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A journey, two decades in the making

Posted on by MSC

Twenty years ago, we were born in the heart of Africa in Uganda as the MicroSave project. The year was 1998. The microfinance industry at the time was focused almost exclusively on microcredit, and as the name suggests, MicroSave came into being to resolve this issue.

As a first step, we drew influences from Stuart Rutherford, as well as approaches developed in the Philippines. We conducted market research with the aim to understand opportunities and problems from the customers’ perspective. This marked the start of our signature “market-led approach” to consulting, and unmasked significant problems underlying the microcredit model then prevalent in Uganda—that we set about fixing.

Until the year 2000, MicroSave focused on demand-side market research in East and Southern Africa. We trained hundreds of people from across the globe in our Market Research for MicroFinance (MR4MF) approach—a precursor to what is now known as human-centered design. After the first mid-term review, our work evolved to include both demand- and supply-sides. We worked with industry leaders to develop toolkits and training content on 35 different aspects of managing MFIs and banks.

We worked with nearly 20 leading financial service providers in East and Southern Africa to refocus their business towards a customer-centric or “market-led” approach. We helped Equity Building Society grow from 109,000 customers in Kenya into Equity Bank. The bank was listed on the stock exchange and currently serves 12 million customers across East Africa. Building on our growing work on digital finance, we also sat on Equity’s steering committee and helped with the initial testing of M-Pesa.

In 2006, the next big spurt in our growth arrived when we brought our lessons and success from Africa to India. In the next two years, we had expanded to Sri Lanka, Bangladesh, the Philippines, Indonesia, and Nepal. We added country after country to our list. We widened the scope of our cutting-edge knowledge and advice to a diverse set of players. In the years to follow, we opened new sectors and services to include digital financial services, finance for energy, housing, water and sanitation, among others—all with a focus on low-income people.

From 2013, MicroSave started shaping digital inclusion, government to person (G2P) payments and social inclusion landscape in India. We started by preparing an approach to assess the readiness of districts for delivering G2P payments. This helped the government in prioritizing the launch of G2P programs. We worked on the rural employment guarantee program (MGNREGA), social pension programs, LPG subsidy, food subsidy, kerosene subsidy, fertilizer subsidy, among others.

Farmer1

Our work over the years benefits about 850 million people, with an annual subsidy outflow of about USD 71 billion. We also worked on the largest financial inclusion program in the world—PMJDY—and worked on the harmonization of the know-your-customer (KYC) process to enhance financial inclusion. Through this, we gained expertise in public policy design, digital identity, digital technologies, pilot testing of social programs, and KYC.

In 2016, we took these learnings to Indonesia. We helped in the pilot of a new cash-based subsidy program called Bantuan Pangan Non Tunai (BPNT). We are now assisting the expansion of this program. We have also been helping conduct a pilot to leverage the digital identity system (NIK) in Indonesia for e-KYC to enhance the pace of financial inclusion.

Today, we still pride ourselves on our authentic insights led by a thorough understanding of the socio-cultural and business contexts of our markets. However, we are no longer the niche research firm that started out many years ago in a small shared office in Uganda. We have grown into an organization that finds wide recognition in the international development community. The MicroSave name has come to represent the vast wealth of knowledge we have amassed on the lives of low-income people. Now it is time to pause, reflect on the journey across two decades, and step up our game, as a lot remains to be done.

The world of development that we inhabit has been in a state of constant change. MicroSave needs to be better prepared in this ever-changing environment. Our horizons have widened, and it is time we set our sights higher. There is a need for stronger and more consistent branding, especially when the teams are expanding across locations. It is time to relook at our identity. The new identity would leverage the time-tested MicroSave name, yet we must showcase our formidable expertise that we continue to garner in the development sector.

Enter MicroSave’s new avatar—MSC—or MicroSave Consulting. We explored a number of options but MSC was the natural choice, forging a deep connect with our staff. The MSC brand lets us retain our legacy while providing a wider canvas for us to connect with a more diverse base. We prefer to use the acronym form—MSC over MicroSave Consulting as it promises instant recall.

Our transformation into MSC kick-starts various other changes—our brand colors, design principles, and our language guidelines. The new color swatches reflect quality delivery, an empathetic mindset, creativity, and a deep desire to realize our mission.

