Part of our Low Income Lives series, this blog explores the importance of digitization for MFIs and the impact of microfinance towards the empowerment of women in Bangladesh. We analyzed the use of DFS by women and its challenges through case studies to discover how it can accelerate their financial inclusion and empowerment. The current MFS regulations by the Bangladesh Bank forbid providers from launching any savings and credit-based products through MFS wallets. However, MSC hypothesizes that partnerships with MFIs and banks may enable MFS providers to introduce such products in the near future.
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Staying ahead of the technical assistance curve: Six lessons from FinTech start-ups in India
Advances in technology have powered some of the most exciting breakthroughs in financial inclusion in recent years – and India has been at the forefront of many of these innovations. However, it’s often difficult for the country’s entrepreneurs and startups to build and grow their tech-focused businesses, while ensuring that the benefits of their work are widely distributed among their customers.
To help address these challenges, the Indian Institute of Management Ahmedabad’s Centre for Innovation Incubation and Entrepreneurship set up a Financial Inclusion Lab in August 2018, as a part of its Bharat Inclusion Initiative. The Lab is incubating around 60 fintech startups that are serving India’s low-and middle-income (LMI) segment (i.e. people earning US $2 –10/day). It will provide support to six cohorts of these businesses, spread across four years, with the first cohort of 11 early-stage startups selected last September (2018).
This support starts with an intense six-day boot camp, in which each team attends workshops on understanding customers and products, and receives guidance from experts and mentors. The Lab team helps identify risks to be mitigated, problems to be solved and assumptions to be validated as these businesses strive to grow. Diagnostic sessions allow the participating startups to identify the challenges they face and define the support they need.
In response to these diagnostic sessions, MicroSave Consulting (MSC*) is offering short technical assistance (TA) projects to these young businesses. The TAs also include primary research covering a sample of customers in the field. MSC has provided TA to many established financial institutions across the globe, but the circumstances required us to tailor this assistance to the unique needs of these nimble startups. To that end, we designed the TA to be “SMART” — Specific, Measurable, Achievable, Result-oriented and Time-bound. In the process of designing and delivering this TA, the MSC team picked up six key insights that could be helpful both to startups, and to the investors, consultants and other organizations that support them. We’ve highlighted these lessons below.
Lesson #1: Goals are good. But flexibility is better.
Startup managers are keen, ingenious, agile and quick learners. They want to make the most of any TA project. They meticulously set objectives and expectations based on feedback from the project and consultants, carefully deploy resources, and work hard to ensure that the final recommendations are the right match for achieving their objectives. They make strategies on the go, and are eager to test out and implement any “light bulb moments” that take place during the project. As believers in mid-term course corrections, they may ask consultants to include additional objectives into the TA project plan from time to time.
To support this flexibility, consultants may need to tweak their research frameworks, questions and objectives midway through the TA project. Startups are keen to measure the progress they’ve made during the project, so they will appreciate any mid-term updates from their consultants on their progress, challenges and findings.
Quick Tip: Run frequent check-ins, stay committed to your TA project plan – but be flexible in your approach.
Lesson #2: Be brief. Enough said.
Tolstoy famously said, “The two most powerful warriors are patience and time.” Ironically, startups are running out of both. Startups are in a hurry: They’re nimble and seeking fast results. This is in contrast to incumbent financial institutions, which take time for ideating, brainstorming, planning and then executing assignments. Startups conduct all of these activities – but in a much shorter period. They build their competitive advantage by focusing on rapid, agile, tech-enabled and low-cost solutions. Their sense of urgency also comes from the fact that many startups have their eyes and mind on becoming the next Uber, Alibaba or Airbnb – rapidly. Time is money. Each additional day translates to additional burn. Hence, they do not have the patience for long research exercises. Downtime costs pinch hard.
All the startups in our first cohort wanted to start the TA simultaneously. Consequently, MSC had to arrange resources for multiple startup TA projects. Startups also want and need to understand their business ecosystem, in terms of market size, loan size, default rates, repayment rates, geographies and more – another lesson for MSC as we planned TAs for others.
Quick Tip: Plan fast, keep details crisp, make presentations sharper and stronger, cut theory and focus on action. Be lucid, customize your advice to the startup’s appetite for change – and don’t forget to use data points to back up your arguments.
