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Determinants of Customer Payment Behaviours

Research Fellows, Aaron Krolikowski and Robert Hope of The Skoll Centre’s Small Grants Research Programme, have contributed to The Smith’s School of Enterprise and the Environment Water Programme by leading a focused research topic on determinants of customer payment behaviours.

Aaron Krolikowski writes for the Skoll Centre Blog, an introduction to the research paper.

Wards and Offices

Fig 1: Wards and Offices

Water customers in urban Africa often struggle to pay their monthly bills, so much so that an estimated 500m USD is lost annually to nonpayment. Due to an inability to pay or a reaction to unsatisfactory service provision, these losses contribute to critical gaps in financing and further reduce service reliability. Skoll Centre-funded research has found that the expansion of mobile money and other electronic payment options across East Africa may partially address this long-standing problem.

Pay Points

Fig 2: Pay Points

Using a unique dataset containing over 500,000 water payment transaction records from Dar es Salaam (Tanzania), researchers from the Water Programme at Oxford’s Smith School for Enterprise and Environment found that mobile payment systems are positively influencing customer payment behaviours. Water customers that integrated mobile payment systems into their payment practices paid water bills more frequently and made greater contributions to overall utility revenue when compared with those who only paid water bills at utility offices.

Mobile Money

Fig 3: Mobile Money

Dar es Salaam’s water utility was the first in sub-Saharan Africa to offer customers mobile payment options. In 2009, a new business facilitated the integration of the utility’s billing system with mobile payment channels like M-PESA and Airtel Money. Focused on mobile payment aggregation, Selcom Wireless helped the water utility 1) expand physical payment locations beyond 14 brick-and-mortar payment offices to encompass over 2,000 wireless pay points scattered throughout the city at pharmacies, kiosks, and grocery stores; and 2) to enable bill payment from anywhere and at any time using mobile money.

Improvements to payment behaviour were most evident when customers used both water offices and mobile-enabled options. Distance matters as well; customers living far from water offices were more likely to use mobile money and pay points. For water utilities, or any public service provider, mobile payment options can support improvements in financial stability while simultaneously extending the reach of service delivery.

Payment Options

Fig 4: Payment Options

Diversification of the payment landscape enables the creation of new models of service provision and increases customer choice in where, how, and how much they pay. As populations around the world become more familiar with electronic payment options and other mobile-based innovations, new opportunities continue to emerge in the water sector. One example is from Nairobi (Kenya), where the city’s water and sewerage company partnered with social enterprise Wonderkid to provide SMS-based meter-reading (Jisomee Mita) and complaint lines (Maji Voice). Another initiative from Bengaluru (India) is NextDrop, which works with utility staff to alert customers to water provision schedules. Mobile innovations like these bring water utilities closer to customers, help to increase operational efficiencies, and improve revenue collection; all of these are necessary if universal and equitable access to water services will be achieved by 2030 (Sustainable Development Goal 6.1).

Read or download the report here.

Tackling Heropreneurship

Author: Daniela Papi-Thornton

Skoll Centre Deputy Director, try Daniela Papi-Thornton, search recently launched a report called Tackling Heropreneurship. It focuses on tactics for funders, educators, and individuals to shift practices to move social impact initiatives away from a focus on “the social entrepreneur” to a focus on positive social impact. The report is broken into three sections:

  • The current status of heropreneurship: A look at what is currently happening in the education and financing of people to want to “be” social entrepreneurs, where these trends are leading us, and the disconnect between how social change happens and how it is taught. Sections include:
    • An obsession with being an entrepreneur
    • Solution-focused education
    • Skewed views of how social change happens and “scales”
  • Where do we go from here? Ideas for how we might shift our educational and funding offerings to help people apprentice with a problem, tools for creating new conversations about social change, and tips for questions that might better align our actions with improved collective impact. Sections include: 
    • Valuing the Lived Experience
    • The Impact Sweet Spot & Apprenticing with a Problem
    • The Impact Gaps Canvas
    • Rethinking Business Plan Competitions
    • Shifting Funding & The Collective Impact Question
  • Life maps: Illustrated stories of the lives and career paths of nine people, some who apprenticed with a problem, some who wished they had, and some who built upon their lived experience to add value in intrapreneurial ways.