With these changes, MSC aims to reach multiple milestones. We would consolidate our identity as a young, multi-directional, multi-sectorial consulting company. We would like to take the concept of “market-led” to all aspects of the lives of low-income people. Our work now focuses on education, health, livelihoods, climate change, water, sanitation, energy, gender, youth, and refugees, among others.

The new identity reflects our emergence as an avant-garde consulting partner that offers divergent thinking, passion, diverse expertise, and insights from different cultures. As a result, we will reinforce our identity as “the world’s local expert in financial inclusion”. We seek your continued support as patrons and well-wishers. Join us, as we chart new directions in our journey as MSC!

MSC is a boutique consulting company that partners with participants in financial services ecosystems to achieve sustainable performance improvements and unlock enduring value. We have been at the center of the digital finance revolution since we supported the M-PESA pilot-tests and advised Equity Bank on strategy, products, agent networks and bulk payments. Today, we work with governments and leading banks, telcos, and third-party service providers across Asia and Africa.

At MSC, we offer strategic and operational advice that allows our partners to innovate and succeed in a rapidly evolving market. We help you gain a deep understanding of your clients, their needs, perception, aspirations, and behavior. With our support, you can seize the digital opportunity, address the mass market, and future-proof your company.

 

Aligning regulations to enhance digital financial inclusion in Indonesia

Posted on by MSC

This policy brief is based on our earlier studies and interactions/ experience with industry players in Indonesia. It presents a broad framework and strategic considerations to align the two DFS programs in a bid to enhance digital financial inclusion.

 

MSC: Enabling social, financial, and economic inclusion in digital age

Posted on by Parul Tandon

MicroSave Consulting (MSC) is a boutique consulting firm that has, for 20 years, pushed the world towards meaningful financial, social, and economic inclusion. With 11 offices around the globe, about 190 staff of different nationalities and varied expertise, we are proud to be working in over 50 developing countries. We partner with participants in financial services ecosystems to achieve sustainable performance improvements and unlock enduring value. Our clients include governments, donors, private sector corporations, and local businesses. We can help you seize the digital opportunity, address the mass market, and future-proof your operations.

To explore more about MSC and to browse through our offerings please see the corporate brochure.

Opportunities in digital financial services related to jobs in Sub-Saharan Africa

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With over 10 to 12 million young people entering the job market yearly on the African continent, the private sector, despite its dynamism, cannot create enough jobs to absorb them. The global jobs crisis has exacerbated the vulnerability of young people in terms of (i) higher unemployment; (ii) lower quality jobs for those who find work; (iii) greater labour market inequalities among different groups of young people; (iv) longer and more insecure school-to-work transitions; and (v) increased detachment from the labour market.

As mobile phone prices continue to decline and ownership grows, and as fintechs develop new services, the commercial landscape is changing and opens up opportunities to access and leverage data in new ways. The Digital Financial Services (DFS) sector has the potential to improve youth livelihoods but, in its current state, this potential is limited in scale and sustainability.

Findings from McKinsey projects suggest that widespread use of digital finance could boost annual GDP of all emerging economies by $3.7 trillion by 2025, a 6 percent increase versus a business-as-usual scenario and Dalberg notes that the digital economy can help in reaching the ambitious goal whereby the global economy needs to create five million jobs each month to absorb the one billion people that will enter the job market over the next decade.

Commissioned by the Mastercard Foundation, over the last six months, MicroSave conducted research in Ghana, Kenya, Senegal and Uganda to understand job opportunities in the DFS space. We found the area of opportunity for the most job creation is related to DFS-enabled livelihoods whereby DFS serve as a channel to create a livelihood.

1. Direct Employment: DFS providers hire on an as needed basis and do not willingly target youth as this is a business decision and not a corporate social responsibility decision. Jobs are generally filled with recent university graduates, but opportunities are limited.

2. Indirect Employment: DFS related roles, such as an agent owner or commission based sales agents, are generally out of reach of youth due to high startup costs and ongoing working capital needs. These are often filled with recent graduates who cannot find jobs that match their skills and take these jobs hopefully as a springboard to something else. Handlers or tellers, who work under agents, often work without contracts with limited sustainable livelihood and decent working conditions.

