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Saturday, October 18, 2008

Grameenphone vs 40 Banks: India Weighs In

The Background
I will start out with some background info. Late last year Grameenphone proposed its own biased version of a 'mobile banking' guideline. This shocked all the local banks as it did the international ones making them group together in opposition because mobile banking has nothing in similar to what Grameenphone had proposed.

Furthermore Grameenphone had 'accommodated' consultants to fly around the world, and to report back how mobile banking is a good idea (it is). But they also indicate indirectly that Grameenphone's version is the one used worldwide (far from it) because GP is the payee for accommodation and airfare.

This had led to a spark in newspapers who were divided whether to publish the truth or get to get a year's worth of GP advertisements which even Standard Chartered, HSBC and Citibank cannot match. Prothom Alo published an astounding editorial by the former deputy-governor of Bangladesh Bank lambasting Grameenphone's scheme for confusing people about the nature of mobile banking. This was the best Bangla composition I had read in a long time. The Financial Express published another article despite censoring Grameenphone's name. The Daily Star started out as pro-Grameenphone but soon turned the other way realizing that this news was too far of a stretch.

What differences are there? Even though there are numerous fallacies in GP's proposal, it boils down to GP attempting to hijack 40 backs by preventing to access the mobile infrastructure and in place allow GP to benefit from this vacuum. Although this may seem minor this has very large consequences as no where in the world does such an idea exist.

India weights in
Bangladesh has a history in following the Indian regulatory bodies. WiMax gets issued in India, then its time for Bangladesh to issue WiMax. The Reserve Bank of India (RBI) is the regulatory banking body, exactly what Bangladesh Bank is to all the local banks. Much to the delight of Grameenphone, RBI halted all mobile banking transactions throughout India to create a framework.

GP had assumed that since mobile banking in India was conducted by banks, the temporary halt would mean more liberties to the telecom sector in line with GP's version of mobile banking. Many others had assumed similar fate as India's mobile phone companies are owned by powerful and vested quarters capable of flying and accommodating more consultants, place more TV and newspaper ads than GP.

The RBI, just last month, concluded on the guidelines. They are:

  • Mobile banking only between one bank account to another (GP only wanted mobile number to mobile number, wanted to prevent bank account to bank account and even bank account to mobile number)
  • A limit of Rs 2500 (Tk 3,523.46) and in exceptional cases and under strict supervision Rs 5000 (Tk 7,046.25) for these bank account transactions. (GP proposed a base limit of Rs 21,287 (Tk 30,000) which is 8x larger than Indian limits)
  • As with mobile banking in the rest of the world, phone companies are not a stakeholder in this issue. (GP wanted to be the in the center of the issue by making the laws and preventing banks from mobile banking)
  • Only banks can authorize transactions (GP wanted GP to authorize transactions)
  • Only banks can accept money (GP wanted to open up a network of GP bank branches to accept money)

Many consultants and people have pointed out that mobile banking will take banking facilities to everyone as more people have phones than bank accounts. I strongly agree, but this vision is not applicable to Grameenpone's butchered version of mobile banking. India not only has a larger population but one that is more rural and spread out further than Bangladesh. Yet out of all the benefits they went for mobile banking, but not GP's version of mobile banking.

Similarly in Vietnam, less than 10% of the population have bank accounts but clearly more phone customers. But according to the consultants visiting Vietnam on GP's money, Vietnam should let GP solve this by bringing GP's version of mobile banking. What did Vietnam do instead? They got rid of more regulations that lets banks off the leash to serve the 'unbanked' and more freedom to expand further. Phone companies are strictly a medium, they were never equated to banking or mobile banking.

Much like GP's IPO valuation, its version of mobile banking follows the same logic as a supermodel's cure for world hunger and poverty. It is funny when they propose it, self-delusional and some misinformed people may be touched but yet we all move on in the end.

13 comments:

Anonymous said...

Christ almighty, did GP kill your favorite pet dog or steal your lollipop? Is it I Hate GP month on this blog, or what?

I don't know where you're getting your information from but it's a good thing we don't enforce libel and defamation laws in Bangladesh.

The banks are going to have their lunch eaten by telcos because they have neglected these underserved/unbanked segments for decades. They're just not willing and/or capable to service these segments. They don't have the network, they don't have the technology, they don't have the cost structures, they don't have the vision. And you know what, the banks will survive. They’re doing just fine without those segments.

In fact, I would actually suggest that banks should avoid these segments (and I'm a shareholder in some local banks). There's no ROI scenario that could possibly convince a rational investor that banks should start developing the infrastructure and services to target them (because guess what, the telco shareholders won't cooperate if they don't see a long-term profit and ownership either).

We're talking about razor thin margins, smaller ticket sizes, and economies of scale and scope that would be disastrous for a bank. Focus on fleecing urban customers with hidden charges and fees, keep charging cusotmers to issue cheque books and answer the phone. That's what banks are good at.

You have only to look at the example of M-Pesa in Kenya.

http://www.nation.co.ke/News/-/1056/479374/-/view/printVersion/-/gboyh4z/-/index.html

Sending small sums of money through a mobile phone has become a de facto reality there. In fact, at any one time, there is over $Sh 2 billion in the M-Pesa system. They've transferred billions of shillings in about two years. And they’ve just recently made moves to leverage ATM networks. And there is where a solution might possibly lie.

Banks should try and collaborate, cooperate, forge alliances with telcos. Not combat the inevitable tide. So much of your tirade reminds me of the music business executives and the advent of downloading music from the internet. I should disclose that I am also a former banker (investment, brokerage, and retail/commercial) and had a tangential foot in the music industry during those days, as well as having founded a company that extended financial services through technology (but not from a telco platform).

