IBM GLOBAL SERVICES

MFI Initiative
LA Processing Hub
Executive briefing

Oct, 2008
Confidential to IBM

© Copyright IBM Corporation 2007

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Our Alliance is primarily focused on the unique opportunities in emerging growth markets, while addressing developed
markets opportunities opportunistically.

Secondary Focus:
Enterprises that serve the “top of the pyramid” are
targets for business process solutions
 Mobile enablement opportunities for distributed
workforces and distribution system solutions
$ (Insurance, telecom, etc.)
wealth  Real time retail supply chain optimization
1 Billion Worldwide Mobile Internet Users by 2011
Primary Focus:
Emerging Markets Developed Markets
Enterprises, Government, &
1.7 billion mobile phone 1 Billion Worldwide Mobile
users in BRIC by 2012 NGO’s serve “base of the pyramid” Workers by 2011
 Micro-Finance, Micro-insurance
 Manufacturing / Agriculture
 Providing services such as health
care, education, government

Cloud-enablement of mobile communications allows enterprises, governments, and NGOs to deliver

services to employees, business partners, consumers, and citizens on any device, anywhere

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Over 3 billion people live on less than two dollars a day and only 17% of them have access to
formal financial services

Households with at least one bank account Supply and demand of Microfinance
2007 Number of accounts, millions

700
Demand

600
72%
(475+ Million)
500

Number of accounts
Accounts
Unserved
83%
400 (500+ Million)
Accounts
Unserved
300

200
Supply
< 20% 60-80% 100
20-40% > 80%
40-60% 0
2004 2005
Population 2006
in need of 2007 services
Microfinance 2008 (# 2009 2010
accounts) 1

Population with access to Microfinance services (# accounts) 2

Source: Demirguc-Kunt, Beck and Honohan, 2007, Policy Research

Report on Access to Finance, World Bank Notes: Based on CGAP data and population growth rates from the UN Population Division
1

2
Current and forecasted numbers based on Microcredit Summit Campaign data, 2005
Assumption that 1 Account = 1 Family = 5 People

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Traditional retail banking model is inappropriate for profitable microfinance operations

Global Banking Type of Service

Pyramid vs. Daily Income
Daily Income*
Private
Banking

US$ 500 Current model

in traditional
banking
Traditional ~ 2 Billion
Banking
People
US$ 10

Microfinance innovation
+ technology required to
Unbanked lower the cost of this
Segments ~ 4 Billion high-touch model
People
US$ 1 Inappropriate
microfinance
distribution model

Personalized, Low touch

high touch†
Type of Service

* Log Scale
† Service includes origination, management and collection

4 CONFIDENTIAL TO IBM © Copyright IBM Corporation 2008

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In 2006 Microfinance was selected as one of the top ideas from the Innovation Jam and now we are
in the process of establishing five Microfinance Processing hubs over the next three years
Latin America
Working with the World Bank
and associations of MFIs to
establish a 14 million account
processing hub to serve the
MF market of the region
Africa
Working with a CARE
international to jointly
establish hub to serve 10
countries in the sub-Saharan
region
5 CONFIDENTIAL TO IBM
Russia
Working with IBM Russia as
the Kremlin announced its
decision to use the country’s
post office network to deliver
financial services to Russia’s
unbanked
Indonesia
Signed an MoU with the
government agency with a
mandate to strengthen
national microfinance sector
China
Initial conversations with
global and local banks to find
a partner for a China
processing hub
© Copyright IBM Corporation 2008
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The vast majority of microfinance institutions don’t have access to appropriate back-end
technology

Use of Information Management Type of Information

Systems by Region Management System
90% Off-the-shelf
77% 76% 10%
80%
70%
Manual
60% 54%
11% Spreadsheet
50% 35%
40% 33% 36%

30%
20%
10%
In-house
0% 19%
4)

)
5)
6)

3)

38
(4
(2
(2

(4

(1
a
a
a

ia

ric
ic

ts
si

As
er
.A

en
Af
m

nd
/C

n
S
A

ra

po

Custom
pe

tin

ha

es
ro

La

Sa

Outsourced
lR
Eu

b-

Al

25%
E.