The report includes information about how the Skoll Centre has shifted our offerings over the last few years to try to incentivise and celebrate a range of social impact roles, not just the entrepreneurs, and our focus on helping people “apprentice with a problem.”

To read the full report, please visit www.tacklingheropreneurship.com

P2P Lending in the Balkans

Authors: Misa Zivic, Dushan Neshovski,  Shinez Chalabi

Good ideas tend to cross borders quite easily. This is especially the case with technology. We can easily observe the convergence of new technologies across borders in almost any part of the world. And the reason is simple – the convergence of technologies is empowered by technology itself. Furthermore, technological breakthroughs increase productivity while lowering costs and this quality makes them easily adoptable by new geographies. One such technological breakthrough is FinTech – which is simply to say technologically empowered financial services. Just to give you an idea, technology today can do most of what banks or other financial service institutions do. A basic example is balancing your check book online instead of waiting in line in a bank.

The Power of FinTech

The idea of technology powered financial services has the main quality of a technological breakthrough – it increases productivity while lowering costs. And this is just the tip of the iceberg. FinTech is literally revolutionizing finance – from new scoring models, to giving opportunity to regular people to take part in what only Investment Banks were allowed to partake. As such it has been spreading geographically on exponential basis. Every day a new FinTech product becomes available that changes the way we interact with finance. Everyone, from the general public to investors are hooked on this new industry. However, if you look the map of Europe, there is one region that has had zero activity in the FinTech space. This is the Western Balkans, or more precisely, Ex-Yugoslavia countries. Two members of our team being born and living in the Western Balkans their entire lives found it curious why this phenomenon, that is positively influencing the rest of the world, has overlooked this geography. With the help of the Skoll Centre of Social Entrepreneurship and the Said Business School, the team spent six months in Serbia, conducting in-depth analysis of the Serbian financial market and its readiness to accept FinTech innovations, specifically P2P lending.

P2P Lending (blog image)Our Research

The research focused on the P2P Lending industry as a global phenomenon, the history and the current state of the financial industry in the Balkans, the ways P2P Lending can be introduced in the region, the barriers that have kept it out, and the benefits that these countries can have from it. During the six months the team did hands on research, engaged with some key stakeholders in the Serbian finance sector (such as banking professionals, government officials, high net-worth individuals, etc.), and took part in the LendIt Conference in London, the largest P2P conference in the world where it had chance to meet industry experts from all around the world. The key findings will be outlined bellow, accompanied with an infographic for the more visual readers.

Global P2P Lending Findings

P2P lending is a global phenomenon that has experienced enormous growth over the past five years. It can be established as one of several operating models all of which have a more cost efficient structure than traditional banking. The regulation for P2P lending varies across different countries. Finally, P2P lending offers many benefits including: no inherited systematic risk, access to finance, and it Is a new asset class.

Analysis of the financial sector in the Balkans

The financial sector in the Balkans remains to be hugely underdeveloped and it lags behind the financial sectors in developed countries. Commercial banking is the only developed sector in the financial industry in the Balkans. The key challenges to the development of the financial industry in the Balkans are:

  • Low level of saving
  • Conservative lending by commercial banks
  • High borrowing costs and low deposit returns
  • The legislation in the financial sector in the Balkans is set up to protect the banking industry

P2P Lending in Serbia

Given the local landscape and the key factors to P2P lending two operational models can be set up in Serbia

  • Partnership with a bank
  • Fee based model

The revenue model for P2P Lending in Serbia should not be much different than that in the US or the UK. The borrowers market can be split in consumer and business, while the consumer market consists of all the household loans issued by commercial banks, in addition to all the loans not issued due to conservative banking. The business market should focus on working capital financing – invoice trading. The research has shown that the following are the essential areas of activity that must be performed well if P2P lending is to be introduced in Serbia:

  • Credit risk modelling
  • The matter of trust
  • Education
  • Strategic partners

Overall, our view of the market is a positive one and our assessment is that there is space for the FinTech industry. We expect that some form of alternative finance will emerge in the Western Balkans in the near future, and in expectation of this we will continue our work on bringing P2P lending in the region.

