Returning to the issue of loan distribution and security, there are a number of transaction methods that could replace raw cash handling.

Smart Cards

I stumbled upon smart card technology just the other day.  Portable, durable, and protected by PINs or biometrics, this seems like a logical replacement for cash.  Its benefits include (1) greater security through narrowed usability, (2) tangibility and ease of replacement, and (3) the ability to log and refer to transaction history.  Priced at $6-$10 per card, and possibly requiring an initial expenditure for at least one card reader, the costs of maintaining smart card technology could be tricky for us to maintain at first.  But if we decide that the benefits outweigh the costs, and that we could sustain our operations without significantly raising interest rates, then this would be a good technology to investigate further.

Mobile Banking

This is intriguing.  Some banking firms have utilized telecommunications to enable clients to withdraw and deposit money via text-messaging.  Check out this case study of M-PESA

• Against the Dark aka Last Night ipod

, one such mobile payment solution, and its effects on economic activity in Africa.

La Ceiba could potentially benefit from a payment system like for several reasons.  Firstly it would significantly reduce the need for face-to-face interaction, an natural obstacle for us being based overseas.  Secondly it would tap into the mobile phone technology that is already widely used by our clients.  If there is a way to integrate this payment system with their own phones, we slash the cost of having to provide any sort of transaction devices like cards or phones.  Thirdly our clients would save a lot of valuable time making transactions over the phone, rather than leaving the village to visit some building in Centro.

Costs?

At present these services may end up being too complicated or costly to use during our initial lending period.  CGAP noted that the fees for the M-PESA system may not be suitable for the purpose of microlending:

In the end, M-PESA’s charges are too high to be economical for microfinance clients. So far, Safaricom has geared M-PESA’s fees to the remittance business. The KSh 30 (USD 0.48) it charges for a remittance up to KSh 2500 (USD 40.35) is quite reasonable compared to the post office’s PostaPay product, or even bus drivers who carry remittances. But microloan repayments are a different business, more similar to bill payments (set schedule, relatively small value of $5-10) than a money transfer (less frequent, larger amounts of $50 or more).

The average JB client makes a KSh 394 (USD 6.36) payment each week. If they used M-PESA to send in loan payments, it would cost KSh 600 (USD 9.69) over the life of an average 20 week loan. That’s equal to 69% of the interest paid on that loan! Another way to express the added cost is an increase to the interest rate paid: using M-PESA would be like raising the interest rate from 12.5% to 21% on the average Jamii Bora microbusiness loan. That’s costly.

Source: Pickens, Mark. “Can M-PESA work for microfinance clients?“. Consultative Group to Assist the Poor. 28 May, 2008.

One difference will be that our average loan size could be in the optimal range as suggested by the author—that is, “$50 or more” as opposed to “$5-$10.”  Rather what concerns me is the possible need of an expensive infrastructure that would keep the system moving smoothly, like card readers or software.  I simply don’t know enough yet about the whole transaction process to pass a verdict on either of the technologies.  But we should not rule out idea of using them.  We must research the possibilities, keeping in mind that our end goal here is to minimize long-term costs and to maximize the ease of transactions both for us and for our clients.

This week we tried a new, directive approach to communication.  Everybody met outside of class, divided into small groups, and tackled two critical topics on the agenda: the default policy and the mission statement.  The process was efficient, decisions were agreed upon, and everybody adjourned more or less on the same page with one another.  Most importantly, we constructed detailed outlines that will more readily evolve into official documents.  That one hour was, I believe, our most effective use of time thus far in the semester.

There is much to glean from that discussion, and I think we should reevaluate the process by which we have been running our scheduled class meetings accordingly.  As stimulating as they are, I don’t believe they have been as productive as they could be.  Granted that for each class we have a lot of material to cover in a small amount of time, a more directive approach will help us to settle upon decisions that can be translated into official documents.  It should be more efficient to debate and brainstorm outside of the classroom, and to finalize thoughts into official position statements while we are in the same room and on the same page.

Thinking Ahead

Earlier in the semester we realized that distributing cash loans could create a security risk, both for our clients and for us while we are on the ground.  What has recently grabbed my attention is the fact that however we decide to distribute our loans, to do so in any secure manner will require extensive planning and resources.  How will our clients obtain their loans, and how will they store the money?  How will they repay the loans, and obtain future loans, when we are no longer on the ground?  If we recruit long-term volunteers, where will they reside and where will they facilitate transactions?  The crux of La Ceiba will be its physical transaction procedure.  It will extend beyond our vision and policies, demanding a constant supply of attention and tangible resources as needed by our clients.  Really it is this activity that will determine whether we fail to deliver, and as such we should not neglect in planning this procedure until we near the end of the semester.  Simply said, we need a Director of Logistics that can map out a transaction strategy both on- and off-the-ground.  Perhaps we can assign this role to one of our new full-time teammates from the IAP Initative?Dodge City movie