It was a pretty brutal scene when the music industry went down. But they reaped what they sowed. They neglected customers, reaped supernormal profits, ignored customer demands, ignored technology, tried to supress their competition. You can examine the ruins of the music industry today.

Let’s hope banking doesn’t go that way either, they might have a different coda. Especially with all the trust they have ruined with their customers around the world during the last several months of gross negligence and abuse.

Lastly, your appeal to see other countries as an example is only a tenuous sort of argument. Let's jump off a bridge because everyone else is doing it. So that argument is moot.

The Reserve Bank of India and State Bank of Pakistan, to take just two examples, issued their restrictive regulations for mobile banking because they kow-tow to the World Bank/IFC and foreign donors that are promoting what they call a “bank-led” model.

Isn't it ironic that the IFC and World Bank would support a BANK-led model? I am shocked.

No, but we should trust the World Bank, they have such a stellar success of astounding and breath-taking successes with structural adjustment loans and contingent lending throughout the developing world. Don't make me sick.

In fact, having read both set of regulations from India and Pakistan (they are available on their websites), entire sections from World Bank documents have been cut and pasted into the official regulations. You have only to check out the documents at the World Bank's Consultative Group to Assist the Poor (CGAP) at http://www.cgap.org. Entire sentences, terminology, and viewpoints are simply lifted out of their reports and policy papers. It would be a scandal if it weren't so obvious and pathetic.

They argue that once markets mature, countries can adopt a “telco-led” model. This is, of course, a specious argument. Banks won’t be able to invest enough to penetrate the unbanked markets. Telcos will have no incentive to invest for these services either as long as they are in the back seat. And things will never get off the ground.

And why should telcos take a back seat and only act as a medium? If banks thought that way, you would still only have savings accounts and passbooks. You wouldn’t even have any such thing as a global bank or universal full service banks. No UBS, no Citigroup, etc. Forget ATMs, internet banking, credit cards, etc.

The Indian regulations have all but killed any chance of extending banking services to the unbanked or for development in this technology in India. I have several friends who work in this space in India and they are quite glum about prospects for their industry. But I know our Indian brothers are resourceful and already the likes of Airtel are making plans to circumvent these laws.

For example, a telco could just buy some small time bank and acquire a banking license that way. In fact, with a banking sector just dying for consolidation, this is a very likely scenario for Bangladesh. Two of our operators have deep foreign pockets. Orascom, owner of Banglalink, already has plans for an entirely separate company that focuses solely on creating mobile financial services (see CEO interview in the FT). They'll just drop the services into all their mobile phone operations. And if they need to buy some piddly local bank to get around some regulatory red tape, they'll probably do it. That is, if they don't just buy a license from the government and start their own bank.

Of course you're going to protest, you work at a bank and your livelihood is dependent on a bank. I just wish you would be more upfront about that and not come here to grind your personal axes. Let's criticize when criticism is due, but this sort of ideological argument is quite academic, and frankly, embarrassing when not acutely transparent and hilarious.

A.

Ahmed Ali said...

Christ almighty, did GP kill your favorite pet dog or steal your lollipop? Is it I Hate GP month on this blog, or what?
-I am sorry to act this way. I only do because all the newspapers are I HEART GP. Even though some of the replies following are on a jocular tone, I thank you for taking the time to write and bringing some issues to my attention. In all seriousness I appreciate different point of views.

I don't know where you're getting your information from but it's a good thing we don't enforce libel and defamation laws in Bangladesh.
-all facts are true. Its the info I get from BB insiders. If you want to prove wrong, please post the GP Thesis. I can't seem to get my hand on it. It has disappeared (probably all copies are being burned) but have to rely on people who had read the shocking review. (i.e. former deputy governor of Bangladesh Bank). You should ask two former deputy governors of BB and ask them why they are not reading off the GP supplied scripts. Anything not read off GP mandated scripts are libel and defamation.

The banks are going to have their lunch eaten by telcos because they have neglected these underserved/unbanked segments for decades. They're just not willing and/or capable to service these segments. They don't have the network, they don't have the technology, they don't have the cost structures, they don't have the vision. And you know what, the banks will survive. They’re doing just fine without those segments.
-Banks are capable of serving this segment but can't because the regulatory body made it impossible for them to expand at such a pace. The Financial Express pointed this out. The Vietnamese government pointed this out. Vietnam is fixing this by less restrictions on the banking industry. In case you haven't noticed, banks such as Brac, Prime, Eastern, City, Dutch-Bangla already have the 'network' and 'technology' and capable 'cost structures'. Banks won't survive. They are barely getting by in the Kenya where foreign owned telcoms got their wish.

In fact, I would actually suggest that banks should avoid these segments (and I'm a shareholder in some local banks). There's no ROI scenario that could possibly convince a rational investor that banks should start developing the infrastructure and services to target them (because guess what, the telco shareholders won't cooperate if they don't see a long-term profit and ownership either).
-on a sidenote where else are we going to do beside hold shares of local banks since GP's IPO is such a letdown both in terms of the amazing premium demanded and the ROI that you will get on the premium.

We're talking about razor thin margins, smaller ticket sizes, and economies of scale and scope that would be disastrous for a bank. Focus on fleecing urban customers with hidden charges and fees, keep charging cusotmers to issue cheque books and answer the phone. That's what banks are good at.
-Vietnamese banks don't seem to have a problem with this. Even Standard Chartered has been incorporated locally (and not as a foreign bank) in Vietnam to expand locally for these 'razor thin margins'. Citibank, HSBC, Standard Chartered and JPMorgan Chase have also heavily invested in Indian, Pakistani and Vietnamese banks to pursue the scope that will be disastrous for a bank. Yet it is among their highest growth sectors.

