Ant Banks: Organic solutions for financial inclusion

Economics: Harnessing entrepreneurship and business opportunities for positive impact

Santiago Velasco Nazarett ITESM Campus Monterrey, Mexico Fraccionamiento Santa Fe Calle Santa Ilusion 105, Col. Valle Oriente, San Pedro Garza Garca, Nuevo Len, Mexico +52 (81) 83638229 sant1agov@msn.com EWB Paper 2011

The author of this proposal was born on December 27th 1988 in Mexico City, Mexico. Although he has lived in different cities within Mexico, he considers Cancun his hometown as he spent the greater part of his life in that city. He has been studying Business Administration at ITESM since 2007 and this year he spent a summer at Stanford University. He is currently in his senior year of college, fact that thrills him as he will be studying in a business graduate school in Paris starting next year. He enjoys reading, listening to classical music, playing tennis, working out and any activity that involves height, speed and adrenaline.

Ant Banks: Organic solutions for financial inclusion

Economics: Harnessing entrepreneurship and business opportunities for positive impact

Santiago Velasco Nazarett ITESM Campus Monterrey, Mexico e-mail: sant1agov@msn.com

Abstract - In a country where millions of people have no access to banking services, a solution is urgently needed. Most of the marginalized population in Mexico and Latin America who do not save their money in a financial institution prefer to do so because of the aversion they experience when getting involved into, what is for them, an unknown and unsafe environment. Moreover, even the closest rural bank branch can be days away from the majority of the poorest Mexican communities. The following entrepreneurial proposal will thoroughly explain a feasible solution for this problem: Ant Banks. These types of establishments will count with the basic services a commercial bank could offer in addition to other complementary activities such as the grant of microcredits and the tutoring of its accountholders in numerous subjects. Hundreds of these microstructures installed among the poorest regions of Mexico can definitely be the beginning of the financial inclusion and the economic prosperity of millions of people living in precarious conditions.

Introduction
Bill Drayton, founder of Ashoka, once stated, Social entrepreneurs are not content just to give a fish or teach how to fish. They will not rest until they have revolutionized the fishing industry. Ant Banks will revolutionize the rural bank industry. Millions of people have never set foot on a bank, both because of fear and ignorance and due to the long journey this may convey. So, what happens with the money they save? Or moreover, where is it saved? How can they cash the remittances their relatives send from the United States? How can they apply for a loan to make their business grow? The answer is quite shocking given the fact that we live now in the 21st century. Money is stored under an old mattress or inside a pot, losing value over time and exposed to the risk of natural disasters;

money sent from the north border is withdrawn in a rural bank located days away from hundreds of communities; and finally, they are not qualified to receive credit. This entrepreneurial proposal will first be described in a couple of paragraphs and the problem it aims to solve will then be presented. Finally, Ant Banks will be explicated in detail, covering its characteristics and its benefits.

The project in a glimpse

We know we are looking not only at an area of opportunity, but also at a major necessity, when we point out that nearly three out of four municipalities in Mexico do not have access to a single bank branch. Banking, saving and investing is not an option for over 22 million Mexicans as the closest financial institution is days away from their home and when it is virtually impossible for them to become an accountholder (Fortuna, 2010). A possible solution to this problem is to install hundreds of small-sized green-powered self-sustainable banks throughout rural and marginalized areas across Mexico and Latin America. Constituted of a surface of the size of a small room, these Ant Banks will permit indigenous people to carry out the basic transactions a bank could offer. In order to ensure the economic development of its accountholders, Ant Banks core business will be the grant of micro credits accompanied by tutoring from one of our branchs representatives.

Being the remittances the second most important income for Mexico, this innovative business model will be of assistance for hundreds of thousands of families when receiving the transfer of funds their relatives send each month from the United States. Moreover, these institutions will probably be the first contact for millions of locals with telephone, Internet, and energy services. Finally, the creation of a network with civil associations, government and private institutions will be of vital importance as the raising of sponsorships that reward the effort of accountholders will promote their savings habit. For the marginalized Latin Americans, Ant Banks will not only encourage them to save to overcome hazardous events such as droughts, natural disasters and diseases, but will promote the financial education they deserve in order to make poverty history.

