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OJK adds a suite of exciting tech solutions to address the 100,000+ consumer complaints and ensure stronger consumer protection in Indonesia

Posted on by MSC

Digital transformation continues to change how customers in Indonesia interact with companies and authorities and how they experience business relationships. Yet, it has also led to a wide range of frauds. A recent article highlights that in 2021, authorities have shut down more than 1,800 unlicensed online FinTech lenders and social media applications. The government has blocked 4,875 illegal loan accounts since 2018.

Customers are often the ones to initiate the push to use digital channels. Interestingly, they have changed their habits and expectations considerably. Customers are also now more likely to voice their complaints, and rightly so. The Indonesian Consumers Foundation (ICF) in 2020 revealed a 50% jump in consumer complaints from the previous year. ICF also revealed the major categories of consumer complaints in 2020 have remained constant for five years—complaints against financial service products consistently comprised 34% of all complaints. The complaints across other sectors included e-commerce at 12.70%, telecommunications at 8.30%, electricity at 8.20%, and housing at 5.70%.

As digitization and the use of social media increases, the risks consumers face and the channels they use to air grievances have increased. Similarly, financial institutions also face several new risks due to the extensive use of innovative technologies and operational models. These include risks related to data privacy, cybersecurity, agent, and channel. Regulators are therefore required to enhance and strengthen consumer protection and market conduct supervision. Regulators have now adopted different supervisory technology (SupTech) solutions to supervise the sector and mitigate these risks. Various countries have used tech-enabled regulatory reporting, automated consumer grievance resolution, and non-traditional approaches like social media monitoring and consumer sentiment analysis.

Supervision in a constantly changing digital world

Indonesia is the world’s fourth-most populous country with 274 million people, a relatively young population, and a median age of 28.7 years. Internet penetration in the island nation stands at 67%, which offers fertile land for digital transformation and offers FinTechs the chance to grow. According to a new report produced by FinTech News Singapore, Indonesia is home to 322 FinTech companies, besides 125 registered but unlicensed online lenders. The sector is expected to continue to grow. Besides new players, incumbents are also attempting to digitize their processes and benefit from technology.

Otoritas Jasa Keuangan (OJK), Indonesia’s financial services authority, wants to explore novel approaches to supervise the digitized delivery of financial services, especially for consumer protection. OJK supervises more than 2,500 financial institutions, including banks, multi-finance companies, insurance companies, FinTechs, pension funds, and capital market players. With such a wide range of institutions under its supervision and the rapid growth in digital financial services, OJK seeks to transform its systems. The transformation would allow OJK to get a more holistic picture of all consumer complaints and gauge the effectiveness of internal dispute resolution procedures implemented by the service providers.

Some countries with a high penetration of digital finance technology have also experimented and implemented RegTech and SupTech solutions. The Central Bank of the Philippines has implemented a chatbot solution for customer complaints. It enables the central bank in the Philippines, Bangko Sentral ng Pilipinas (BSP), to address queries and complaints automatically, manage the structure and flow of conversations based on sector expertise and historical data, and use data and insights gathered from the chatbot for oversight and policy formulation. The chatbot has been increasing the efficiency of handling consumer queries in banking, financial services, and insurance.

In 2016, the Central Bank of Nepal (NRB) designed a web portal to act as a single data point for submitting reports from FSPs. The portal would also support the varied technical abilities of the country’s FSPs. Digitizing its regulatory reporting infrastructure has streamlined what data NRB can collect and make available and how, allowing NRB to share more raw data and reports publicly. Digitization offers many benefits in Nepal, including market intelligence for FSPs and overall intelligence on the state of financial stability, financial inclusion, and market conduct.

What dynamic solutions are in store for Indonesia?  

OJK realized the potential of emerging technologies and started an initiative to upgrade its consumer protection practices. OJK’s consumer handling unit shows that OJK received 82,718 complaints in 2018, which increased to 117,099 complaints in 2019, a significant increase of around 40%. OJK developed a chatbot called Kontak 157 and a consumer protection portal, the Aplikasi Portal Perlindungan Konsumen (APPK) platform. Both enabled quick and automated registrations to handle and process these complaints more efficiently. The chatbot platform has already seen uptake among consumers. The chatbot channel and email response system received on average 51,000 complaints monthly.

OJK wants to explore opportunities to use modern technologies to analyze data in real-time and thus identify potential market misconduct or growing risks to financial stability efficiently and accurately. This entails using big data analytics, machine learning, text mining, and other technologies to supervise consumer complaints and provider conduct proactively. The graphic below outlines solutions in the pipeline to be prototyped.