You have only to look at the example of M-Pesa in Kenya.
-M-Pesa and Zain as shown by the Financial Express are molded cases made by GP, but are big disasters on a national level. The foreign owned companies get to ship out even a larger amount of capital at their will, leaving Kenya in the dumps. This issue has been raised in the Kenyan parliaments and the feud is still ongoing. Everyone wants to prevent this scenario. Ironically the Kenyan case has prevented telecom led mobile banking from ever flourishing anywhere else.

http://www.nation.co.ke/News/-/1056/479374/-/view/printVersion/-/gboyh4z/-/index.html

Sending small sums of money through a mobile phone has become a de facto reality there. In fact, at any one time, there is over $Sh 2 billion in the M-Pesa system. They've transferred billions of shillings in about two years. And they’ve just recently made moves to leverage ATM networks. And there is where a solution might possibly lie.
-I agree some cooperation is possible. But with GP's take-all philosophy has prevented this.

Banks should try and collaborate, cooperate, forge alliances with telcos. Not combat the inevitable tide. So much of your tirade reminds me of the music business executives and the advent of downloading music from the internet. I should disclose that I am also a former banker (investment, brokerage, and retail/commercial) and had a tangential foot in the music industry during those days, as well as having founded a company that extended financial services through technology (but not from a telco platform).
-As far as my knowledge, Prime, City and Eastern did try to forge alliances with GP. It did not end well. GP prevented them from accessing a medium of communication while passing down its own biased version of mobile banking. Hence trying to show that banks have not taken the initiative and aren't capable. Whereas they have tried, but GP had prevented it.

It was a pretty brutal scene when the music industry went down. But they reaped what they sowed. They neglected customers, reaped supernormal profits, ignored customer demands, ignored technology, tried to supress their competition. You can examine the ruins of the music industry today.
-Yes that is the case of the music industry. But the Internet Service Provider did not prevent the music industry from accessing the internet. The music industry chose to ignore it. Banks aren't choosing to ignore mobile phones. Instead GP has been preventing banks from accessing a medium of communication.

Let’s hope banking doesn’t go that way either, they might have a different coda. Especially with all the trust they have ruined with their customers around the world during the last several months of gross negligence and abuse.
-This is a highly sensitive topic, as to who is to blame for the world wide meltdown. There is a lot more blame to go around rather than bearing in just on banks.

Lastly, your appeal to see other countries as an example is only a tenuous sort of argument. Let's jump off a bridge because everyone else is doing it. So that argument is moot.
-I would rather jump off a bridge because everyone including the US, Japan, Europe, World Bank, India and soon Bangladesh is doing it rather than jumping off only because Kenya is doing it.

The Reserve Bank of India and State Bank of Pakistan, to take just two examples, issued their restrictive regulations for mobile banking because they kow-tow to the World Bank/IFC and foreign donors that are promoting what they call a “bank-led” model.
-Aren't we glad we have a World Bank and IFC instead of a World Phone. They stop such crazy schemes from reaching the light of day.

Isn't it ironic that the IFC and World Bank would support a BANK-led model? I am shocked.
-Grameenbank and GP supports a mobile phone company led model (supplied only by GP), and not a mobile banking model. I am equally shocked as well.

No, but we should trust the World Bank, they have such a stellar success of astounding and breath-taking successes with structural adjustment loans and contingent lending throughout the developing world. Don't make me sick.
-Frankly they are doing a lot more than micro-lending or offering 25 paisa night time calling to bhoots. Their consultants are also highly priced to accommodate around the world even for GP. So to choose between trusting GP and World Bank, everyone goes for World Bank.

In fact, having read both set of regulations from India and Pakistan (they are available on their websites), entire sections from World Bank documents have been cut and pasted into the official regulations. You have only to check out the documents at the World Bank's Consultative Group to Assist the Poor (CGAP) at http://www.cgap.org. Entire sentences, terminology, and viewpoints are simply lifted out of their reports and policy papers. It would be a scandal if it weren't so obvious and pathetic.
-I am glad they plagiarized World Bank (thank you for bringing it to my attention, seriously). But aren't you glad they copied right off World Bank instead of GP's Thesis?

They argue that once markets mature, countries can adopt a “telco-led” model. This is, of course, a specious argument. Banks won’t be able to invest enough to penetrate the unbanked markets. Telcos will have no incentive to invest for these services either as long as they are in the back seat. And things will never get off the ground.
-Telcos only have an incentive now because they realize that banks have been on a tight leash for the last 35 years or so. When the market matures the leash gets longer and the fight becomes fair. Then only does all GP's ethical reasons for helping the poor and bringing banking to the 'unbanked' disappears. I am glad that World Bank are thinking in line with GP.

And why should telcos take a back seat and only act as a medium? If banks thought that way, you would still only have savings accounts and passbooks. You wouldn’t even have any such thing as a global bank or universal full service banks. No UBS, no Citigroup, etc. Forget ATMs, internet banking, credit cards, etc.
-Telcos should act as a medium because they are a medium. Their licenses state that they are a medium and not a bank. Banks are in the money business, not Telcos. Also because banks have been restrained since the inception of Bangladesh, while Telcos haven't had so many restrictions. As FE pointed out, it is unjust to let an unregulated industry into a regulated one. It is one industry infringing on another. Banks created credit cards, ATMs etc, but they did not create a mobile phone network.