Lesson #3: The LMI segment: Not as simple as it looks
Startups have to focus on the trinity of price, product and customer service. Their survival depends on the value they bring to customers. To achieve this, they need to understand their customers and deliver innovation. The startups had the most difficulty understanding the low-and middle-income segment, the Lab’s focus. And these startups are often at a loss to fathom what LMI customers specifically want.
Because of this, these enterprises run the risk of replicating cookie-cutter solutions used for other customer segments – a risky proposition, to say the least.
Behavioral science-based persona mapping can help immensely. Persona mapping enables startups to segment markets based on customers’ behavioral traits, and then develop value propositions, marketing messages, and user experiences and interfaces accordingly. In our TA, persona-building exercises created “light bulb” moments for many participants.
Quick Tip: Help startups go from being customer-centric to customer-obsessed by familiarizing them with their customers’ key characteristics.
Lesson #4: Being prepared = Half the battle
During fieldwork, startups contributed to the behavioral research exercises by providing human and other resources to complement the work of MSC consultants. Either the co-founders themselves or their teams partnered with MSC during field visits. The resources they contributed also included geographical know-how, which MSC used effectively to find respondents and locations for research on the startups’ customers. The startups were also keen learners who picked up crucial research lessons, which will prove instrumental when they conduct research on their own.
Quick Tip: Always clarify the role of any additional resources provided by TA participants: They may either aid in customer research, or tag along as keen students. Either way, you cannot depend entirely on the startups’ resources and must be prepared on your end.
Lesson #5: Research or survey: Choose wisely
One of the startups’ goals from the boot camp was to understand the behavior of the LMI segments. The behavioral research exercises conducted by MSC seek this understanding through an intense approach, with smaller sample sizes and an in-depth process of individual or focus group discussion – as opposed to a traditional survey, which is closed-ended and quantitative. These exercises tend to provide a deeper understanding of the target segment, digging into the “whys” and the “hows” of customer behavior.
This inherent difference was not immediately apparent to startups. They were not initially comfortable with smaller sample sizes, and pressed for larger samples to cover multiple geographies. After the merits of behavioral qualitative research were explained to them, they saw the clear value of this approach.
Quick Tip: If you work with startups on shorter timelines, use behavioral qualitative research exercises only after explaining their benefits and relevance.
Lesson #6: The world needs connections
Startups thrive on connections and contacts. The startups in our Lab swear by the principle “collaborate or die”: Partnerships with other businesses augment their impact and are critical cogs in the wheel. Consultants should build this element into the TA plan, helping startups meet new potential collaborators. In this Lab, timely mentorships ensured fresh new interactions, which were much appreciated by the startups.
Quick Tip: Include elements – like mentorship and meetings – that connect startups with people, firms and experts who could benefit their businesses.
These lessons provide a good starting point for supporting startups – but they’re not the end of the learnings we’re generating. As our cohorts continue, more lessons will emerge. The Lab boasts an impressive list of startups innovating to make a difference to the Indian LMI ecosystem. They are customer-obsessed and want to maximize the country’s conducive fintech environment to leapfrog ahead of incumbents. Considering the digital revolution that has swept through India over the last five years, these fintechs are up against ever-increasing customer demands driven by a generational shift. For consultants, investors and others aiming to support these startups, it’s essential to keep up with the dynamic nature of their businesses – and to stay ahead of the TA curve.
Authors’ Note:
The Bharat Inclusion Initiative (BII) helps tech entrepreneurs across the pre-incubation, seed and scale-up stages. This includes access to research fellowships, incubators, accelerators, seed funds and similar support programs to create an end-to-end enabling ecosystem to bring inclusive, for-profit businesses to life. The program is supported by the Bill & Melinda Gates Foundation, J. P. Morgan, Michael & Susan Dell Foundation and the Omidyar Network.
Read about the individual stories and struggles of the startups in Cohort 1:
Startups offering savings
Startups offering credit/lending
Startups offering insurance
Startups that are enablers
This blog was first published on NextBillion.
MSC’s support in youth employment initiatives across Sub-Saharan Africa
This video gives the highlight of how MSC supports youth employment initiatives across Sub-Saharan Africa
How do we engage youth in agricultural activities? What are the bottlenecks and possible solutions
Engaging youth in agriculture
This video explores how we can engage youth in agriculture to help alleviate the unemployment crisis in Sub- Saharan Africa.