(Links: BOB, FSD Kenya’s social media campaign )

  1. Automated chatbot for the OJK website for consumer education and inquiries or complaints: The chatbot will be used primarily for:
  • Customer service and complaint management: The chatbot will address customer queries or complaints related to interactions with financial institutions and complaints about services or products of a specific service provider or financial institution. The chatbot will use AI and NLP to enhance customer experience and improve the overall resolution process.
  • Customer education and awareness: The chatbot will assist users (through FAQs or the chat function) with consumer rights regarding financial services adoption, usage, grievance resolution, protection of data, code of conduct, or fair practices code. It will also have standard information on financial products and services—do’s and don’ts, pricing criteria, product features, and benefits.
  1. Social media monitoring tools using social media crawling and machine learning for sentiment analysis and advertisement tracking would identify potential fraudulent practices or deviations from OJK guidelines. This solution will automate supervision by monitoring complaints posted on social media platforms like Facebook, Twitter, and Instagram. It would also automatically monitor advertisements that financial institutions post on social media, newspapers, and electronic media.

Through the adoption of these solutions, OJK’s clear objective is better regulatory oversight. Some of the critical outcomes that OJK intends to have through these solutions are:

  • Reduced turnaround time for resolving issues through proper prioritization and categorization, after which authorities and officials can take necessary measures;
  • Effective identification, tracking, and reporting of any deviations from regulations and collection of relevant evidence;
  • Detection of fraud and misinformation.

Key performance indicators (KPIs) will be captured during the prototyping phase by OJK and MSC to provide some measurable outcomes for adopting these solutions. Some of the metrics will be around the user engagement rates, turnaround times, and accuracy of complaint resolutions.

Getting the ball rolling

Over the next few months, OJK and MSC will work with the selected vendors to develop and prototype the solutions. The prototyping phase for the sentiment analysis will cover one key sub-sector. The chatbot will be tested with a limited audience. Still, it will ensure all integrations and channels for consumers are functioning smoothly. This testing phase is expected to last for six months and help us customize the solutions to the specific requirements for OJK as a regulator. The prototyping will include adding appropriate context, adjusting to ensure the correct terminologies and nomenclatures, and calibrating for other biases.

During this phase, MSC will document and share lessons from the steps of implementation, the impact and progress against our set KPIs, and the key takeaways for others looking to implement similar solutions. Stay tuned as we publish these updates.

The digital journey of Shakti Foundation for Disadvantaged Women (SME loans): A lesson for progressive MFIs in Bangladesh

Posted on by MSC

By following the path of digital transformation in its SME program, an MFI in Bangladesh registered an eightfold increase in the number of SME accounts and a 12-time increase in the loan disbursement amount. That too, in a span of just two years (July ’19 – June’ 21). This growth is despite the slowdown during the COVID-19 lockdown in the country.

The exponential growth in the number of SME loan accounts and disbursement amounts was due to the inherent benefits of the digital interventions implemented by the MFI. These benefits include a better ability to make timely decisions, reduced turnaround time to process the loan applications, strengthened internal control and reduced fraud among many more.

The journey of mobile financial services at BURO Bangladesh: A lesson for the microfinance sector in Bangladesh

Posted on by MSC

The context of mobile financial services at BURO Bangladesh

Small shop-owner Ruksana Begum has been a member of BURO for seven years. She used to repay her loans and save in cash at the weekly center meeting. Ruksana had to shut her shop to attend the meeting. So when BURO introduced the option of paying using mobile financial services (MFS), she switched immediately. Ruksana believes that besides saving time, using MFS protected her during the pandemic. Through MFS, she could avoid physical interactions to repay her dues and receive remittances from her husband, who works in Qatar.

About six years ago, BURO decided to offer mobile financial services (MFS) to its members, primarily women from the low- and moderate-income group spread across Bangladesh. The MFS option was BURO’s twin-pronged strategy to deal with rising cash-related fraud by staff while providing a convenient way for its customers to repay loans.

This case study charts BURO’s journey in MFS and highlights the critical benefits for the NGO and its customers. MSC supported BURO to undertake the digital journey under the Digital Microfinance project[1] commissioned by MetLife Foundation.

BURO’s MFS journey

BURO started the MFS journey in 2015 in collaboration with an MFS provider. BURO developed its mobile financial services with an end-user-centered approach. To do this, BURO and MSC consulted prospective MFS users to understand their needs, attitudes, preferences, and behaviors. We then secured buy-ins at all levels through discussions with domain experts, senior management, and field staff.