3. DFS-Enabled Livelihoods: DFS can be a tool that enhances access to new markets, business information, and financial products leveraging the DFS ecosystem. It helps create and accelerate the growth and sustainability of people’s livelihoods. The ‘trickle down’ impact on people’s livelihoods is highly dependent on the growth, innovation, and success of the DFS ecosystem.

A study by KPMG on Safaricom noted that 682,000 direct and indirect jobs were created in Kenya based on the products and services offered by the telecom operator. For everyone to benefit from DFS, including the trickle-down benefits for the entire population, DFS providers need to be fit for purpose and produce quality products and services to meet the needs of customers and small business owners. In 2016, P2P represented 69% of the value of mobile money transactions, with 31% coming from more advanced use cases such as savings, credit, and insurance. Despite seeing gains of around 11% in the use of products that might drive greater ecosystem development, it is nevertheless a slower gain than many anticipated over a 5-year window.

During our research, and based on extensive experience of the industry, it is clear that many DFS products and delivery systems are not customer-centric, do not meet customer needs and sometimes focus on relatively small parts of the population. Additionally, our recent research commissioned by the Mastercard Foundation in Côte d’Ivoire on DFS products based on needs and merchant payments showcased how DFS products available on the market today do not meet the needs of individuals who continue to use informal services and small businesses. Business owners have a mobile phone and access to internet, but only a minority uses their phones as a business tool, suggesting that providers have not thought yet of offering a corporate value proposition to businesses.

The GSMA’s State of the Industry Report for 2017 highlights that 49.1% of the African continent has a mobile account. This massive pool of customers offers many opportunities for job creation and the development of products and services catering to the needs of local markets. How can we improve digital and entrepreneurship skills to ensure youth have the tools and skills to lead, have access to jobs or become self-employed?

According to the AfDB’s African Economic Outlook (AEO) report, 22% of Africa’s working-age population are starting new businesses, which is the highest rate of any region in the world. The AEO recommends policies supporting the businesses for entrepreneurs by improving skills, grouping business clusters and improving access to funds (see graphic).

Across all markets, employers from our research noted a mismatch between the skills acquired and those required by the labor market. Investment is needed in education to ensure youth are prepared with the right skillsets – including being digitally literate. The amount invested in providing human development services for young people, particularly their education and skills, will help to determine whether Africa can harness the demographic dividend rather than risk a demographic time bomb. Policies that bridge employment and education systems need to be the new norm to address the gaps in job readiness and job skills and be approached holistically. Furthermore, we see opportunities to work with the private sector and governments to develop demand driven curriculums and develop outlets for innovation by youth.

Our research indicated that most youth aspire to work for large corporates which are socially perceived as a stable source of livelihoods and signaling entry into adulthood. Many young people aspire to work in ‘white collar’ roles for large corporate brands because they are prestigious and have good reputations. They have, however, limited insights about DFS and self-employment opportunities in the sector. Many young people take DFS-related jobs as a stepping stone to another job or as part of mix livelihoods strategies.

Digital ecosystems and entrepreneurship are essential for growth and job creation. There needs to be a focus on building soft and hard skills, improving youth awareness on information on jobs and earnings, and preparing youth to develop foundational skills for future jobs to ensure entrepreneurship in DFS leads to additional job creation. Through the creation of an enabling environment for self-employment and small businesses as well as revisiting TVET programs to ensure that they are linked to the private sector and their needs African youth will be better prepared for the digital age and be able to create jobs from themselves and others.

Key note speech by Graham A.N. Wright at the European Microfinance Week 2018

Posted on by MSC

The video is the Keynote Speech delivered by Graham A.N. Wright, Director, MicroSave at European Microfinance Week in Luxembourg held on November 15th, 2018.

The Mor committee has delivered its report – What will the report deliver? (Part-I)

Posted on by MSC

The Mor Committee on “Comprehensive Financial Services for Small Businesses and Low-Income Households” submitted its report in record time. The elaborate report is comprehensive – it has the large aspirational ideas and replete with technical and micro details. The report will no doubt generate a lot of debate and also hopefully lay the foundation for the future financial institution architecture to deal with the inclusion of those that are currently outside the formal financial system.

The Committee’s six vision statements are apt and address the current problems in financial inclusion. The four design principles – Systemic Stability, Balance Sheet Transparency, Institutional Neutrality, and Responsibility Towards the Customer – are well thought out and will provide a sound basis to test any new policy or strategy or change from existing policy/strategy.