Youth in agriculture: how to engage and retain youth in agricultural activities
When I was a young boy growing up in rural Kenya, farm work was punishment—be it at school, digging the farm if you had pending homework or at home, picking coffee and tea while it rained. With these experiences, nothing would have motivated me to choose a course that is related, in any way, to agriculture. That, however, changed along the way. That is not who I am today.
In many developing countries, agriculture and allied courses and professions have been “orphaned”. Usually, students who join public universities can choose such “archaic” agricultural courses that are available usually with lower qualifying grades. The media has not helped either. The negative imagery of emaciated farm families, reports of unpaid farmers, and devastating post-harvest management, such as rotting cereals and fruit dominate the media’s agricultural coverage. All these have negatively affected the youth’s perception of agriculture.
The African Union’s Malabo Declaration, which set agriculture goals for 2025, works to create job opportunities for at least 30% of youth in agricultural value chains across the continent. However, investments that support skills, knowledge, employment, and finance for young people are still lacking—especially in rural areas.
Data from the Population Reference Bureau in 2018 projects that the population of Sub-Saharan Africa will more than double by 2050. Africa’s youth population, currently at 20%, will rise to 35% of the total youth in the world by 2050. Studies have shown that agricultural growth in Sub-Saharan Africa has a greater positive impact on reducing poverty compared to growth in other sectors. Hence, tapping into the reservoir of employment opportunities in agriculture is indispensable for poverty reduction.
Why does agriculture not attract youth?
Agriculture in Sub-Saharan Africa is the main source of income and subsistence for over 70% of the adult population. The sector supports more than 40% of the total employed population in the region. Despite the potential of agriculture to create employment, the steadily increasing youth population in Africa has been turning away from it due to the hard work, poor remuneration, and other negative factors associated with it. Youth unemployment rates in South Africa are almost four times higher than the regional average—62% of South Africans between 15 and 35 years of age are unemployed. Of them, 60% have never been employed.
Sub-Saharan Africa has a huge potential with 60% of the world’s uncultivated arable land. Yet it spends USD 25 billion annually on food imports. A comparison of Africa with other continents highlights that the difference lies in its low adoption of technology. If this divide is crossed, Sub-Saharan Africa could produce enough food for its own population and even become a net exporter of food.
Youth inclusion, engagement, and most importantly, retention in the agriculture sector are hot topics. The international community has raised this concern and national governments have spoken on the issue repeatedly. The youth, on the other hand, consider agricultural jobs painstaking and unrewarding. These jobs also require a lot of patience that the millennials lack as pointed out by a Leeds University study: Millennial impatience and the rise of next day delivery. Several youth agri-initiatives have been developed to address this gap but many have failed to achieve the desired results. This begs the question—how can we attract, engage, and retain youth in the field of agriculture?
Can digitization bridge the divide between youth and agriculture?
The average age of an African farmer is between 45 and 60 years. Even though the farmers are attached to their traditions and quite reluctant to change, they are not immune to the technology revolution. Just like the banking industry where mobile money technologies have become pervasive despite the old banking system, agriculture must follow suit. Digital innovations and the use of Information and Communication Technologies (ICTs) will prove essential to unlocking Africa’s agri-business and bridge the rural divide. This will help smallholder and family farmers, fishers, pastoralists, and forest-dwellers.
According to the World Bank’s report “Growing Africa: Unlocking the Potential of Agribusiness”, Africa’s farmers and agribusinesses could create a trillion-dollar food market by 2030 if they can expand their access to more capital, increased access to electricity, better technology, and irrigated land, among other things. The agribusiness logistics sector is essential to agricultural transformation through value-chain development. ICT will be pivotal to provide efficient agribusiness logistics and to link producers and final consumers almost instantaneously. The emerging Agriculture Technology (AgTech) start-ups have demonstrated this—and in the process, attracted youth to provide best practices, agricultural networking, and linking to finance. However, the AgTechs will need to work closely with experienced organizations in the low and middle-income segment, especially smallholder households, to tailor solutions for the market as demonstrated by MSC.