Advancing Good Governance Seminar: Fancy Alliteration or Food for Action?

The Skoll Centre recently partnered with Linklaters, no rx Camfed, purchase and the Blavatnik School for Government to host the 1st annual seminar on Advancing Good Governance in International Development.  The theme this year was “accountability to the client.”

The spotlight focused on how organisations operating in the social sector can enhance responsiveness and accountability to its clients. But what does “client” really mean?  Are we talking beneficiaries, stakeholders, funders, partnering organisations? How do we make sure we are “accountable” to each of them, and all of them collectively, but which “them” do we put first?  This seminar was designed to explore and unpack precisely these complexities, and sparked some lively discussions.

Whether you are a social entrepreneur or policy maker, I think we all agree the field of international development, let alone achieving good governance within it, is complex.  However, there is hope. The seminar not only got folks talking, but went beyond providing food for thought and unveiled an effort to take action.  It put academics and practitioners in the same room and started to identify gaps and possible solutions/practices that need to be explored further.  These areas are being evaluated as we speak and a call for papers to address gaps in the existing literature is forthcoming (with a £20K stipend slated to go to the winner).

Of course a simple call for papers won’t solve the complexity of governance, but it is a start.  And it will serve as an impetus for the conversation until the second annual seminar next year.

Skoll Centre Research Grant Recepients Announced!

We are pleased to announce the recepients of the Skoll Centre Research Grants.  This newly lauched scheme offers University of Oxford academics and researchers the opportunity to advance knowledge in the field of social entrepreneurship – with this year’s theme specifically focused on finance. It is an area timely and relevant to practitioners and academics alike.

We were so pleased to receive many other quality proposals from across disciples throughout the University. It is a promising sign that the scholary inquiry into finance for social and environmental advancement will only continue to grow and enrichen our understanding of its broad potential.

Congratulations to the recepients, and look out for next year’s research round in early 2012.

Dr Robert Hope, School of Geography and the Environment

Impact, implications and opportunities for mobile phone water payments in Sub-Saharan Africa
A comparative study of the financial and societal implications of water mobile payment initiatives. It will explore:

  • the degree to which mobile banking can boost revenue collection and strengthen the financial base of water service providers
  • the extent to which mobile payments can benefit poor households due the lowering of water payment transaction costs
  • the broader potential of mobile banking platforms to unlock new and innovative models of water provision for the unconnected urban and rural poor in Sub-Saharan Africa.

Sangamitra Ramachander, Department of International Development

Towards a Framework to Assess Credit Risk in the Group Lending Approach to Microfinance
The study aims to develop a tool for practical use in the assessment of credit risk among borrower groups.  It is basedon previous empirical work identifying the three major sources of credit risk in joint liability group lending:

  • risk at the individual level pertaining to socioeconomic status, financial history and family support toward group membershi
  • risk arising from the particular purpose of loan use such as for productive investments, consumption, home construction, repayment of other loans and so on and
  • risk relating to group dynamics – particularly, the mechanism of group formation and levels of group cohesiveness.

This study will incorporate these major sources within a single analytical framework.

Jonathan Greenacre, Law and Finance, Said Business School    

The Regulation of Micro-Banking Industries
This project aims to design a regulatory framework that can be used to  help regulate micro-banking industries.  It will explore whether the principals, rules, and institutions that regulate retail banking industries in developed countries can serve as a guide to build a “hybrid” model of regulation. It will then examine which types of institutions can effectively apply this hybrid model, with cases studies in Cambodia, Kosovo, and Fiji.