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Mobile money and microfinance: A match made in heaven or marriage gone awry?

Posted on by MSC

Use of mobile money in microfinance seems to be an idea whose time has come. It has also figured in our publications as potentially the next big idea in financial inclusion (see Can MNOs Lead the Way for Banking the Excluded 1 and 2 as well as Mobile Money – Influencers of Success and Speculation on the Future of Financial Services for the Poor in India).  On the face of it, it seems to be a “no brainer” as it offers tremendous value propositions for all parties involved.  These propositions are the basis of a few such partnerships that took place in India.

MicroSave has been closely involved to study such partnerships in India. The most recent one was a pilot test in Uttar Pradesh between a large MFI and an MNO. However such partnerships have not yielded expected results. In most of these cases, MFI and MNO partnerships are built on the following assumptions:

  • “Option C” (see diagram) was chosen for partnership due to limited other alternatives.
  • MFI provided initial support in marketing and building a customer-MNO relationship.
  • MFI repayment was positioned as the anchor product with additional services like saving, payments and fund transfer.

Challenges in Mobile Money for Microfinance Uptake

Clients are reluctant to pay mobile money charges: MFI is in the business of extending loans at clients’ doorstep with largely manual approaches. The clientele is low income and often they are not quick to adopt new technology. In addition, they are highly cost conscious. As long as these charges are lower or equivalent to the current transaction cost (including opportunity cost), they are likely to shift to this option; otherwise, they are unlikely to do so. Clients living close to an MFI’s branch, in particular, are unlikely to see any compelling reason to shift to mobile money.

Initially, partners wanted to test the water and understand clients’ inclination to pay the MFI repayment fee. But when clients were reluctant, neither MFI nor MNO wanted to bear those charges. MFI viewed clients’ mobile money usage and subsequent efficiency gain and additional revenue generation (if any) only in the long run. While the MNO had to bear the cost of channel management and did not want to forego revenue. Also, it considered that as a channel partner, the MFI should either bear the cost or at least pressure clients for mobile repayments. But the MFI feared that pressuring clients could impact their credit business.

  1. No compelling anchor product: MFI repayment was not a compelling enough anchor product to pull customers to use mobile money. MFI clients are accustomed to their manual repayment process and for economic reasons outlined above do not want to shift to the new channel. Other products like saving, remittance, mobile recharge and bill payments could not be pitched as most partnerships faltered in the initial stage.
  2. Low penetration of MNO points: Even when clients wanted to try MNO for repayments, (typically where branches were far from the center – the meeting point of MFI client groups), they demanded that the agents should not be more than two-three kilometers away from the centers. But for the MNO, this would require considerable investment in infrastructure, training cost and other expenses to set up agents.

The HelixInstitute of Digital Finance estimates that the total cost of setting up an agent varies between $300->1,000 depending on the market in which they are operating. Some of these costs are borne by the agents themselves and their master agents, but MNO still has to make significant investments. MNO wants to see the proof of a business case before investing, whereas MFIs insist that business would only come if there are enough points close to the users.

Conclusion

Though most of the partnerships have failed to scale-up in India, it is helpful to understand the challenges. Specific takeaways that should be considered to scale-up these initiatives are as follows:

a)    Ride on an existing mobile money network: Building an agent network from scratch for MFI repayment is a costly and complex proposition, that can yield many benefits (see NBFC-MFIs As Business Correspondents – Who Benefits? (Part-II),  but has its fair share of challenges and draw-backs NBFC-MFIs As Business Correspondents – What Will It Take?. On another hand, many MFIs do not want to start as an agent network manager (business correspondent) since this is complicated and removes takes away the key value proposition of de-risking cash handling. For smaller MFIs, a better proposition for an MFI and MNO partnership is to ride on existing network (please see BanKO example in the Philippines or Musoni in Kenya).

b)     Choice of an anchor product: A client bears limited economic and opportunity cost since she carries cash to the branch only 2 times in a year. Especially in rural areas, MFI repayments also provide an opportunity for women members to visit the town and many times they do not consider traveling as an additional cost. An MNO and MFI partnership has a greater probability to succeed if the anchor product is chosen carefully after studying the paint points of the consumers.

c)      Building new behavior takes time: Success in case of technology adoption requires a change in customers’ existing behavior. Thus, we should provide adequate time for a client to grasp changes in the repayment process, adapt to using technology and build capacity to facilitate behavior change. It is difficult to put a defined timeline for this and it will depend on clients’ socio-economic background. A pilot test and subsequent reviews should provide an indication as to whether clients are demonstrating the behavior, or need more nudges in form of product promotion, incentives or new and refined financial literacy (How To Make Financial Education Better.. May Be).