The problem
Mexico, as well as other countries from Latin America and the World, has a special attribute that is characteristic of developing nations: a high Gini Coefficient, denoting high disparity in terms of family income. (CIA World Factbook, 2010). This is a problem not only when analyzing the poverty suffered by the majority of the population but also when speaking about the participation in a nations daily dynamics. Moreover, poverty in Mexico strikes nearly 50% of its population; a surprising fact if we take into consideration that Mexico is the second wealthiest country from Latin America (EFE, 2009). Mexico's assets are disproportionately distributed among its population: 10% of the nation's wealthiest have 42% percent of all income while the 10% of the nation's poorest have over 1% of the remaining wealth (United Nations, 2010).

Unfortunately, poverty comes hand in hand with lacking education. In Mexico 53% percent of the rural population and 36% of the urban population has education below the 7th grade. As if it were not enough, almost 19% of the rural population and 9% of the urban population lack of any form of formal education (Milenio, 2010). In a country were nearly 10% of its inhabitants dont know how to read nor write (INEGI, 2010), asking them to get involved in the financial game is virtually unthinkable. The sum of these three problems -unevenly distributed wealth, poverty and lack of quality education- result in the poignant emergence of the forgotten: a large percentage of Mexicans that have been overlooked by society. Although roughly 10 million Mexicans live below poverty line, more than the double of this total has neither access to a bank branch nor any other financial service. As stated before, nearly three quarters of the Mexican municipalities in which almost one quarter of the Mexicans live have no means to use the services provided by a bank (Fortuna, 2010). This reality in which millions of Mexicans live, exclude them from the rest of society. Inaccessibility to basic financial services can be easily translated into the lack of formal savings habits that can protect them from the threats they can encounter, such as diseases, accidents, economical crisis and other unforeseen circumstances. Given the fact that the majority of these persons live in rural areas and agriculture and cattle-raising are their main economical activities, they can be protected from inherent risks like market volatility, seasonality, floods and droughts. Moreover, if credits with

minimal interest rates were granted to these marginalized Mexicans, their situation would be completely different. Taking into account that remittances are the second most important source of income for Mexico, the presence of a bank near them could facilitate the process of withdrawing the money their relatives send from the United States. We can distinguish this is a great area of opportunity as the Interamerican Bank for Development (BID) calculated that in 12 countries of Latin America the dead capital constituted by the assets of the poorest that cannot be mobilized nor leveraged- reaches 1.2 billion US Dollars (Moreno, 2007).

A deep dive into the idea and its benefits

There have been numerous attempts to facilitate bank access to the less privileged. Nevertheless, none of them have been aimed to address the inaccessibility of this population to a bank branch. According to the BID, bank branches are not used to be located in communities with less than 2,500 inhabitants; however, almost 68% of the Mexican rural communities have less than 50 inhabitants (Fortuna, 2010). This means that millions of Mexicans have to walk for hours or even for days just to arrive to a place to cash their remittances. Investing, saving and obtaining a credit or a loan is not an option for them.

Ant Banks are a simple and flexible solution for bringing banking services to millions of people, and, that way, including them into the economic dynamics of their country. The main idea behind this institution is that it will be constituted by hundreds of micro bank branches scattered throughout the poorest regions of Mexico and Latin America. Built on a surface of less than 15m2 and powered by green energies, these Ant Banks will guarantee access to the marginalized population to carry out some of the transactions a commercial bank has to offer -such as deposits, investments and withdrawals- and will encourage them to be part of the economic system they were once excluded from. First of all, Ant Banks will be of great help, as the distance from a community to a source of funds will be reduced tremendously. Cashing the remittances relatives send would be easier than ever and would prevent single mothers from leaving their children unattended while walking hours through roads that can jeopardize their security. Secondly, the small but valuable amounts of cash they can

save will no longer have to be insecurely stored in their homes, losing value over time due to the inflationary process. Finally, and most importantly, Ant Banks core activity will be the grant of microcredits to the families that live in each rural community these institutions give service to. The grant of small but significant credits will ensure that thousands of families will count with the necessary means to make their crops, cattle or small business to prosper. Following Muhammad Yunus inspiring and successful microcredit strategy implemented in Bangladesh, Ant Banks microcredits should also be granted to the familys women. Additionally and according to Fortson, when women and girls earn income, they reinvest 90% of it into their families, as compared to only 30 to 40% for a man (Fortson, 2003).