The Indian regulations have all but killed any chance of extending banking services to the unbanked or for development in this technology in India. I have several friends who work in this space in India and they are quite glum about prospects for their industry. But I know our Indian brothers are resourceful and already the likes of Airtel are making plans to circumvent these laws.
-Citibank, HSBC, ICICI and Standard Chartered did not invest billions in India to see Airtel take their pie. All banks will just group together like they did in Bangladesh. It could be a very fast fight. Its probably over right now.

For example, a telco could just buy some small time bank and acquire a banking license that way. In fact, with a banking sector just dying for consolidation, this is a very likely scenario for Bangladesh. Two of our operators have deep foreign pockets. Orascom, owner of Banglalink, already has plans for an entirely separate company that focuses solely on creating mobile financial services (see CEO interview in the FT). They'll just drop the services into all their mobile phone operations. And if they need to buy some piddly local bank to get around some regulatory red tape, they'll probably do it. That is, if they don't just buy a license from the government and start their own bank.
-No one is stopping them. I highly suggest they do though. We have heard Orascom suggest that but with no follow up. They can't get a license as World Bank mandates that there will be no new banks for Bangladesh.
But even buying a piddly bank comes at a steep price. The only possible piddly bank would be First Security Bank. Even then it would would require atleast Tk 200 crore to buy it out. Secondly it would take the next decade to fix the bank as well as write off. In short it is a really bigger management headache rather than a financial headache even for the pockets of Orascom. But it does illustrate how different Orascom is from GP in its procedures. There is no scheming or robbing 40 banks.


Of course you're going to protest, you work at a bank and your livelihood is dependent on a bank. I just wish you would be more upfront about that and not come here to grind your personal axes. Let's criticize when criticism is due, but this sort of ideological argument is quite academic, and frankly, embarrassing when not acutely transparent and hilarious.
-I work for a foreign bank that has no branch or relation to Bangladesh. Is it still embarrassing when two former deputy governors and all foreign banks go public with their opinion on GP's scheme? You should ask yourself if this is more embarrassing than an over priced IPO.

Shameem Haider said...

I have honestly no idea who you guys are and where you are from. But I just wanted to thank you for having this debate which enables us to discuss constructively issues, talk about topics which we can't otherwise have on any other medium. This blog is big time indeed.

Anonymous said...

Thanks for replying. I appreciate different views as well, and hope our exchange can be civil and respectful. Any other impression I give off is mistaken, jocularity, or, admittedly ego. I’m just going to respond as precisely as I can since we should avoid the tendency to go around in circles without progress the debate. I hope I can do so below.

1.
I would have to take you at your word that your facts are true. I’m not going to, unless there’s some hard evidence. I don’t have the GP thesis, or any other theses. I have not read the former BB governor’s op-ed either (to my detriment).

2.
I still maintain that banks are unable to serve this segment profitably. The truth is that most mobile operators in this space the world over are only scraping a profit. This is largely because their product is only focused payments right now. This an argument fairly rooted in fact.

3.
What are the specific regulatory measures in Bangladesh that hinder banks from targeting and serving unbanked people? If it’s stuff like KYC, capital adequacy requirements, or making services more accessible to customers, then, well, you’re actually arguing for deregulation and a state of affairs that would favor telcos moving into financial services.

My view on this is quite different. I believe financial inclusion has long been a government goal in this country and to date very few banks have made any sizeable dent in the market. Furthermore, I think if you spoke to the average unbanked/unbanked person they would say they are intimidated and feel unwelcome by formal financial institutions. Even solvent urban-based women entrepreneurs have difficulties with something as basic as a working capital loan. Say what you want about GP, they at least built a network into the very depth of our rural areas (both physical infrastructure and retailers) that brought service to people’s doorsteps. And of course, they did it for profit.

4.
Banks in Kenya seem to be doing ok to me. They’re just facing much needed competition. In fact, it seems to be that every week another Kenyan FI signs a deal with M-Pesa. Old Mutual Kenya just signed a deal with them yesterday. I would also argue very strongly that local banks like Brac et al. most certainly do not have the technology, network, or cost structure that will scale to meet the challenge of serving the unbanked. We’re talking about millions of people making very small and very frequent payments 24 hours a day spread over a relatively scattered geography (all of Bangladesh). No bank in Bangladesh has this experience. Period. They can’t even keep their ATM network running most of the time, and when they are running, there’s a queue a mile long. GP probably processes several million data transactions a day. Maybe even tens of millions if other telco businesses are any indication. They maintain over 10,000 base towers all across the country. They have thousands of retailers and agents spread across the country. They have 20 million customers. And they probably have to maintain historical data for all those transactions because the government probably ordains it.

And lastly, my corner shop near my house already has a thriving business of sending money to rural areas on behalf of other people using GP’s Flexiload service. It’s just plain old hundi using Flexiload air-time as the unit of transfer between two retailers. It’s illegal, probably violates his contract with GP, but he’s satisfying a very obvious and real demand from a sizeable market segment that does have other burgeoning alternatives (e.g., Western Union, banks, courier services, etc).

5.
Sidenotes on the GP IPO are not relevant to this discussion. But fair enough, they screwed it up pretty bad.

6.
Vietnamese banks are not a valid comparison. 70% of their credit market is dominated by state banks, and most national assets are held in state banks. I’m not sure they can operate in a true commercial manner. But they’re trying. I could be wrong. Also, I believe that until very recently they had very strict laws against foreign ownership in companies. Companies could not have foreign ownership exceeding 30%, and no foreign company could own more than 10% of a bank. That explains Stan Char’s local incorporation.

