{"id":14603,"date":"2016-11-14T23:40:02","date_gmt":"2016-11-15T04:40:02","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/financial-inclusion-in-the-philippines\/"},"modified":"2016-11-14T23:40:02","modified_gmt":"2016-11-15T04:40:02","slug":"financial-inclusion-in-the-philippines","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/financial-inclusion-in-the-philippines\/","title":{"rendered":"Financial Inclusion in the Philippines"},"content":{"rendered":"

\"2e86cdb4-f763-4eef-878e-ae64d4607c23\"<\/a><\/p>\n

“Fintech” has been a buzzword for the past couple of years. Not only are we in developed countries benefiting from services such as PayPal and venmo; technology is also enabling financial inclusion in many developing countries;\u00a0Global Mobility Services (GMS), based in Japan, provides auto finance to the bottom-of-the-pyramid (BOP)\u00a0population in the Philippines utilizing IoT.<\/p>\n

Financial inclusion<\/p>\n

In today’s world, 2 billion people are estimated to not own a basic bank account.\u00a0 Financial inclusion has been identified as an enabler for 7 of the 17\u00a0Sustainable Development Goals<\/a>. [1] In the Philippines, only 8% of the population was banked and borrowed formally while 70% of the population borrowed (including informal measures)\u00a0in 2014. [2]<\/p>\n

Disrupting auto finance<\/p>\n

GMS is a unique fintech player in a sense that it specifically targets financial inclusion in the auto market. The founder of GMS realized the importance of auto finance when he sought to introduce 100,000 electronic tricycles (e-trikes) in Manila to fight pollution under an Asian Development Bank project. The actual implementation suffered because the average tricycle driver could not afford $10,000 and\u00a0ADB did not finance the purchase. To address the lack of traditional\u00a0financial services offered to BOP population due to low or lack of credit scores,\u00a0GMS has developed MCCS,\u00a0a device that can disable automobiles remotely. Combined with its GPS\u00a0tracking, the device enables a new method\u00a0of securing collateral in the case of default; GMS collects\u00a0the tricycle as collateral when a borrower defaults.[3]<\/p>\n

Operating this disruptive finance model<\/p>\n

GMS currently purchases motorcycles, adds side cars at the local dealer\u00a0and offers them as tricycles on an installment loan for 3 years. GMS has partnered with the tricycle operators’ associations of three of the biggest districts in Manila; the association helps with due diligence on applicants as well as offerings new drivers jobs. Each borrower repays the loan on a weekly basis at the local payment centers where they pay utility bills. The payment information is digitally transmitted to the GMS platform.\u00a0The model is similar to a capital lease; after the fulfillment of the loan repayment, the tricycle driver will gain ownership of the vehicle.\u00a0When a driver defaults on payment, sales representatives of the company make in-person visits for collection. Ultimately, the company will disable the vehicle to secure collateral in case of default.\u00a0[4]<\/p>\n

Next steps<\/p>\n

Going forward, the company seeks to establish behavioral credit information based on the driving and payment information accumulated on its platform.\u00a0Information of each tricycle driver such as default on weekly payment\u00a0and work etchics (number of trips taken, hours operated, etc.) could prove if a driver is a trustworthy,\u00a0diligent worker or not; the company pursues utilizing to push traditional lending beyond the current boundaries.<\/p>\n

In terms of expanding its current business model,\u00a0there is significant growth potential given\u00a0the size of the tricycle market. There are 3.5 million tricycles operating in the Philippines with an annual sale of 1 million vehicles each year. [5]\u00a0While the company is offering a disruptive business model utilizing digital technology, many of the challenges the company faces to capture this growth will come from the hardware perspective. First of all, the company will need more software\u00a0engineers to develop an IoT\u00a0platform that can accommodate more vehicles and hardware engineers to install the MCCS devices to tricycles. As the number of drivers under the GMS solution grows, the company may need to hire more sales reps to support collection activities. In addition,\u00a0the company needs to continue developing meaningful partnerships with local transportation operators to achieve expansion into other districts of Manila and other countries. Expansion to other SE Asian nations will require significant effort due to difference in transportation norms and culture.\u00a0Another challenge is to transition to a lighter balance sheet. The\u00a0company currently operates accumulating debt and assets (motorcycles) on their balance sheet, which is a significant risk for a startup to take. Once the track record for this service is established, the company should pursue the position of a device\/service provider partnering up with financial institutions that are currently reluctant to enter the BOP market.<\/p>\n

[1] World Bank, \u201cFinancial Inclusion Overview,\u201d http:\/\/www.worldbank.org\/en\/topic\/financialinclusion\/overview#1<\/a>, accessed November 2016<\/p>\n

[2] World Bank, \u201cCompany Snapthot-Universal Financial Access 2020; Philippines,\u201d http:\/\/ufa.worldbank.org\/country-progress\/philippines<\/a>, accessed November 2016<\/p>\n

[3] Global Mobility Service website, http:\/\/www.global-mobility-service.com\/en\/index.html<\/a>, accessed November 2016<\/p>\n

[4] Ryota Tamaki, \u201c\u81ea\u52d5\u8ecaIoT\u306eGMS\u304c\u30b1\u30fc\u30bf\u30a4\u611f\u899a\u306e\u65b0\u30ea\u30fc\u30b9\u4e8b\u696d\u3001\u300c\u30af\u30eb\u30de\u3067\u306f\u306a\u304f\u4ed5\u7d44\u307f\u3092\u58f2\u308b\u300d\u201d, Nikkei Computer<\/em> (October 13, 2015), http:\/\/itpro.nikkeibp.co.jp\/atcl\/column\/14\/346926\/100800355\/<\/a>, accessed November 2016<\/p>\n

[5] Asian Development Bank, \u201cProposed Loan and Administration of Loan and Grant Republic of the Philippines: Market Transformation through Introduction of Energy-Efficient Electric Vehicles Project,\u201d https:\/\/www.google.com\/url?hl=ja&q=https:\/\/www.adb.org\/sites\/default\/files\/project-document\/74734\/43207-013-phi-rrp.pdf&source=gmail&ust=1479268334686000&usg=AFQjCNF4S-q32v63Dp-9mhnNFz7FJv05yQ<\/a>, accessed November 2016<\/p>\n

(800 words)<\/p>\n","protected":false},"excerpt":{"rendered":"

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