An Interview with Makoto Goda from Nippon Biodiesel Fuel by Longine Fintech Team
We interviewed Makoto Goda, CEO of Nippon Biodiesel Fuel Co. Ltd, about their initiative and future vision for mobile banking services in Africa.
3 Key Messages to Readers
Nippon Biodiesel Fuel (NBF) was established in 2000 as a research and development-style startup specializing in biofuel. In 2012, the company founded ADM, an overseas subsidiary in Mozambique, to spread the “local production for local consumption” model for energy, food, and financing.
As POS systems and IC cards were introduced at kiosks operated by the company in rural Mozambique, a large need was observed to save and transfer money. The company is currently preparing to establish a bank to provide mobile banking services to solve this issue.
Mobile banking, which integrates telecommunications and financing outside of the existing financial system, has significant potential; the company addresses the possibility to expand the business to areas other than Mozambique in the future.
Before the Biofuel Venture Found FinTech Opportunities in Africa
Longine FinTech Interviewer (hereafter “Longine”): Please tell us how your company, which is a biofuel venture, tried to establish a mobile bank in Africa.
NBF CEO Makoto Goda (hereafter “Goda”): As the name suggests, NBF is a biofuel company. We had been working primarily on biofuel made of jatropha, which produces approximately five times as much oil as soybeans, as an R＆D company funded by such ministries as the Ministry of Economy, Trade, and Industry, and the Ministry of the Environment. In cooperation with the University of Tokyo, we then launched a biofuel R＆D project in Mozambique, Africa in 2011.
Longine: I see. So that’s how Africa and Mozambique came into the picture.
Goda: We subsequently decided to turn the project into a concrete business and, with the support of the New Energy and Industrial Technology Development Organization (NEDO), we launched an overseas subsidiary called ADM to electrify the off-grid areas in Mozambique by using such methods as biodiesel power generation.
This project works by distributing seeds for farmers to grow biofuel, buying back what the farmers grew and harvested, refining the oil from those seeds, and using it as alternative to light oil for power generation and ice-making services.
We work in a farming village located more than 2,000 kilometers away from the capital. As we are attempting to deliver electricity to an area that is off the grid, villagers naturally don’t own any appliances. Therefore, we installed our own kiosk to lend rechargeable lanterns and sell drinks chilled in a refrigerator.
Cash management became an issue as we operated the kiosk. We asked local people to attend to the kiosk, but the cash flow never balanced when we went there approximately once every two weeks to perform inventory.
Longine: Did they pocket the money?
Goda: It was no use to ask, as the salesclerk would say things like, “Because electrical services are available only around here, other people must have gotten jealous and asked a shaman to send a fairy to the store in the middle of the night to take the cash.”
We consulted with people at the NEC, a Japanese electronics manufacturer and decided to introduce a mechanism to minimize the use of cash, by installing a POS system that uses tablets and electronic money.
For the residents, we distributed contactless IC cards. Once we established a system to have them charge the card and purchase items at the kiosk, cash balance errors greatly improved.
Longine: We are finally seeing the connection to FinTech. What did you notice as you promoted electronic money in an off-grid area in Africa?
Goda: What was unexpected was that people who only spend 100 to 200 USD per month on shopping are charging a fairly large amount of money on the card. Because this is an off-grid area with no commercial banks, farmers always had a large sum of money on them that they earned from their harvest several times a year, or they would dig a hole to hide the money stored in a jug.
While we found that a surprisingly substantial need exists to safely store cash, we couldn’t tell how much of it is charged to the card for daily shopping, versus savings, because we had launched the system at the first store to allow shopping as well. Thus, we conducted experiments, such as going to a different village and distributing the cards that no longer had the shopping option and were allowed only for saving money. We presently continue to study their real needs.
Longine: Are they using the electronic money to deposit cash because they can earn the interest?
Goda: It doesn’t earn any interest. They still turn their cash into electronic money because even a little cash is valuable for the villagers. A need exists here for electronic money, which can be stored safely.
By the way, rural villages are basically self-sufficient. Most of the goods they buy with the cash at a kiosk are nonessential grocery items, and approximately 90% are imports; because of this, prices are dependent on the currency exchange rate.
The Significance in Popularizing a Financial System in an Off-Grid Area in Africa
Longine: Once the electronic money becomes available even in the African countryside, wouldn’t it make a variety of financial services possible that you couldn’t have previously imagined?
Goda: I think a variety of services will become available. I consider the POS terminals that we install to be infrastructure for settlement and information.
We are already working with the Food and Agriculture Organization (FAO) to provide financial aid to farmers by converting the traditional paper voucher into electronic money. By making it electronic, we can record historical data, such as what was purchased, when, and by whom.
The FAO says they want us to establish a bank fast, because this would allow them to use more objective criteria to screen subjects for aid once things are digitized.