Several positive suggestions have emerged. These include:

  1. Licensing of new categories of banks with lower entry requirements, making priority sector lending (PSL) portfolios tradable through a variety of instruments;
  2. Allowing non-bank financial companies (NBFCs) to be business correspondents (BCs);
  3. Pricing freedom for banks on farm loans;
  4. Reorienting the focus of the National Bank for Agriculture And Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), National Housing Bank (NHB), etc., towards facilitation of other financial sector institutions;
  5. Universal reporting of loans to credit bureaus; and
  6. Setting up a registry of financial institutions that the public can access to verify the antecedents are all positive suggestions.

In addition, the strong links with Aadhaar’s unique identification number, improving the interface of white label ATMs with banks, withdrawal of tax on securitization transactions, freedom to banks and BCs to agree on risk sharing, introducing a small loan guarantee facility with NABARD for farm loans etc., address current problems in a way that will alter the business practices and improve efficiencies all around. The suggestion to address data needs through quarterly reporting and periodic surveys on access to finance are also very appropriate.

However, there are also a number of issues that arise. The short time limit given for realizing the vision statements could present a problem. The idea that these are achievable in less than two years seems more idealistic than realistic.  Secondly, by repetitively referring to “low cost”, “reasonable pricing”, “affordable pricing” etc., the Committee has moved away from its design principle of institutional neutrality. At the retail level, small, niche institutions with higher base cost only can deal with small ticket products. By requiring reasonable costs, this type of institutions is excluded even before they start.

On certain larger issues, the committee could have dived deeper. The suggestion to increase priority sector lending from 40% to 50% of adjusted net bank credit (ANBC) will not have been an easy recommendation to make. But the relevance of PSL and specifically the continuation of the 18% requirement for agriculture – which makes a contribution of about 12% to gross domestic product (GDP) – should be questioned.

The discourse on the credit to GDP ratio is interesting. While a higher credit to GDP ratio might be in the best interests of growth in the medium term, a very high rate has negative implications. Very high credit to GDP ratio contains the seed of asset bubbles, as credit availability boosts asset prices all around. Secondly, adequate domestic financial savings levels should be established before large-scale credit expansion can take place. Econometric modeling of required savings rate might well show that a huge effort will be required in the Indian context to achieve higher domestic household savings rates required to drive high credit to GDP ratio.

The continuation of NPA based portfolio assessment is an anachronism in the current context. All financial institutions should use portfolio at risk as the first choice tool for measuring risk in their loan assets. If MFIs can successfully use the same, banks should be able to adopt the same.

Comments on the current regulatory stance – that regulatory bandwidth will determine the financial architecture – are conspicuous by their absence. While useful suggestions were made on how to use other proxies for supervision, a forthright statement that for a country of India’s size, a large supervision machinery may not be inappropriate (and indeed may be essential) would have a gone a long way in goading the Reserve Bank of India (RBI) to re-examine its regulation function. Currently, we require the regulator not only regulate but also to develop the financial sector and make it the prime mover of the economy – including for low income and vulnerable people.

The challenges in regulation are yet to come. Going by the Committee’s report, a number of new institutional types have to be licensed,  their market conduct supervised, customer protection mechanisms expanded and sharpened to provide comfort to the new clients, systemic issues to be addressed and a much larger number of financial institutions have to be brought under supervision for periodic assessment of solvency, sustainability, and probity. The preparatory work of designing the entry requirements, eligibility criteria for promoters of new institutions, developing a regulatory and supervisory framework, hiring and capacity building of staff to handle the expanded number of institutions and putting in place a sound off-site surveillance mechanism are tasks that will demand considerable energy and time. Once the preparatory work is complete, the ongoing monitoring and surveillance will be rigorous and take up a considerable amount of the central bank’s time in the initial years. A significant part of the challenge will be the change in mindset required of the regulator with regards to the new institutional types and their relevance for financial inclusion. We cannot avoid facing the challenges before they arise by limiting the institutional architecture.

India’s current efforts at financial inclusion perpetuate poor quality service to low-income people; they should expand choices. The Mor Committee has created a basis for expanding choices – the regulator should actively pursue this line of thinking, to enable other existing institutions and possibly new ones, to offer services to the people excluded by the current formal financial service infrastructure.