But in fact, only last month Vietnam has decided to allow 100% foreign ownership in banks as per WTO demands and both Stan Char and HSBC now plan to “re-enter” the market as wholly owned subsidiaries. Details are here:
http://savvisg3uk.in.reuters.com/article/asiaCompanyAndMarkets/idINHAN6192220080909

And you can’t be serious when you argue that Citi, HSBC, Stan Char, and JP Morgan Chase entered India, Pakistan, and Vietnam to go after the same segment that would be served by mobile banking. Those are the razor thin margins I was talking about. (To fully disclose, I once worked at JP Morgan). These banks are in those markets to serve institutional, high net worth, and traditional middle income retail customers. Not unbanked people.

7.
The Kenyan regulator has actually retorted to the complaining banks by telling them to seek alliances with telcos instead of moaning to them.

The likes of M-Pesa may become victims of their own success, or the regulators may ultimately kill the golden goose, much like Napster with music downloading. But transferring value with mobile phones and circumventing banks will persist and develop. Just ask my corner shop wallah.

Banks can fight it or join in. See example here of a Kenyan Bank expanding an M-Pesa offering into Sudan: http://www.sudantribune.com/spip.php?article28806

A far cry from Kenyan banks going under or any “disaster”. Simply put, banks with vision and leadership will meet the challenge and flourish. Others will struggle. But the market is probably big enough to accommodate all models of delivery. The market and consumers will decide.

By the way, I would support strong regulation of mobile financial services to protect consumers and combat fraud. As well as laws that promote cooperation between telcos and banks for mutual gain, not the kind of laws adopted by India and Pakistan recently which all but guarantee stagnation and a zero-sum game.

The banks in India were the “winners” in the recent RBI decision. Let’s see if they pick up the gauntlet and actually do something with the market opportunity that has been in front of their eyes for literally decades. Let's see if consumers and the unbanked are winners too. I highly doubt it. As does CGAP. See here for CGAP's analysis:
http://technology.cgap.org/2008/10/08/indias-mobile-banking-guidelines-who-wins-and-who-loses/

M-Pesa and the like haven’t stifled m-banking initiatives; it has lit a fire under telcos, technology providers, and even banks, the whole world over. The final endgame is far from obvious, but it’s interesting times ahead.

8.
Cannot comment on GP alliances with local banks since I simply don’t know the facts.

9.
You are missing the point about the music industry. Far from ignoring music downloads, the music industry actively sued ISPs and their own consumers of their basic product (music) because they wanted to defend their current channel and medium (CDs in record shops). They tried to stifle music sharing services that ultimately became the future of how music is acquired and spread. The ISP was not providing the service; they were just the enabling infrastructure.

Your analogy of ISPs blocking the music industry is a non sequitur. What happened is that people like my corner shop wallah found a way to offer the same product in a more efficient and albeit illegal manner that was preferred by consumers. Napster died and perhaps rightly so. But iTunes, operated by a computer hardware company by the way, now legally sells more music than any music industry label does with CDs (over 3 billion songs to date and counting). But still, illegal music sharing dwarfs them both. The music industry could have embraced the new model and adapted to the new cost structure and business model. They chose instead to defend their turf and ended up losing most of their business. And most music sharing services were willing to cut the music industry in on the action. But clearly they were going to insist on being in control. They built the new business after all.

And I expect GP, or any other telco or commercial business anywhere else in the world, would (and should) insist on being in control when it’s their business and investment that enables the new mode of providing a service (e.g., music or financial services).

Let me clarify, the point is not about banks ignoring or acknowledging mobile phones. They are a reality and people are using them. Mobile financial services will probably flounder for a while in developed nations where there are other alternatives. But it will most likely flourish in developing countries like Bangladesh where demand has been pent up for decades. That’s just the bet I would make, were I a gambler.

10.
I agree with you, it’s unfair to blame the complicated financial meltdown just on banks. I concede the point.

11.
As for me, I would rather not jump off any bridge ever for any reason. That’s just a difference of attitude and worldview, I guess. No point in arguing over that.

12.
I concede the point on GP pursuing a telco only model (if indeed that’s what they are doing, but I’ll give you the benefit of the doubt for one second). It’s a valid point. Whether it’s true or not, however, remains to be seen.

13.
I would, however, still bet that GP has done more to alleviate poverty and develop the economy in Bangladesh than the World Bank. I could be wrong. The World Bank with its “structural adjustments” has done much harm all over the world in the name of free market ideology. No nation has ever become a super economic power without a certain measure of protectionism (see S. Korea). But I digress.

When it comes to bribery, overpaid international consultants that toe the party line, and fund repatriation, GP is VERY small potatoes compared to the World Bank. Not even in the same universe.

I stand in awe of your trust in the WB over GP. At least GP has some local people in decision making positions (few, but at least some). And if they pull off the IPO, local Bangladeshis will have ownership and voting rights. Try asking the World Bank for that.

Between the two evils (if they are indeed evil), a greedy private corporation with ownership by two nations and regulatory oversight by the government is vastly preferable to a worldwide instrument of thinly veiled foreign policy designed to pry open markets for Western producers and is answerable to no state except for its backers.

You don’t have to buy GP’s “ethical” marketing babble. But not to get all Gordon Gecko or Milton Friedman on you, that’s not their job and I would prefer corporate greed in a relatively competitive and regulated market over some foreign donor funded behemoth with an agenda that goes far beyond making a profit.

To be clear, I find both distasteful, but would be more comfortable with a potential evil I can control and influence (GP) as opposed to one I have no control over (World Bank).

Again, that’s just me. This is probably another difference in worldview and attitude. No point arguing further.

14.
I also don’t buy your argument that banks are on a leash. They are among the most powerful and influential entities in any economy. If they smelled profit, they should have lobbied the government like GP is doing. They were complacent until someone threatened their business. Again, let’s see if banks in India seize the opportunity handed to them. Some are trying now, but will they succeed in the long run if they keep telcos as mere mediums? I doubt it.