For example, agricultural trading companies can make payments using electronic money instead of cash upon purchase. It will enable them to record each individual’s yield. The way the electronic money is used will also be recorded. Such data will allow the FAO to rank the subjects that they provide aid to.
It will also become possible to measure the effect after the aid ends, such as what percentage of people in Person A’s group type became fully capable of purchasing seeds without subsidies, for example.
As of 2015, 9,300 farmers are participating in this FAO project, but we plan to add 10,000 more in 2016.
Additionally, we are working to visualize aid by asking the United Nations Development Programme (UNDP) and agricultural trading companies to join us in implementing electronic money in the entire value chain, which includes farmers and middlemen.
Establishing a Bank in Mozambique
Longine: We heard you are in the process of establishing a formal bank in Mozambique.
Goda: When you want to create a system that can officially and openly receive deposits, you must have a bank license. Having explained the experimental scheme, and the fact this is a pilot, we have the understanding of Mozambique’s Ministry of Economy and Finance, but we can’t widely publicize it, and the geographical areas we work in are also limited.
Longine: Have you established a company in preparation for establishing a bank?
Goda: Yes, we have established a company in Japan in preparation for founding a bank. Going forward, we will submit an application to the Bank of Mozambique, and establish a local bank once we are approved. The new bank is also expected to be funded by such entities as the Government of Mozambique and MobiTel, which is a Vietnamese mobile phone company.
Longine: What kind of mobile phone company is MobiTel?
Goda: MobiTel is a mobile phone carrier with the largest number of subscribers in Mozambique, although it is a Vietnamese company (a joint venture between Viettel in Vietnam and a local company in Mozambique). They entered the market in Mozambique in 2012. Only two companies were providing services at that time, Vodafone and the state-owned company, and primarily in urban areas. MobiTel, on the other hand, launched their service in rural areas. As approximately 70% of the 23 million people in Mozambique live in rural areas, MobiTel quickly gained the largest share.
Longine: Thus a substantial need exists for mobile phones in rural villages in Africa as well.
Goda: Based on the kiosk data, approximately 30% of disposable income is spent on phone calls. When they have extra money, it is about 50%. It’s probably their only entertainment, because there is no television. As they are basically self-sufficient, food expenses are for nonessential grocery items, such as pasta and canned fish. Even when that’s considered, 30% is spent on phone calls.
Longine: Why would MobiTel want to invest in the bank?
Goda: MobiTel doesn’t use electronic money yet, so we asked if they’d be interested in creating a bank with us, and they said yes.
When we think about the future development of the electronic money industry, we would need to offer options to not only deposit, but also transfer money. Therefore, we decided to partner with MobiTel, which has the largest market share in Mozambique.
M-Pesa in Kenya as the Model for the Mobile Bank
Longine: It looks like the bank you are trying to create will offer mobile banking. Is there a precedent in Africa?
Goda: M-Pesa, which has been a big hit in Kenya, is a predecessor. M-Pesa is a money transfer system that uses the mobile phone network operated by the Vodafone group’s telecomm carrier, called Safaricom.
It’s only been approximately 8 years since M-Pesa was launched in 2007, but the gross sales are about half of Kenya’s GDP as is. As there is no commercial bank in rural Kenya, just like in Mozambique, the bank role is played by M-Pesa.
The idea originated from prepaid minutes for mobile phones, and started with users paying for call charges in advance by depositing money, then transferring the prepaid call charges between individuals.
We can use this mechanism to build financial services in rural villages in Africa where there is no bank. For example, if Person A in the city uses M-Pesa, and sends the data equivalent to electronic money to Person B in the rural village, Person B can go to the kiosk in the village to receive cash.
Vodafone has approximately 460 million subscribers in 26 countries worldwide, as of the end of 2015. Although they charge a fee, it has also become possible to exchange electronic money with other operators, such as Airtel and Orange.
In other words, mobile money is already flowing among global mobile phone users four to five times the size of the population of Japan.
Longine: Thus, this means that partnering with mobile phone companies is also essential in Mozambique.
Goda: We have popularized our service by contactless IC cards and POSs that use tablets, but we won’t be able to secure a competitive edge unless we provide services on mobile phones, such as saving and transferring money, available in addition to shopping.
Longine: So that led to the partnership with MobiTel.
Goda: The MobiTel system currently allows you to transfer the SIM card credits used for making calls to other people, but you cannot deposit or withdraw cash. It was the same state in Kenya a decade ago.
As MobiTel has retail stores throughout Mozambique, we can use them as bank tellers in the future once MobiTel partners with us. Additionally, as they have 24,000 agency stores to sell mobile phone SIM cards, we would be able to use those locations as kiosks to deposit and withdraw electronic money. In other words, it will be the same mechanism as M-Pesa in Kenya.
