For many financial institutions in developing countries one of the biggest challenges in providing services for their customers is distance. Even microfinance providers that target rural communities find it difficult to reach their clients in remote areas.
One microfinance provider that has risen to the challenge is Uganda Microfinance Limited (UML, formerly the Uganda Microfinance Union). While UML has a network of 23 branches with automated teller machines (ATMs), most of these are located in towns, and are not easily accessible to clients in rural areas. UML has therefore developed and successfully piloted a remote transactions system (RTS) that employs point-of-sale (PoS) terminals, supported by a GSM network for data transfer, and operated by human ATMs.
These ‘human ATMs’ are in fact shopkeepers or other small-business owners who are employed by UML as agents. Since they are located in the villages where UML’s clients live, they are much more convenient than the branches or ATMs in distant towns. Each agent is provided with PoS terminal, an electronic card reader, which allows clients to use a smart card to access UML’s microfinance services – to call up the current balance on their account, and to make savings deposits or loan repayments.
How does it work?
Over the last 20 years, many banks and other financial institutions in the North have replaced their human tellers with ATMs in order to cut costs. In Uganda, it would be too expensive to install such machines in rural villages, so the UML solution is turning this process on its head. Rather than ATMs, the system involves a combination of local agents with PoS terminals, and clients with smart cards.
Although the RTS transactions are performed through the PoS terminal, the agent takes cash from the client as ‘deposits’, or gives money to the client for ‘withdrawals’. After inserting the client’s smart card into the terminal, the agent captures and stores data on savings deposits and loan repayments electronically. At the end of each day, the agent transmits all the transactions recorded in the PoS device via a GSM connection to a central server linked to UML’s management information system, where the ‘actual’ transactions are made.
Early results and challenges
The remote transactions system offers many benefits. Clients can now simply visit the village shop to make deposit or loan repayments. They no longer have to travel to a branch in town, thus saving them time and money. The agents also benefit from the increased number of visitors to their shops, thus boosting their business, and the commission they earn.
By offering its services in isolated villages, UML has substantially increased its outreach to clients in rural areas. In just one year, the number of transactions has grown by 60%, agent commissions by 75%, and there are now agents in five villages offering RTS services, linked to the UML branch offices in the towns of Kayunga and Mityana in central Uganda. The Kayunga branch office, for example, is now connected to clients in Buwenge, a small town about 200 km away. And this is only the beginning, UML believes. The pilot is now being rolled out to other branches countrywide. The goal is to have 10,000 customers – one-fifth of its clients – using the PoS terminals and smart cards to make transactions remotely in the coming months.
Nonetheless, operating the system is not without its challenges. The printing of smart cards, for example, has been outsourced, and the printers sometimes do not deliver on time. While this remains a problem, it is not insurmountable. More serious is the difficulty in using the GSM network in that voice gets priority over data traffic, which sometimes results in the loss of connectivity. Also, the use of the GSM network is expensive, allowing only restricted use of live connections to the UML management information system. As a result UML cannot yet offer cash withdrawal services through the system.
Wi-fi on its way?
To improve the efficiency of its RTS services, UML is now testing software that will support the use of both wi-fi and GSM networks for quick and inexpensive transfers of data between the agents and the UML central management information system. UML is also in the process of introducing a wide-area network (WAN) to connect its 23 branches to the system.
Once these developments are in place, clients will be able to use their smart cards to pay utility bills and for purchases at the agents’ shops. Ultimately, UML hopes to be able to offer its clients the same financial services as those available via normal smart cards at ATMs.
It is still early days yet, but UML is confident that – sooner rather than later – the RTS will be able to deliver the full range of financial services to its clients across Uganda.
Moses Malinga is head of business development with Uganda Microfinance Limited