However, the pilot did not yield desired results due to several challenges. BURO discontinued the pilot in 2017 to resolve them. Eventually, BURO resumed the pilot with a new MFS partner, bKash, in 2019. The following graphic captures a snapshot of the journey that BURO undertook to introduce MFS.

[1] MetLife Foundation and MicroSave Consulting (MSC) conceptualized the project in 2015.

The outcome of the project

How do mobile financial services (MFS) benefit BURO and its customers?

  • The convenience of anytime-anywhere payments for clients

MSC’s interviews revealed that BURO’s members liked to repay through MFS. They can transact any time and from any place without hampering their daily business activities. Specifically, female clients find MFS convenient. It lets them continue their transactions without stepping out and thus handle household affairs uninterrupted. Moreover, families that receive online remittances from abroad are happy with MFS as it rules out the need for physical cash. These advantages have led to the high voluntary uptake of MFS for BURO, despite the 1% associated fee it entails for customers.

  • Savings in terms of time and cost for field staff have led to higher operational efficiency

MFS helped BURO’s field staff reduce their time spent on each group meeting by 25%. They now focus on their other responsibilities to improve branch operations and profitability by prioritizing the collection of overdue payments and expansion of business. Moreover, the automatic account posting[1] of MFS transactions has reduced the overall bookkeeping time at the branches by 11%. Further adoption of MFS by members will further improve BURO’s operational efficiency.

  • Better staff monitoring and elimination of cash-related fraud

MFS has helped BURO eliminate cash-based transactions, as field staff do not need to handle any cash for MFS customers. As of June 2021, 7.3%of all transactions by BURO members occur through the MFS channel. MFS has sharply reduced cash-related misappropriation by field staff while improving staff monitoring through near-real-time digital updates on-field activities to portfolio managers. Cases of misappropriation-based staff terminations at BURO reduced by 15% compared to the pre-MFS period.

  • Staying resilient during crises

Bangladesh grappled with the twin crises of Cyclone Amphan and COVID–19 in 2020. With an intervention like MFS, BURO gained a competitive edge. It could now collect loan installments from its clients digitally without relying on physical interactions. The share of MFS in BURO’s total monthly collection amount grew during the pandemic, and reached 5.7% in June 2021.

  • Enhanced brand image for BURO

The benefits of MFS for clients and field staff have helped BURO improve its overall brand image. The number of field staff leaving the organization has reduced by 22% after it rolled out MFS.

What did BURO do to overcome the challenges faced during the pilot, and achieve its goals?

BURO faced many operational and technological bottlenecks during the initial phase of its MFS pilot (2015-2017). Lessons from this phase helped BURO plug the identified gaps and prepare itself better for phase II of the pilot:

  • Staff deployment: BURO deployed contractual staff in the field during the first phase of the pilot, but their performance and level of effort were unsatisfactory. In response, BURO created a dedicated MFS team of regular employees and achieved the desired results.
  • Staff training: The first phase of BURO’s pilot suffered due to the limited understanding of field staff regarding MFS processes. BURO realized this, and trained more than 9600 field team members on MFS technology for the second phase of the pilot.
  • Client training: During the pilot review of Phase 1, BURO identified an awareness gap regarding MFS among both staff and clients. BURO has since mandated training on MFS for all its field staff and new employees. This trained field force educates the clients on the benefits and processes of MFS.
  • Branch automation: BURO faced multiple technological glitches during the first phase of its MFS pilot. It upgraded its MIS system[2] to creating a robust technical backend. BURO migrated all the branches in a phased manner to the new online mode by June 2020. The branches now have integrated inventory, fixed asset management systems, and regular branch operation on the new online platform.
  • Inadequate agent presence: BURO had partnered with an MFS service provider for the initial MFS pilot. It had a limited field presence in BURO’s operating geographies. The leading MFS provider, bKash, had a much more pervasive and accessible agent network in the territories, thus making cash in/cash out much more convenient for BURO members.
  • Partnership with bKash: In 2019, BURO collaborated with bKash for mobile-enabled deposit and collection services for loan installments. A well-planned integration exercise ensured a smooth handshake between the systems of both organizations.

What made mobile financial services work in BURO?