Su

Source: CGAP

6 CONFIDENTIAL TO IBM © Copyright IBM Corporation 2008

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IBM GLOBAL SERVICES

Current back office alternatives for Microfinance Institutions limit the ability to grow and
compete with larger Financial Institutions

Annualized cost per account

Costs vs. Functionality

$20

Cost Per Account Per Year

Size of MFIs Costs per
Accounts Majority of MFIs
$15 globally, high
Very Large MFIs (+250,000 accounts) $50-$60 costs and lack
of flexibility limit Goal of Processing Hub*
growth
Large MFIs (50,000 –2 50,000 accounts) $20-$30
$10
Hub environment
Medium MFIs (10,000 – 50,000 accounts) $15-$25 reaches cost
Small MFIs but efficiencies of
Small MFIs (2,000-10,000 accounts) $5-$12 still common in traditional banks
$5 some markets

Very Small MFIs (less than 2,000 accounts) $2-$5

Source: Based on a sample of MFIs in LA Pen and Off-the-shelf or Full support of MF

paper, custom built requirements, access to
Spreadsheet traditional Core international payments
Banking with high networks, automated
costs and very limited reporting, flexibility and
support of MF cost efficiency of traditional
requirements banks

Functionality Spectrum

* Indicative price, not actual

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The Processing Hub provides an end-to-end technology solution for low-income retail banking
institutions to increase productivity and business opportunities

Products and Funding

Microfinance Processing Hub

Applications Interfaces Infrastructure Management
Accounting Payment Networks Data Center
FS Applications Cross industry

Infrastructure
Customer Management Remittances Networks Storage

Payroll Credit Bureaus Business Recovery Services

Collections and Recoveries Proprietary Applications Performance Monitoring

Risk Management ATMs Networks/ Switches DB Management
Liquidity Management Reporting (i.e. MIX, regulatory) Firewalls

Security
Agent/reseller operations Mobile Devices/ Carriers Redundancy
Core Banking National Banking Networks Connectivity
Help Desk Levels 1, 2 and 3

Service Oriented Architecture

Microfinance Institutions

Underbanked/ rural population

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The Processing Hub also helps to integrate MFIs with other key participants from across the
economy to create a more efficient and vibrant financial ecosystem

Microfinance Institutions

Int’l Payment Networks Established Banks

IBM can negotiate cost-effective
IBM Processing Hub
deals with payment or ATM 1. Lend funds to MFIs at
networks, giving MFIs global Applications Infrastructure Management commercial rates. MFI
Accounting Data Center performance reports

FS Applications Cross industry

payments capabilities

Infrastructure
Customer Management Storage available thru the Grid.
Payroll Business Recovery Services

Regulators Collections and Recoveries Performance Monitoring 2. Sell products through the
Risk Management DB Management Grid, leveraging MFIs as
The Grid delivers automated,
Liquidity Management Firewalls distribution networks
accurate, and transparent

Security
Agent/reseller operations Redundancy
regulatory reporting & compliance
Core Banking Connectivity 3. Banks can also use
online banking software
Smartcard / POS Vendors of the Grid to expand into
ATM or debit cards, payment MF activities themselves
terminals, and transaction routing

Credit Bureaus Telcos NGOs / Donors

The Grid can read from, and provide data The Grid can integrate with one or Greater transparency from MFIs,
back to, credit bureaus. This helps end more telcos offering mobile banking, accurate & custom reports, and
customers establish an identity and get allowing customers to repay loans or electronic funds transfer
larger and cheaper loans over time transfer money on their cell phone

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The LA Processing Hub will be accessed through different channels to allow many-to-many
interactions

MFIs Smaller MFIs

The Hub (central office) or Branches End Users

VPN Physical
VPN

Applications Infrastructure Management

Physical
Accounting VPN
FS Applications Cross industry

Data Center
Infrastructure

Customer Management Storage

Payroll Business Recovery Services

Collections and Recoveries Performance Monitoring

Risk Management DB Management Mobile loan
Liquidity Management Firewalls officer Physical
Security

Agent/reseller operations Redundancy

Core Banking Connectivity

MBanking
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