Under the current circumstances in India, where mobile money market is still evolving and agents are widespread only in certain pockets, MFI and MNO partnership could entail a huge cost to build the required infrastructure. Thus their partnerships should be built on solid value propositions by putting clients’ needs and requirements at the center.  There is no doubt that MFI and MNO will benefit, but in the end, clients need to see enough value proposition to shift from the existing channel. Mobile money could attract the clients, provided (and only if) it solves a compelling problem for them and MFI-MNO are willing to invest in building clients’ capability to use it.

Strengthening SACCO Societies in Kenya

Posted on by MSC

In this video, MSC’s David Cracknell speaks in length about the initiatives to support SACCO Societies in Kenya. He further mentions how MicroSave in cooperation with Sacco Societies Regulatory Authority (SASRA) in Kenya will be introducing training curriculum for credit, delinquency management and Institutional risk.

How to make financial education better… maybe

Posted on by MSC

It may just be a branding problem. “Financial Education (FE)” and “Financial Literacy” really do sound both condescending and boring.  Its new and improved name, “Financial Capability (FC)” is slightly less insulting (perhaps), but still fails to clarify what’s on offer to very poor people whose only real incapability is very limited financial resources and no prospect of more money any time soon.

The World Bank is aware of the less than optimal impact the often biased marketing materials (guised as FC materials) from banks and microfinance institutions (MFIs) have on these audiences. For more background information, visit Financial Education: Time for a Rethink and MicroSave’s online library to see our research on this issue.

We’re ready now to suggest some alternative ways we might approach this issue and hear your thoughts. Of course, we too have a new name – in-house, we refer to it as Alternate FE. But since we understand “AFE ” is unlikely to solve the branding or any other problems under discussion, our principal focus is imagining what relevant, meaningful information financial service providers and international donors might usefully offer that isn’t just a sales pitch or theoretical financial management concepts.  (For more specifics on how to design AFE programmes, please click here.)

Products come first not FE

An interesting example of this type of smart product design includes Flexi and Flexi Plus, an LIC (Life Insurance Corporation of India) offering that allows variable deposits and maturity benefits more compatible with erratic cash flows and shifting priorities. Flexibility for monthly recurring deposits is especially important for this target market—and a more realistic way to encourage long-term savings.

Here’s what we already know:

  • Poor people are smarter about money than most Financial Educators may realize. (See Breaking Free from the Myths of Financial Education),
  • Their failure to save or invest won’t be solved by ignoring the obvious. Their saving condition is quite different- unpredictable income and short pressing needs make regular saving sometimes difficult.
  • Consumers need products and services that actually fulfill their needs, not whatever the marketers are selling this week (see an example in the box).

Recent field research has also taught us a fair amount about human nature and what makes people in all income brackets feel more secure and less secure, about money. An essential component of AFE is promoting more individual control and confidence about personal finance.

In many Financial Education/Literacy/Capability classes, the attendees are expected to learn the same material at more or less the same speed, from an external trainer with whom they have no personal connection. In real life, however, very few of us actually retain and implement information this way.

The making of mavens

Most of us look to what Malcom Gladwell calls a “maven” (see here), the most well-informed, trusted person in a group, to guide us—and to share the blame if something goes amiss. Given enough relevant, persuasive facts to work with, almost everyone enjoys being a maven. Expert knowledge confers status and authority (which lead to the control and confidence, noted above, necessary for competent money management).

Here is where AFE gets a bit tricky. The goal is to create as many confident experts as possible, not just one maven who metes out factoids and advice on an occasional basis. And, of course, factoids and figures alone are boring. They are necessary to substantiate the claims that “Flexi Plus”, or any other savings option under discussion, works better for most of its customers than the alternatives. To be compelling, however, these details have to be part of a story—ideally one that sounds real and local and personally credible.