BURO had been working to achieve its goal of digital transformation since 2015. Although it faced multiple challenges in the initial phase of the MFS pilot, the team at BURO did not waver from its mission and addressed the challenges actively. In 2019, BURO set up a dedicated MFS core team within its business vertical. This team plugged operational gaps identified in the initial phase and accelerated the rollout of MFS across the organization. Another significant step was when BURO upgraded its core IT system, which enabled the introduction of the MFS. BURO’s organizational commitment and its senior management’s foresight paved the way for the MFS pilot’s success.

The way forward

We suggest two measures to strengthen the MFS initiative among microfinance institutions in Bangladesh:

  1. Develop a policy framework for MFIs to offer MFS services: Since BURO’s MFS pilot has shown encouraging results, it could become a case study for the regulatory authorities in Bangladesh to develop a policy framework for MFIs. The framework would encourage MFIs to build technical capacity, and roll out MFS services for their members. The initiative will help improve MFS adoption across microfinance customers in Bangladesh.
  2. Reduce transaction fees for microfinance customers: MSC’s primary research reveals that microfinance members perceive the 1% transaction fee as an increased interest rate. The price impedes the widespread adoption of MFS significantly. Stakeholders, especially the regulators, as well as MFS providers and microfinance institutions, can discuss ways to reduce the fee for microfinance members. Large-scale adoption of MFS among members would greatly support Bangladesh’s digital economy in the medium and long term.

[1] Before BURO introduced MFS, the Branch Accountant would manually check the deposited amount with the collection sheet and post it in the books; MFS technology has automated this process through digital transactions.

[2] Earlier, BURO used to work on a paper based standalone MIS system. It has now deployed the gBanker database solution in all its branches.

 

 

A framework to design user centric social protection programs

Posted on by MSC

A user-centric lens can potentially lead to programs that respond to beneficiaries’ needs throughout the different stages of a program’s lifecycle. MSC has developed a framework that governments, policymakers, and program implementers can use to design and evaluate social protection programs worldwide through a user-centric lens. The framework deploys three overarching principles to design and analyze social protection programs through a user-centric lens. These principles are inclusion, choice, and transparency, which the paper explores in detail.

COVID-19 and FinTechs in Bangladesh—impact and resilience

Posted on by MSC

The COVID-19 pandemic had a pronounced effect on FinTechs in Bangladesh. As an enabling partner and active advocate of the digital financial services (DFS) and FinTech ecosystem of Bangladesh, MSC sought to evaluate the extent of this impact. We conducted this landscape study on FinTechs in 2021 with Visa’s support. We worked with representatives of FinTech, regulators, accelerators, incubators, and the investor community. As a global leader in the payments space, Visa also shared its expertise with MSC. We synthesized insights and sentiment from the local market with global best practices to outline actionable pathways toward building resilience for FinTechs in a post-pandemic world. The phase 2 report evaluates the impact of COVID-19 on FinTechs in Bangladesh and uncovers routes to building resilience.

The report from the first phase study is available on the MSC website

Low awareness of fertilizer subsidy: A challenge to subsidy reforms

Posted on by MSC

In the past two decades, the Government of India has increased the subsidy provided on fertilizers from USD 1.3 billion to USD 11 billion, as illustrated in the graph below. The subsidy has remained consistent at around 1-1.5% of the Gross Domestic Product (GDP). However, over the years, the distribution of fertilizers has become prone to “leakages.” The Economic Survey of 2015-16 estimated that 65% of the fertilizer produced does not reach the intended beneficiaries—small and marginal farmers.

In response, the Government of India (GoI) modified the fertilizer policy in 2018-19. It introduced a new direct benefit transfer (DBT)system in March 2018. Under this system, fertilizer manufacturers receive subsidy payments only after retailers sell the fertilizer to farmers through successful Aadhaar-based biometric authentication. DBT has facilitated the real-time tracking of fertilizer movement, demand estimation, and availability of stock. DBT in fertilizer helped the GoI save USD 1.54 billion during the first year. However, several challenges persist in the distribution of fertilizer in India.

The government has been considering a policy shift to direct cash transfer of the subsidy amount to the bank accounts of farmers rather than fertilizer companies. This move is expected to improve the efficiency of nutrient usage and ensure the delivery of the subsidy directly to end-users. The draft report of a panel under Ramesh Chand, a member of the NITI Aayog, shined a light on the feasibility of the implementation of DBT to farmers. The report also highlighted the criteria to determine the amount of subsidy, periodicity of subsidy transfers, and the mechanism of fund transfer, using data on beneficiaries and their landholdings from the PM-Kisan program. To ensure that the policy shift is implemented smoothly, it is essential to educate beneficiaries on the new system.

