When you travel to rural areas of Nepal, it is very likely for you to see a signboard that says, “Kaveri Cooperative” or “Dhukuti Finance and Cooperative” instead of a bank. The reason? It is financially and operationally strenuous for banks to open branches in these areas, so local communities establish cooperatives, including savings and credit cooperatives (SACCOs)¹, to meet their financial needs. In this blog, we explore the possibility of a partnership between a payment service provider and a local financial institution to better address the needs of rural and low-income people through an array of digital financial services.

Why mobilizing community-based organizations to become mobile money agent points

According to the study “Assessment of Agent Networks in Nepal”, there are only 650 agents from different financial networks in the country. Yet, almost 60% of them are dormant (they have not conducted a single transaction in the last quarter). This situation leaves only about 260 active agents for a population of around 24 million people. The study looked at those businesses that could be suitable to become branchless banking or mobile money²agent points. Field visits and research identified cooperatives and SACCOs as among the businesses with the most potential to become active agent points.

In Nepal, small cooperatives³ count between 50-100 farmers/members, whereas mid-sized and large cooperatives may service 500 plus. Apart from having an infrastructure in place, cooperatives have an existing customer base (the local community) and field staff to offer mobile money services. With support from established digital finance providers, incorporating digital by becoming agent points is believed to expand the outreach of financial access into rural Nepal.

How to convince community-based organizations to become mobile money agents

One of the most crucial steps towards building a strong agent network is identifying the motivating factors to become an agent. The research identified the following top factors:

• Financial incentive / Additional income: Traditionally, cooperatives earn interest on lending, from which members receive between 8% - 10% per annum on their savings. The perspective of earning additional income with new services such as fund transfers is a hook point for becoming an agent. As of mid-July 2016, fund transfers amounted to US$ 183 million⁴.
• Increasing product and service portfolio: The ability to provide additional services that are in demand by customers increases the chance to attract and retain agents. Cooperatives would become more comprehensive service providers for their communities by offering digital services like utility bill payments, educational fee payment, cash-in/cash-out and over time, possibly digital insurance or credit.
• Expansion beyond members: The research shows that by becoming agent points, cooperatives would be able to serve the overall community beyond their members. For instance, a cooperative could disburse a loan into a prepaid card or e-wallet so that both members or non-members could transact electronically at local shops. In this way, cooperatives would more likely attract new members and improve the service level for the current ones.
• Community-level benefits: Cooperatives are a local community hub for members. Often those who run the cooperatives belong to the same community of reference. So, members trust these cooperatives better when being trained on how to manage their money and keep it safe. In the case of a partnership with a payment service provider, mobile money agents from cooperatives would cement the relationship with the local community while enhancing the cooperatives’ reputation in the same.
• Modernizing with a management information system (MIS):Digitizing financial services holds a unique value proposition for cooperatives. Introducing cloud-based MIS is expected to increase the quality of cooperatives’ accounting and reporting practices, as well as customer service, including loan origination and management, and savings management.

Along with this, the quality of service offered by the digital finance provider to the agent is a critical component of the value proposition. Providers would need to provide functional technology, agent onboarding and refresher training, monitoring and marketing support, including awareness campaigns within the communities. These activities can help community-based organizations feel supported in their effort to offer new services in rural areas.

The challenges faced by cooperatives

Some of the challenges faced by cooperatives and their members, and the potential solutions that digital finance can offer are:

• Lack of formal financial products: To meet agriculture-specific financial needs such as cattle, land purchase and other farming resources, farmers rely on informal mechanisms. They turn to family members or high interest-bearing products to meet financial requirements. Solution: Digital finance can help offer quick and easy access to digital credit for such purchases with less paper work for both farmers and cooperatives, similarly to mobile credit offered in Uganda by MoKash.
• Manual record-keeping and reconciliation: Cooperatives need to employ many staff to manually manage operations and are exposed to high risk of input errors and omissions. Solution: Driving payments through mobile phones would enable traceable digital data collection that can be further linked to in-house MIS for accounting.
• Safety and cost of cash movement: As an example, dairy companies release payments for the value of approximately US$ 3000 to cooperatives’ bank accounts every fortnight. Cooperative officials then withdraw money from the bank and bring the cash on motorbikes to the cooperative’s field location. Later, the dairy farmers are paid between US$ 20 – US$ 120 per month (based on the quantity of milk supplied) in cash. Solution: Transitioning from cash to digital transactions will save time and money for the cooperative while promoting the habit of saving among farmers by safely transferring their earnings to mobile wallets. For more information, consult the Agriculture Digital Linkage Study.

MM4P is working closely with our partner organizations to provide digital financial solutions to the 24 million people in rural Nepal. This blog draws learning from an on-going project with our partner organizations. MM4P is extending both financial and technical support to build a wide range of services specifically developed for agriculture value chain in Nepal.

^{1. In Nepal, SACCOs are usually identified as small-scale financial institutions set up by women whereas cooperatives are larger scale institutions with a wider scope. The central bank categorizes both as “Cooperatives”.↩}

^{2. The functional role of branchless banking agents and mobile money agents are the same.↩}

^{3. According to statistics of Department of Cooperatives, 33,599 cooperatives are operating throughout the country as on mid-July 2016. SACCOs are dominant, accounting 40.98% of the total number.↩}

^{4. Financial Stability Report 2016; (1 USD= 101.52 NPR)↩}