15.
Telcos should act as a medium because they are a medium? That’s shortsighted and largely ignoring of the world in the last 20 years. Companies change. Industries change. Governments change. Licenses change. The only things not to change much in the last 100 years are banks. I’m sure the FE and banks are just arguing against telcos entering into banking over matters of “justice” and what is “unjust”. I have no comment. Apple wasn’t in the music business just like telcos aren’t in the money business. Things change.

16.
My point is that Airtel (and M-Pesa et al.) are not going (or don’t have to go) for the same piece of the pie as Citi, HSBC, ICICI, etc. Banks can group together all they want. They’ll just lose out on the opportunity to serve underbanked and unbanked customers in a profitable way.

Ultimately, both banks and telcos probably need each other (for example, all mobile financial services are still anchored in bank accounts or trust accounts). Only, banks need telcos more than telcos need the banks.

You can look at today’s news and see the new alliance between Orascom and Western Union to set up cross-border remittances. Western Union is the largest remittance network in the world. They have vision. Banks don’t (yet).

17.
Just the thought that you adhere to the concept that the World Bank can and should mandate to a sovereign nation like Bangladesh who they can and cannot issue new banking licenses to is such a depressing one for me. Again, no point arguing over this fundamental difference of worldview.

18.
I concede the point on a telco buying a local bank.

But you’re naïve if you think GP schemes and Orascom does not.

I’ve enjoyed our exchange and thank you again for participating and maintaining a calmer tone while I have slipped into more jocund territory. I hope you respond once more, but your response would probably be the last round needed in this exchange.

Best,
A.

Anonymous said...

"A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain." - Mark Twain

Ahmed Ali said...

You had inquired about the limits on banks and how they had failed your expectations.
Banks in Bangladesh, like in any other country have their branch numbers regulated. According to BB, banks can only set up branches and these branch permissions are heavily denied by BB. Otherwise we would have seen Dhaka flooded with branches to the same level of other metropolitan areas.

Secondly BB has mandated that banks can only transact business through full fledged branches. Banks such as Brac, since 2001, had lobbied years for 'booths', which are stripped down versions of branches. But BB refused to budge. Also BB refused to let banks license out services to individual retailers. Furthermore BB is really 'slow'. They haven't created a central credit worthiness framework, automated clearing house or a inter-bank transfer network (which is pretty much standard tasks for a central bank). But they have also prevented banks from implementing this themselves, citing its a central bank task. But even with all these shortcomings they do realize even if the nature of the banking industry is conservative, BB has stand by these institutions. Because it is more of BB's own creation rather than the bank's effort.

Now in contrast GP was allowed to set up retail locations without any specific set of requirements or limits. They were allowed to license services like FlexiLoad through individual retailers. Now ironically GP want to license out a bank service which was out of the question for any bank. Banks would have done the same thing, but they were allowed to by law. With the rules currently followed by GP, cost structure is viable for banks, just not legally viable. Why is 40 companies putting up with the rules when apparently GP believes they deserve it without ever observing the conditions?

GP has laid many ethical claims. But are the phone calls for the 'unbanked' and the poor free of charge? Should they not focus on this core issue instead of pointing fingers at banks saying how they 'failed' because of the regulations and the uncooperative nature of telecoms. How is it that there is a flat call rate for everyone? Where is the free calling for the people that GP cares so much about. And I can guarantee that GP's version of mobile banking would be far from free. Atleast Brac bank gives free ATM services.

GP aside, clearly Mobile banking and the flow of money is not where we want it to be. But the utopian vision is not even realized in developed countries. A 200 year legacy and the need to revolutionize the industry hasn't produced any significant results. The potential is Visa. But GP and its fed consultants still wouldn't be satisfied because ignoring Visa, like ignoring the systems of Japan and US could mean a lot more for them. (Visa can handle mobile payments)

See even if the entire bridge existed (which it currently does), GP still wouldn't be satisfied and would insist on its own bridge. Because the bridge Visa built benefits everyone mutually. And that is the fundamental difference between GP and banks.


It comes down to the bank led model (which Visa folds into) is simpler, no regulatory hurdles, fully legal, no inner schemes, no objections, more secure, anti-money laundering protection, accountable, proven worldwide (not Kenya) and builds into the existing framework. And yet provides the same benefits of GP's mobile banking. Yet only GP insists on its own method. Very suspicious indeed.


Even after this why is it still a shock to some people when World Bank prefers the bank-led model?

Ahmed Ali said...

@anonymous bhoot #2
I agree that banks act this way. But you will be surprised how many decisions and the day to day activities of a bank are heavily influenced by regulators.

It is very hard for someone outside the banking industry to comprehend this. You try to give people credit, but they say you are being reckless. When you tighten your belt you are preventing economic growth. You are criticized for taking $700 billion of "taxpayer's money" whereas you and insurance companies are the only two industries that pay their taxes 100% and honestly. (ask any accountant, it is impossible to cook or manipulate bank accounts).

A bank's greed is questioned when they want the umbrella back. But the customer only wants to live beyond his means.

Anonymous said...

Let's forget that the World Bank in 2002 pressured Bangladesh to close about 500 bank branches because they were unprofitable. In fact, then governor of Bangladesh Bank and current head of state, Dr. Fakhruddin Ahmed, had identified 800 branches of 6 state run banks that had failed to make a profit in 5 years. However, the government had to exclude rural branches that did not have any other bank within 5 kilometers.

State banks have the largest branch network in our country (approx. 5,000 branches at their height); if they're not profitable, you can understand why private commercial banks are perhaps not willing to expand beyond urbanized centers and middle income/corporate accounts. There's just no cost-effective business case for it. Not to mention record levels of loan non-repayment and bad debts (almost $3 billion in 2002).