According to a blog by CGAP on promoting digital financial products among the youth, behavior segmentation and data analytics are critical to understanding the variance between predicted users and actual users of digital products among youth. However, MSC’s blog on digital credit clients cautions that most youth will juggle between lenders. In Kenya for example, the Central Bank (CBK) estimates that over 500,000 people listed on credit reference bureau (CRB) for owing less than USD 2 are youth between 18 to 24 years. They were listed on the CRB after taking a small loan to use it for gambling, after which they lost the bet and failed to pay the amount back.
Financial access to youth
Financial Service Providers (FSPs) continue to shy away from financing youth, terming the group risky. Banks across Sub-Saharan Africa still provide “vanilla” products that are delivered through the brick-and-mortar approach. This is compounded by the banks’ limited understanding of the financing opportunities along agricultural value chains. The difference in aspirations of the FSPs and the youth has increased the exclusion of youth from the agriculture finance continuum.
Consultative Group to Assist the Poor (CGAP)’s financial diaries and national surveys with smallholder households indicate that young people in rural areas save two to five times as much as their elders. These savings were four to five times the amount they borrowed from different sources. The statistics highlight that youth can and should be involved in transforming agriculture.
Research in Behavioral Economics is essential to design and implement solutions to improve services and job opportunities for these segments. MSC’s proficiency in behavioral, gender-centric, and market-sensitive program design helps us develop products and channels that cater to the specific needs of women and youth. We have a long history of working on financial and skill development services for the youth. MSC has developed a wide range of savings and credit products tailored and targeted specifically for a range of youth segments—from schoolchildren to those in their twenties. We conduct market assessments on opportunities for youth employment. We also develop and deliver training programs that support employability and technical skills for both youth and women.
Case studies of youth engagement in agriculture
MSC helped Musoni Microfinance, Kenya to review its agriculture finance product and introduce digital credit assessment for clients. Musoni is a microfinance institution (MFI) that utilizes ICT to increase the efficiency of service delivery for rural clients. It has successfully targeted rural youth through products and services delivered through technology. Musoni’s agricultural finance product—Kilimo Booster—is a success in targeting youth engaged in agricultural production. A client who owns a dairy farm in rural Kenya attested this.
In Tanzania, the Alliance for Green Revolution in Africa (AGRA) provided a USD 540,000 grant to SELF Microfinance Fund (SELF) to develop digitally delivered products for smallholder farmers. MSC helped the Mahanje SACCO located in the Ruvuma region to review its loan products to suit the needs of targeted rural clients. Members of the SACCO can now access credit, repay, and save using their mobile phones. The convenience and privacy of transactions created by digitization attracted about 300 new clients, which represents a 14% growth rate in the 18-month project period alone. Out of these, 120 (40%) were aged between 18 and 25 years.
MSC provided technical support to the Land and Investment for Future Transformation (DAI-LIFT Ethiopia) project between 2016 and 2019. The project worked to accelerate access to finance smallholder farmers through seven MFIs. As of June 2019, 12,098 loans worth USD 12.5 million have been disbursed and USD 1.1 million in deposits mobilized. The project has reached vulnerable groups through the Gender, Equality, and Social Inclusion (GESI) pillar. About 30% of the loans are directed to the GESI group that includes youth. About 400 land rental service providers have also been employed, with almost 60% of them aged 18–25.
So, how do we attract and retain youth in agricultural activities?
Digital technology and digital financial services have the potential to bring youth closer to the agricultural sector. The players in the ecosystem focused on promoting agriculture needs to deliberately create an attractive and enabling environment for youth through:
- Sustainable market linkages between rural young farmers and urban markets through e-commerce or m-commerce platforms, such as the Agrocenta in Ghana, 2Kuze and SokoNect in Kenya
- Integrate various actors and activities across value chains and create meaningful employment for youth
- Adopt digital platforms that offer an opportunity for embedded social services that could compensate for the lack of financial and non-financial services and provide social protection, such as platforms that offer embedded unemployment insurance or health insurance; Specialization in service provision—information, data and, value chain linkages
- Special support to build value addition, capacity-building, and idea incubations
- Efficiency in agriculture value chains that will spur growth in the trade margins and returns and thus encourage youth to engage fully in the sector
- Work with FSPs to develop financial tools and products that facilitate access to finance for agriculture-related activities by youth
- Position the youth in risk management mechanisms among smallholder farmers and agri-businesses, along selected agriculture value chains