Low awareness among farmers may pose a challenge: Evidence from the ground

In our study,[1] we assessed the awareness of the subsidy regime among farmers. The data collected from more than 11,000 farmers from 18 states indicated that most beneficiaries are not aware of the current policies and practices. Only one-third of the farmers knew that they purchase fertilizers at a subsidized rate. Another one-third believed that they receive no subsidies on fertilizers, while the rest remained unaware of the subsidy.

In eight out of the 18 states surveyed, less than 25% of farmers knew that the government provided subsidies on fertilizers, (see figure 2).

All categories of farmers—marginal, small, semi-medium, medium, and large—had limited awareness of the subsidy. However, the level of awareness varied significantly among the five categories (test statistic 143.96, p-value 0.000).

Of the farmers who were aware of the fertilizer subsidy, around 70% knew that they purchased subsidized bags from retailers, with INR 720 (USD 10) mean subsidy per bag. This amount was close to the subsidy amount provided by the government per bag of urea.

 

The challenges ahead

Some of the states that consume high amounts of fertilizer, such as Bihar (12%) and Uttar Pradesh (21%) have low levels of awareness regarding subsidies on fertilizer. A policy shift to deliver the subsidy directly into the bank accounts of farmers may evoke shock and displeasure since this would require farmers to first purchase fertilizers at the market price.

When asked about their preference for the subsidy regime, less than half (43%) of the farmers who were aware of subsidy on fertilizers preferred direct transfer into their account to the current option of buying subsidized bags of fertilizers. A possible reason for this reluctance is the high upfront cost involved in the purchase of fertilizers at non-subsidized rates. Farmers may find these costs difficult to bear given the high indebtedness among farming households. Based on our study, we found that farmers may need an additional up-front investment of INR 20,850 (USD 297.86[2]) to purchase fertilizers. According to the All-India Debt and Investment Survey, 2016 of the National Sample Survey Office, the incidence of indebtedness stood at 31.4 % among rural households, with an average debt of INR 110,438 (USD 1,488) and a debt-asset ratio of 7%. More large farmers (69%) and medium farmers (67%) with higher incidences and amounts of debt preferred the current subsidy policy as compared to small (55%) and marginal farmers (52%) (Pearson’s chi-square statistic of 149.52 and p-value = 0.000). Based on their experience with other programs, farmers fear that the subsidy may get delayed or they may not receive the amount altogether due to technical failures. As the purchase of fertilizer at the market rate involves high upfront investment, farmers may be reluctant to change.

Need for a focused communication strategy

The obstacles around a policy shift in subsidy are two-fold. Firstly, with low awareness of the current subsidy regime, farmers may find it difficult to accept the idea of receiving the subsidy amount directly into their bank accounts after purchasing fertilizers at market rates. Secondly, the preference for the current subsidy policy among farmers may prolong the process of implementation if the policy shift is not communicated properly.

Communicating the shift in policy will be key to transitioning from the status quo to the proposed approach. MSC’s experience shows that effective communication before, during, and after reforms in subsidy is essential to ensure its smooth roll-out. An effective communication strategy will need a range of considerations and components for different stakeholders. The government will have to evolve a communication strategy that involves the following elements:

  • Use outreach and two-way dialogue with citizens to highlight the need for reforms and their benefits;
  • Consult with stakeholders and institutions to understand their concerns and perceptions about the planned reforms;
  • Enable a feedback mechanism and an effective grievance resolution mechanism;
  • Communicate consistently through evidence-based messages to build understanding and support for reforms, as well as minimize negative perceptions and potential social impacts.

Drawing from our experiences on G2P payments and direct benefit transfers, MSC has devised a communication approach to develop and deliver impactful messages to stakeholders on any policy change. Based on Well Made Strategy’s approach, this six-step process recommends –

Before the government implements a shift in policy, it must consult stakeholders, communicate with them effectively during implementation, and address their concerns.

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[1] MSC (MicroSave Consulting) undertook a pan-India study in 2018 on the process evaluation of DBT in fertilizer. The research used a nationally representative sample of 11,281 farmers and 1,182 retailers from 54 districts of 18 states. The quantitative research provided national and state-level point estimates on the status of implementation of the pan India roll-out of the Aadhaar-enabled fertilizer distribution system.

[2]The calculation is based on the findings of the process evaluation of the DBT-fertilizer study done in 2018.