Your theory of overly restrictive policies impeding bank branch growth is severely compromised by these facts. And I can concede that the policies might very well be overly restrictive, but I doubt they are a primary cause or block to banks not expanding into "underbanked" areas.

Article here: http://news.bbc.co.uk/2/hi/business/1916036.stm

Furthermore, here is a recent directive from Bangladesh Bank openly inviting all scheduled banks to apply for permission to open SME banking branches or more cost-effective "service desks" (similar to your concept of a booth or kiosk) for SME banking in rural areas. The directive specifically mentions permission to process foreign remittances as well. This obliterates your argument that banks are unable to open booths. In fact, Brac just recently opened an "e-lobby" in Gulshan that is essentially a bank branch without any manpower. I applaud their innovation. I hope they can make it sustainable in Dhaka and hopefully pilot it in rural areas.

http://www.bangladesh-bank.org/mediaroom/circulars/brpd/may042008brpdl06e.pdf

http://www.thefinancialexpress-bd.com/search_index.php?page=detail_news&news_id=32260

BB is conservative and slow moving, you're right. We should have had a credit worthiness framework, ACH, or intra-bank transfer network.

But the fact you harp on these issues clearly shows your inexperience and lack of knowledge of the ground realities in this country. Should we wait for these textbook perfect conditions before addressing the constraints in our market?

There actually is a credit worthiness guideline (as well as monetary and fiscal policy). But much like our nation's constitution (the original version of which is beautiful), it's very difficult to enforce in practice. Amd forget anything like the ACH any time soon. We just don't have the technical capabilities or networks to do so, not to mention the inherent trust that underpins the ACH. ACH processes billions of transactions worth hundreds of billions of dollars, if not more. Bangladesh doesn't even have a regulatory guideline for making credit card payments over the Internet. Now that I think of it, your arguments seem to more and more support the notion that maybe it's time for other players to move in an try to offer financial services to unbanked people.

Also, your assumption that GP faces no regulation in "licensing" Flexiload to retailers is patently wrong. The BTRC has some pretty specific regulations and selection criteria, and routinely inspect premises without prior warning to GP or the retailer(s).

Furthermore, GP has never claimed plans to offer free banking services to the unbanked. And you're insane if you think calls should be free for anyone anywhere in the world.

There's always this old chestnut. "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest." Adam Smith.

In fact, if you knew what you were talking about you would note that Bangladesh already enjoys some of the lowest calling rates anywhere in the world as established by a global survey. I can't find a link right now, but I remember it coming out and reading about it in a paper here.

Perhaps you don't live in Dhaka, but Dhaka IS flooded with bank banches and banks. It's a sector crying out for consolidation. I would gladly have 10 less banks in exchange for just 2 banks that have branches and ATMs in all neighborhoods and corners of Dhaka. Stan Char comes close, but not close enough given the horrible traffic in Dhaka.

Also, just as an FYI, I wanted to highlight a recent article that points out that Safaricom, owner and operator of the mobile remittance service M-Pesa in Kenya, has just last week been named as the highest tax payer in Kenya with contributions of 19.9 billion Kenyan shillings (about $256,000 USD) to their treasury from a subscriber base of about 12 million. They were even given an award by the government for being the highest contributors to the economy.

Incidentally, Safaricom is required to pay 26% tax on all calls. So I'm not sure where that leaves your claims about Safaricom (partially owned by Vodafone) pumping out capital from Kenya. In fact, it seems you're point is quite erroneous when examined in the clear light of facts.

Article here:
http://www.networkworld.com/news/2008/102208-safaricom-named-the-highest-tax.html?fsrc=rss-carriers

Coincidentally, GP also happens to be the highest tax payer in Bangladesh. For what that's worth.

The telco sector seems to be the one sector besides garments (and NGOs) where Bangladesh has truly shown pioneering leadership and actual innovation at a global standard. Not just with technology, but in the manner that companies were financed, products were priced, and in the breaking up of the monopoly that BTTB held over a populace held hostage to low quality service, rampant bribery, and inefficient operations that cost taxpayers untold sums of their money.

And let's face it, the garments sector isn't exactly sustainable the way things are and they have far more worrisome practices and trends than any telco in Bangladesh (non-payment of salaries, sexual abuse, child labor, etc).

As for developed nations, they will not be at the forefront of mobile financial services. They have too many other viable and cost-effective alternatives. Consumers there just don't demand these types of services in large enough numbers. The developed world consumer does demand them. It is no coincidence that M-Pesa and the like (e.g., Globe and Smart in the Philippines) have flourished in countries like Kenya. The so-called "utopian" vision is not for the developed countries. They don't need it. True, Visa has a mobile platform, but what percentage of their business does it represent? Who does it target? If you know of any migrant Bangladeshi workers in, say, Saudia Arabia, who work as janitors and have a Visa card (as well as their families back home), please let me know because I would like to shake his hand.

On a side note, you really should have mentioned MasterCard if any card provider at all, they are part of a mobile money transfer project with the GSMA which represents 750 mobile operators in the world and over 86% of all mobile phone connections on the planet. The same project launched not one but two mobile money remittance services in the Philippines with Western Union (Globe and Smart).

It's not about ignoring or copying the US or Japan, it's about finding a model and business that works for the realities on the ground. It hardly needs to be said that Bangladesh is not the US or Japan. Perhaps a bank led model is better for Bangladesh, I don't know. Let's see who wins the competition.

