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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.

What Is driving agent churn in the mature East African markets?

Posted on by MSC

One of the most striking findings from TheHelix’s Agent Network Accelerator (ANA) surveys has been the high levels of agents that have been in business for less than one year. In Tanzania, only 18%, and in Uganda 21%, of all agents had been in business for two years or more.  In Kenya, 40% of agents had been in business for 2 years or more. In part, a large number of novice agents (in Uganda 52%, and in Tanzania 45%, of agents, have been in business for less than one year) may be ascribed to the rapid expansion of agent networks in these countries.

We know, for example, that in 2013 Kenya Safaricom tried to persuade M-PESA agents to hold more liquidity by increasing commission rates on higher value transactions. When this had little/ no impact on agents’ liquidity holdings, Safaricom returned to their original approach of saturating the market with agents. This allows customers seeking to conduct larger transactions to either go to the larger agents that hold bigger liquidity pools (for example those of PEP Intermedius) or split the transaction across several of the larger numbers of smaller, less liquid, agents. MicroSave’s qualitative research indicates that this is now essentially accepted market practice in Kenya. But rapid agent network growth is unlikely to be the full story.

In Uganda 78%, and in Tanzania 70%, of agents expected to be in the agency business in a year’s time. This implies a latent churn rate of 22-30%, which is somewhat alarming, given the requirements to locate, onboard and train new agents. (Although the ANA data suggests that most providers, with the notable exceptions of Safaricom and Equity Bank, still provide limited training, monitoring, and support services. This is sad, given that so many of agents’ operational problems, particularly round fraud management, could be mitigated by these basic maintenance activities).

But the projected churn figures in Uganda and Tanzania are positively reassuring compared to Kenya, where only 58% of agents said they thought they would be an agent in one year’s time.  So if agent churn is indeed so high, what might be driving it?

We began to unpack this in the blog Challenges to Agency Business – Evidence from Tanzania and Uganda. And, as can be seen from the graph, the findings in these two countries were reflected again in the most recent Agent Network Accelerator data from Kenya, where once again the risk of fraud and armed robbery topped the list; closely followed by the challenges of dealing with customer service when transactions go awry or the system is down.

But a growing number of agents in Kenya are also complaining that they are simply not making enough money from the business. We have seen that overall agents in Kenya make a median monthly profit of $70 – compared to $78 in Uganda and $95 in Tanzania. However, disaggregating this to look at the rural agents, we can see that Kenyan rural agents only make a median profit of $53, compared to $86 in Uganda and $95 in Tanzania.

Agents primarily ascribe this to, “Too many other agents competing for business” as well as (to a lesser extent) challenges around float management. Should we conclude that “saturating the market” has limitations and drawbacks as a strategy?

Mobile financial services: Is there room for the small, the independent, the different, the nichy, the innovative?

Posted on by MSC

We have seen in a number of countries how, when they work well, branchless banking and especially mobile money systems can reach millions of people. But beyond the headline numbers on customers reached, the record of such systems as a vehicle for financial inclusion is still mixed: we can hardly talk about a globally-proven solution.

Let me draw some stylized facts from the international experience:

Branchless banking systems have only tended to work at large scale. There does not appear to be an easy, gradual incremental path for providers wishing to deploy branchless banking solutions. There seems to be a chasm between the large numbers of institutions that have run sub-scale pilots and the much smaller set that have succeeded in establishing commercially sustainable branchless banking operations. As a result, there are very few examples of smaller entities –whether banks, mobile operators, microfinance institutions, or other third parties— successfully incorporating branchless banking solutions in a sustainable, impactful way.

The space is still dominated by mobile operators. Few banks in the world seem to have made sizable bets to develop agent networks, and most of those who have built agent networks have tended to see them as an add-on for specific services (e.g. utility bill or credit collections, social welfare payouts) or for specific segments (e.g. poor, rural people) rather than as an extension of their core business. Non-financial companies with a retail or distribution background have been reticent to jump into space. Therefore, space has been left largely to mobile operators, who have an easier time conceiving of a transactional, high-volume, low-touch approach.

Customers tend to use branchless banking systems relatively infrequently, and only for a limited range of applications. The median active user is likely to make a transaction only once or twice a month – typically a remote person-to-person or bill payment, and some mobile airtime purchases. It is not common to see branchless banking being a “stepping stone” or “gateway” into the use of a fuller range of financial services. In fact, where mobile money has flourished, it is far more common to see the opposite: fully-banked people adopting mobile money as “liquidity extension” to their banking service.

Branchless banking is not fundamentally reducing people´s reliance on cash. Most mobile money transactions start and end in cash. We may refer to it as a mobile or electronic transaction, but most customers would understand it as a cash-to-cash money transfer, akin to what Western Union has always done. The payment may be electronified, and as a result, the distance that cash needs to move is much reduced. But the underlying money is not electronified since the value is largely held in cash before and after the transaction. Branchless banking systems have generally failed to position the store-of-value function of customer accounts among the previously un- or under-banked, and the result is that the majority of accounts are actually or practically empty.

Branchless banking systems tend to exhibit relatively low levels of service innovation. Branchless banking –and in particular mobile money— systems are about exposing financial service platform functionalities directly to the customer by digital means. But this has not brought on the kind of constant innovation that has been the hallmark of internet business models. Of course, the need to work on basic phones has hampered the ability to innovate, but the fact remains that most branchless banking providers have brought on new services or optimized their user interfaces not more frequently than annually, if at all.

There are of course counterexamples to each point, but they are few. Zoona in Zambia is a small, independent organization growing a purely mobile-based money system incrementally by exploiting specific niche opportunities. The much larger bKash in Bangladesh operates largely as an independent entity, even though it is backed by BRAC Bank which is part of one of the most influential organizations in the country. Equity Bank in Kenya is making a big push into the mobile space with its acquisition of a mobile virtual network operator (MVNO) license.

The above factors are all inter-related, like distinct symptoms of a broader malaise. The pattern of starting and ending in cash most transactions in cash raises costs and presents a brutal business challenge of having to ensure sufficient density of liquid agents in each locality served. Higher transaction costs make the system less compelling for lower customer-value-adding transactions, such as savings or face-to-face merchant payments, which on the other hand, offer the highest potential pool of transactions. In the face of low usage levels per customer and the inherent network effects of payment businesses, the economics can only work for those able to aggregate the largest number of customers, and in particular mobile operators with a mass-market transactional business model. Other big players such as banks may not see a positive business case, or if they do, may fear that the new branchless banking activity may cannibalize their core business or be margin dilutive. As a result, few players in each market enter the business, and when they do they tend to underinvest in IT platforms, staffing and marketing spend. With such shoestring resources, they become easily overwhelmed by day-to-day operational issues and do not devote much attention to the service roadmap. With lack of effective competition, innovation falters.

Let´s not concede that branchless banking must push the unbanked into the arms of the larger banks and telcos in the country. Now that we have a good decade of experience with mobile financial services, it behooves us to look back on the trajectory and see what course-corrections can be made to spur more competition and innovation for the benefit of the world´s poor. This should start with regulation, which needs to shift from being merely enabling to being pro-competitive, as I argue in this paper.