The best mavens understand instinctively how to relate such stories and real-life examples. They realize that the details of an ignominious financial failure are always more compelling and useful for a group discussion than a tiresome little parable about rigorous frugality and its rewards. Everyone can feel superior, and thus more expert, than the failure. Varying paths to success and tales rife with seeming contradictions are also useful story-telling techniques to encourage participation and share knowledge. Taking a cue from the maven story, AFE incorporated a key strategy to identify mavens and with their support create as many mavens as possible to reach a tipping point for a social change.

Other alternate FE alternatives

An integral part of maven effectiveness is envy and insecurity. Aspiration is all very well and good, but the most powerful motivators to exploit are sometimes the negative ones. Anxiety about old age, illness, other family emergencies generally prove to be excellent AFE anchors and effective learning tools, as highlighted in the behavioral science theory of loss aversion.

A final point, worth keeping in mind for all financial education that changes in attitude (read commitments and perceptions) are equally relevant. We may not see an increase in savings amount immediately for savings are indeed difficult. Even a very wealthy country like the United States has a deplorable savings rate (almost half the salaried population puts 10% or less aside each year; those with more variable incomes usually save nothing). Their personal debt ratio is even more alarming and, in most states, increasing steadily. Emerging economies may fare better in the short term—their needs are more urgent and thus incentives may prove stronger—but all those lessons in human nature should remind us that change happens slowly, if at all, and usually for reasons, we didn’t expect.

The Essential Ingredients of an Effective Financial Education Programme

Posted on by Parul Tandon

MicroSave designed a financial education module to test an alternative approach to financial education that is central to the social and commercial objectives of financial service providers rather than on the periphery of their strategic direction. The implementation of the financial education module provided us encouraging results. In this Briefing Note we discuss areas that we think were critical to the design of the programme – the essential ingredients. By including these ingredients in design of FE programme design both implementers and clients get a break from traditional, monologue-based FE programmes, while financial service providers benefit from the resultant increase in business.

Customer service – More than just smiles

Posted on by MSC

With the renewed interest in client-centricity, it seems appropriate to recall the core role of customer service in serving the low-income market. In our research, MicroSave consistently sees “how I am treated by the staff (or agents) of the institution” in the top 3-4 drivers of customer choice of a service provider as well as uptake and use of financial services.

This is not surprising: there are five compelling reasons why excellent customer service must be a “prime directive” for any market-led financial institution:

  1. Good service keeps customers.
  2. Good service builds word-of-mouth business.
  3. Good service can help you overcome competitive disadvantages.
  4. Good service is easier than many parts of your business.
  5. Good service helps you work more efficiently.

But contrary to common perception, customer service is much more than teaching your front-line staff to smile. Customer service depends on a wide range of variables, including:

  • Culture of customer service – created and delivered by staff throughout the organization as a living value.
  • Product/service range – not only the core products and services offered but also the additional services (such as customer rewards and incentives).
  • Customer knowledge to anticipate and meet customers’ needs and expectations to retain and grow the customer base through customer relationship management.
  • Delivery systems need to be efficient, effective, responsive and reliable: mass services are typified by limited contact time and a product rather than service focus.
  • Service delivery environment in terms of the location of agents and branches, their opening hours, their physical layout and design, as well as the atmosphere – space, color, lighting, temperature, maintenance, etc. – in the outlets.
  • Technology is often integral to a product – for example, mobile wallets or mapped accounts, links to ATMs or card-based savings accounts and increasingly access to automatic, algorithm-based credit.
  • Employees’ role in customer care cannot be overstated – employee relationship management and staff incentive schemes can play a key role to optimize this key component of customer service.

Diagnosis to Drive Customer Service

There are always hundreds of steps that a financial institution could take to improve customer service, the challenge is to identify which steps it should take. As part of the on-going service improvement process, financial institutions should analyze the high impact, low-cost steps available in order to identify the “quick wins”. MicroSave’s approach to customer service involves using a variety of market research tools to examine the perceptions and priorities of the clients and staff, as well as a comprehensive diagnostic and analysis tool built around the “8Ps” of marketing: Product, Price, Place, Promotion, People, Process, Physical evidence and Position. The diagnostic tool is administered to senior management and frontline staff over a period of two days during which they assess the frequency and impact of occurrence of a series of customer service related issues within the “8Ps” framework … and analyze the optimal response to these.