I think GP is smart enough to know that all their partners in their value chain, be they butcher or baker, are motivated by self-interest (e.g., their retailers) and not benevolence. They want to build their own bridge? They've already built over 10,000 of them all over the country. Banks need someone's bridge. The Visa bridge is a very small bridge in Bangladesh, and of limited value to migrant workers who don't even have a bank account.

You're right on one point. The bank led model has no regulatory hurdles and is already vetted for KYC, AML, and CFT. But it faces incrementally increasing hurdles when it comes to finding a new business model that is profitable and hence sustainable to provide services at a rate that unbanked people can afford. Sure, it's proven for what it does. But I think I've already established that what's needed is a NEW way of providing FS. The proven way will not meet the new challenges.

All your points, I'm afraid, are on very shaky ground and most of them crumble in the light of facts, and more importantly, reality. If you'll forgive me, I would suggest that most of your arguments stem from prejudice and bias against GP. When coupled with your lack of knowledge on ground realities here and your irrational support for banks no-matter-what, it has led you to make some very tenuous and unfounded statements. In the true spirit of debate, I hope you were able to take away something from our exchange, as I was. I think this about concludes things.

Cheers,
A.

Anonymous said...

Another example of a Kenyan bank doing well and making runaway profits (without mobile banking):

http://www.ft.com/cms/s/0/ce1773f0-9fc8-11dd-a3fa-000077b07658.html

Ahmed Ali said...

What has GP done for the economy? Yes they are the highest tax payer, but as a sector, Banks pay more in taxes than the telecoms. In case you are not aware, there are only 6 telecoms and 40 banks. If there were 6 banks it would be a different story.. Furthermore the highest tax payer in this case has been caught multiple times of account malpractices.

Secondly the economic significance of the banking sector is bigger than the telecom. Its because banks finance garments and every other possible sector. Telecoms only consume money from the domestic sector and in cases export it outside. What does GP export besides its earnings? Garments industry actually EXPORTS. Something that GP has never done.

There are already players lined up in the market. They are Visa and MasterCard. They process transactions, not only in Bangladesh but worldwide. Bangladesh Bank is gradually opening up. But no one invited GP to the party because they are not a financial services company. As a side note, I was not aware of MasterCard's mobile achievements. I am only familiar with Visa since I deal with them more than MasterCard.

What does BTRC routinely inspect phone premises for? It took the RAB storming GP's HQ to unearth VOiP. BTRC is plainly in GP's pockets. Even then both 'negotiated' on a fine. I am just saying since it took a SWAT team to find GP's wrongdoings, I don't think its BTRC that's doing the regulation (...its GP).

As you presumed, that Bangladesh model is a unique case. We need our own model. Tried and tested models don't count. I had also assumed that this brave vision included free calls, something that doesn't exist anywhere in the world. If GP led mobile banking constitutes our own unique solution, free-calls should definitely be a part of it. Poor people don't deserve to pay such high rates like they don't deserve to pay such high remittance fees.

Safaricom pays 26% tax. But the rest plainly goes back to the UK. Banks in Bangladesh pay 45% tax and the other 55% can be still traced in Bangladesh. Same with garments.

I admit that I won't google all my arguments and dig up news 20 years old, because where I work, banks don't have to face this sort of proposals. But sit with Rumi Ali for 30 minutes and he has the knowledge not only to outsmart GP, but to convince them they killed his father.

If all my points are on shaky ground and yours are worthy to be included in the GP Thesis. Like my views, and the views of two deputy governors, Governor of Bangladesh Bank, Mamun Rashid, Rumi Ali and World Bank they are extremely shaky, suspicious and stem from a vendetta against GP (actually GP killed our fathers). With this type of coincidence, GP is clearly the smartest.

There isn't a single world wide body that supports phone company led mobile banking. Never has so many people been wrong at the same time (or gratuitously right depending on which way you look at it). This is such a breach of misconduct and proper understanding that it should be taken up at the International Criminal Court at the Hague. How dare do so many right people deny GP's ethical efforts and the work of their consultants? It is a crime for one person to suspect GP. But so many calls for genocide on rational-thinking humans.

But in the meantime, this thing was more than over when RBI was asked to decide on it. After RBI's say, it clearly defines Bangladesh's decision. There is no point of me explaining to you or you explaining to me. The issue is decided and over.

(Since you have a nice knack for digging up things, I am still looking for that GP thesis)

Anonymous said...

The Grameen Phone proposal was sent in over a year ago and the banks of Bangladesh have done nothing and have offered nothing to benefit the unbanked population of Bangladesh (87% +). The people of Bangladesh need the ability to move money via mobile phones for domestic and international remittances, bill payment, payroll distributrion and point-of-sale purchases. You also need to check your facts there is no bank-led mobile phone payment service in the US where money can be moved from person to person. One has to use PayPal or Obopay, neither one is bank-led. Also, the Federal Reserve and the European Central Bank support non-banks in the payment space including mobile network operators. India has no effective mobile payment strategy, so I would not use them as an example. See article: http://www.gtnews.com/article/7505.cfm - Ignoring the Unbanked - Reserve Bank of India Mobile Payments Guidelines.

If you wait for the banks in Bangladesh to lead in mobile payments, you will be waiting for many years. Where is the concern for the people of Bangladesh? The people are the real losers in this process. Bangladesh Bank should be ashamed of its inaction.

NAIM said...

Telenor (GP'S Parent company) is one of the smallest company of the world. No other country in the world they don't get the leadership in the market, even in their home scandinavia (Telia sonera is market leader there). So all the foolist bangladeshi guys think GP (Telenor) is the best. But its wrong. Randomly- Vodafone, O2, Orange, T-Mobile is the best. Grow up guys.

Anonymous said...

GP is the best that Bangladesh has.