Moreover, a vital part for this project is the participation of social associations and corporations. In Mexico there are numerous companies committed to the development of society that would gladly donate the 50% of the amount of Mexican pesos (MXP) a family deposits into its saving account in any given moment. For example, if an account holder comes to the nearest Ant Bank to their rural community to save $80 MXP (roughly $6 US Dollars), Fundacion Telmex donating, since 2001, millions of US Dollars in different programs, owned by the biggest telecommunications company whose proprietor is Carlos Slim, the richest man in the world- will deposit $40 MXP to its account. Perhaps $40 MXP (around $3 US Dollars) is an insignificant quantity for a telecommunications tycoon, but that amount can make a huge difference is the lives of each member of the family of an Ant Banks account holder. In Mexico, $40 MXP can represent a 3-meal day for a complete family. As a plan for welcoming the marginalized communities the financial environment and their personal development, the Ant Bank associate will carry out two main functions: the operational tasks of running the branch -such as attending the accountholders and keeping control of the savings and withdrawals-, and acting as a tutor for the inhabitants of the few surrounding communities. The educational role this person will carry out should include lessons both to children and its parents in subjects such as basic math, reading and writing, morals and ethic, Spanish and abilities like managing their personal finances, developing the savings habit, and investing the loans and credits they are granted into work capital. Mentoring should be carried out at least twice a week.

In order to install hundreds of these small banks on rural difficult-to-reach areas, they must be built with economic yet resistant materials and should be equipped with green technologies in order to make them self-sustainable. Moreover, they should be of reduced dimensions to cut down costs and, in that way, build the sufficient amount to meet demand. The result should be a modular 15 square meter unit equipped with solar panels and a wind generator to produce its own energy. The small office will count with a single computer with satellite Internet access, a safe deposit box, a telephone and basic and ecological hygienic facilities. Having said this, it is likely that the accountholders and the visitors of the Ant Banks will be in contact for the first time in their lives with the benefits that telecommunications grant. This way they will not only benefit from the focal point of this project, which is bringing banking services to rural areas and granting credits and education to its inhabitants, but also from the facilities a small brick-solid office equipped with electricity, Internet access and telecommunications services. With Ant Banks in every single corner of the rural areas, banking for the poor will be one of the motors that can change the lives of millions.

Conclusions
As we know, conventional banks are not an option for people who live under the line of poverty: basically, they are not welcomed. We can also highlight that, although governmental rural banks are actively participating in the economic development of the marginalized areas, more than 20 million Mexicans are still denied to a banks services. One of the main reasons why this phenomenon occurs is due to the distance between the bank branches and the poorest communities. They are simply too far away to be reached by foot.

Ant Banks are the solution to this problem. The proximity to the vast majority of the rural villages will ensure the insertion of millions to the financial dynamics of Mexico. Furthermore, Ant Banks will not only let people save and receive money from their relatives, but they will find a source of priceless tutoring and funds to grow their small businesses. It is only through education and empowerment that these persons will find the prosperity they long for. I am sure that this way, my country can grow, for once and for all, as one.

References
Central Inteligence Agency (2010). World Factbook: Distribution of family income, available at: https://www.cia.gov/library/publications/the-world-factbook/fields/2172.html (accessed December 19, 2010). EFE Agencia (2009). Mexico supera los de 50 millones de pobres, segn informe gubernamental, available at: http://www.elespectador.com/noticias/elmundo/articulo151464-mexico-supera-los-50millones-de-pobres-segun-informe-gubernamental (accessed December 19, 2010). Fortson, C. (2003). Womens rights vital for developing world, available at

http://www.yaledailynews.com/news/2003/feb/14/womens-rights-vital-for-developing-world/ (accessed December 19, 2010). Fortuna (2010). Campesinos, sin acceso a la banca, available at

http://revistafortuna.com.mx/contenido/index.php/2010/01/15/campesinos-sin-acceso-a-la-banca/ (accessed December 19, 2010). INEGI (2010). Analfabetismo, available at

http://cuentame.inegi.org.mx/poblacion/analfabeta.aspx?tema=P (accessed December 19, 2010). Milenio Noticias (2009). Educacin primaria reducira el hambre, available at:

http://impreso.milenio.com/node/8523799 (accessed December 19, 2010). Moreno, L. (2007). Expansin de los servicios financieros a la poblacin de bajos ingresos de Amrica Latina, available at: http://download.mckinseyquarterly.com/LA-ByInvitation_Spanish.pdf (accessed December 19, 2010). United Nations (2010). Gap between rich and poor in Latinamerica is largest in the world, says UN, available at: http://en.mercopress.com/2010/03/27/gap-between-rich-and-poor-in-latinamerica-is-

largest-in-the-world-says-un (accessed December 19, 2010).