Central to the truly effective customer service is knowledge of the customer and his/her needs and expectations. MicroSave’s market research toolkit provides a good basis for assessing these needs and several of the core tools in the toolkit have been modified to support customer service. Many financial institutions are implementing data warehouses to optimize the way they use the information they collect on their clients – this will allow them to predict customer needs, define service expectations, focus direct marketing efforts and begin to cross-sell a range of their products to their clients.

Process Optimisation

There is a growing recognition that some financial institutions have not paid adequate attention to optimizing the processes used to deliver their products and services to their clients. The basic procedure used to analyze and improve delivery processes is broadly:

  • Set and monitor performance targets for activities and processes.
  • Be alert for signs of stress such as lengthening queues, decreasing numbers of new customers, falling activity rates, longer working hours for staff, increasing customer complaints, increased agent churn, etc.
  • Look for lost-cost, quick wins such as minor adjustments to procedures to save processing time, re-refining job descriptions or adjustments to physical infrastructure.
  • Improve your sources of information by using client satisfaction surveys, customer exit surveys and serviced suggestion boxes or through internal/external evaluations.

Study existing processes, through process mapping or activity-based costing.

Process mapping involves the detailed analysis and recording of systems and procedures in the form of a flowchart to identify inefficient or redundant procedures and to optimize the risk/efficiency trade-offs.

Technology

With the growth of technology-based opportunities to enhance service standards and delivery processes, technology has to be an important part of any forward-thinking financial institution’s strategy. Financial institutions should therefore not only constantly examine options for technology-based solutions, but also subject them all to rigorous cost/benefit and risk analysis. Furthermore, in many countries – particularly in rural areas, infrastructure issues need careful assessment since unreliable electrical supplies, high levels of dust or problems with availability of spare parts or rapid-response maintenance capability can turn a technology-based dream into a nightmare.

That said, effective computerization can significantly increase the speed and efficiency of processing transactions and of generating financial reports and management information. By introducing Bidii, a card-based system to replace the old passbook, Kenya Post Office Savings Bank was able to reduce the cost of processing salary deposits by 58% and withdrawals by 36%. The saving in teller-client interface time also meant that KPOSB could double the number of clients it served without increasing the congestion in the banking halls.

Employee Relationship Management

To help employees meet and exceed the service expectations of customers, the financial institution should set customer service standards. Service standards are measures against which actual performance can be judged. Staff must understand what management wants them to do and how often they want them to do it, it is therefore essential to:

  • Spell out your institution’s service policy.
  • Establish measurable criteria and set standards.
  • Specify and prioritize actions you want employees to take in response to customers.
  • Recognize employees who exceed customer service standards.
  • Involve customers in providing feedback.

Customer service standards in financial service organizations typically involve a mixture of quantifiable factors and less quantifiable factors. Quantifiable factors might include speed/efficiency of service (although it is important to note issues of centralized vs. de-centralized decision making and how these affect speed/efficiency) and knowledge of products, systems and procedures etc. Less quantifiable factors include staff members’ professional appearance, friendliness, and attitude – ah those smiles!

Ultimately, however, performance must be assessed through customer satisfaction analysis involving both existing clients and exiting or past clients. This analysis is aimed at testing performance and identifying opportunities for innovation, and requires both qualitative and quantitative primary research using focus group discussions, mystery shopping and quantitative surveys such as ServQual questionnaires.

What Interventions Small and Marginal Farmers Need?

Posted on by MSC

Agriculture sector throughout the world is experiencing rapid technological advancements in its attempt to meet ever rising food requirement. Modern farming now requires use of sophisticated seeds, fertilizers, pesticides and mechanised instruments increasing the capital requirement in farming operations. As a result small hold farmers are often unable to upgrade their farming systems due to financial constraints unlike large scale farm owners. This widens the productivity gap between the small and large scale farm owners. In this video Sharad Bangari from MSCexplains the financial needs of the small hold farmers, limitations of small hold farmers in obtaining institutional credit and the interventions necessary to move them out of this productivity trap.