerging countries’ GDP by 2025.

“Our vision of universal financial inclusion is a world where everyone, everywhere, can access and use the digital financial services they need to build economic security and resilience,” said Kosta Peric, chair of the Mojaloop Foundation and deputy director of the Financial Services for the Poor program at the Gates Foundation. “The work of the Mojaloop open source project will thrive with the talent, innovation and leadership from this dynamic and growing group of member organizations, in service of our shared mission to benefit underserved and low-income communities.”

PhonePe, which means “on the phone” in Hindi, is a leading digital payments firm in India. PhonePe CEO Sameer Nigam will serve on the Mojaloop Foundation’s Board of Directors.

“If we want to make the world a more financially inclusive place, we need to work together, as institutions, governments and technology companies, to make payment systems interoperable,” said Sameer Nigam, CEO of PhonePe. “We are looking forward to collaborating with our fellow members to advance Mojaloop’s mission of financial inclusion. Together, we can help organizations understand how to build interoperable digital payment systems, provide low-cost access and feel confident in creating systems that work across borders.”

Ripple’s corporate social impact program, Ripple for Good, is designed to support mission-driven organizations to dramatically expand the number of people who fully and equitably participate in the global financial system. Ripple’s Head of Social Impact Ken Weber will serve on the Mojaloop Foundation’s Board of Directors.

“Creating economic fairness and opportunity for the unbanked and vulnerable populations is Ripple’s highest social impact priority—a natural extension of Ripple’s core business, which is making cross-border payments faster, cheaper and more reliable and accessible for hundreds of millions of consumers and businesses globally,” said Ken Weber, head of Social Impact, Ripple. “Ripple has been involved with the Mojaloop project since the start, providing technical advice and engineering support and are proud to continue to collaborate with fellow Mojaloop Sponsor members in working toward a more inclusive future where everyone, everywhere can access digital financial services needed to connect to the global economy.”

Source: Press Release https://www.theasianbanker.com/press-releases/global-organizations-join-the-mojaloop-foundation-to-advance-financial-inclusion