Longine: Are you also considering an expansion to areas outside of Mozambique?
Goda: The top priority is to create a new business model in Mozambique first, but we plan to replicate it in other areas.
In terms of MobiTel in Africa, the first would be the neighboring country of Tanzania, followed by Cameroon and Burundi. We are considering seven countries in Southeast Asia and one country in South America.
Longine: What are the benefits for MobiTel to partner with NBF?
Goda: If MobiTel created an M-Pesa-type system in Mozambique, they would need to take a certain amount of deposited money and deposit it in a bank, and the majority of its investment income would be taken by the bank. We suggested we should launch a bank together if that’s the case, and they agreed.
That being said, the immediate investment income will come primarily from margins from interbank transactions and highly safe investments, such as government bonds, as it will be quite a while before we take on the money lending business. Additionally, we envision that settlement fees, such as transfer, deposit, and withdrawal fees, will be the bank’s primary sources of income. It would be like Seven Bank, in terms of banks in Japan.
Hidden Potentials in Mobile Finance Outside of the Existing Financial System
Longine: In what time frame do you plan to launch the mobile bank?
Goda: It will take at least another six months to obtain a bank license. We are hoping to launch a pilot operation in one province in the first half of 2017, then move forward with nationwide expansion while making adjustments in the pilot province. It would be ideal if we could cover the entire country in two years.
Longine: Wouldn’t the existing bank become your competition?
Goda: We would compete if they enter this market, but for now, there is almost no sign that they will. However, banks in Africa are looking into this area, including Equity Bank Ltd. in Kenya, and Ecobank Transnational in Nigeria.
Equity Bank, which is the largest bank in Kenya, has announced that they would distribute 300,000 POS terminals like we did. They also established their own mobile phone company. Just like us, they are anticipating the era in which a new settlement system will be created by integrating mobile phones and banks.
Longine: The line between mobile banking and the existing financial system is blurring.
Goda: I mean mobile banking is already the mainstream. It is a contention between how far we improve the convenience of mobile banking and how far we protect the rights and interests of the traditional bank. In any event, I think the two will begin to merge at some point.
For example, while there is talk about 24-hour operation of the BOJ-NET, M-Pesa is already doing it. I mean, the users can send money 24 hours a day in real time as long as they don’t turn off their mobile phone.
With M-Pesa, the core part of the settlement is already built in a much simpler form than the existing banking system. The procedure is also very easy; you can process money transfers using only a mobile phone, without needing to prepare handwritten documents.
Longine: Is it possible that the mobile banking population could become the majority, as the population is huge, even though the mobile banking began in a poorer country?
Goda: It is said that there are still 3 billion people who are not using a bank account or mobile banking, but I think they will eventually become users. The number would approximate 4 billion then, which is more than half of the world’s population, or the majority. If the settlement using mobile banking is not supported by Japanese financial systems when it becomes the majority, Japan would ultimately experience “financial isolationism.”
Given that ATMs in Japan support cash withdrawal 24 hours a day, we should be able to support mobile banking. There is still no settlement system for large amounts, but it should not be so difficult. They should be able to support it if they wanted to, but Japanese financial institutions’ officials perceive this as, “It’s still a story about a corner of Africa, isn’t it?” even though this is a global trend.
Longine: By the way, it seems as though such risks as political change are particularly high in Africa. What about those?
Goda: It is a conceivable risk in Africa to have rights and interests taken away upon a change in the political system. With that being said, I think it would be difficult for them to take away a settlement system like ours, which is networked throughout the country and involved in the daily lives of a majority of people in the country. If they did, it would disable settlements and have a significant impact on people’s lives.
Another risk is climate change. Last year’s yield was less than half of previous years because of the low amount of rainfall. We are worried about the effects of El Nino this year as well. It is difficult to conduct a business centered on agriculture; however, I think it is advantageous to replicate the mobile financial business in other areas as we have a competitive edge in costs.
Longine: Before we conclude, please tell us your vision for the future.
Goda: The UNDP releases its Human Development Index ranking every year. Mozambique was ranked fourth from the bottom, or 180th out of 184 countries in 2015. Ideally, it will be brought to around 130th in ten years by further developing the “local production for local consumption” model in energy, food, and finance.
Longine: What did you gain by participating in the FIBC2016?
Goda: I think it was great to be able to present our initiative to the world in English.
As with the public blockchain, mobile finance is currently found outside of the existing settlement system. However, in looking at the world objectively, it already has the largest number of users based on population. I believe it would be very powerful to integrate mobile finance in developing countries, and in regions like Africa where financial systems are not available everywhere. Going forward, we would like to continue to aim for that.
Longine: Thank you very much for your time today.
Goda: Sure, thank you very much.