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“Train me like this”: Lessons from the pilot on IIBF BC/BF certification

Posted on by MSC

“I scored 28 marks in my first attempt,” says Vikas Kumar, a 32-year-old business correspondent (BC) who finally cleared his Indian Institute of Banking & Finance’s Business Correspondents/ Facilitators (IIBF BC/BF) examination. This was his second attempt in the mandated certification examination to become a cash-in cash-out (CICO) agent. Vikas is among hundreds of other registered business correspondents who must qualify to operate as a CICO agent. However, he had to invest INR 1,200 (USD 16) to get through the examination—INR 800 (USD 10) for the first attempt and INR 400 (USD 5) for the second attempt.

The conundrum of IIBF BC/BF examination

In 2018, The Reserve Bank of India (RBI) authorized the Indian Institute of Banking & Finance (IIBF) to conduct the examination and certify CICO agents (see the rules and syllabus). The IIBF is a registered training body for the banking industry. The regulator introduced the certification to ensure that all BC agents had the basic knowledge of banking operations. The examination tests BC agents on topics, such as the basics of banking, types of interest rates, understanding of financial inclusion products—such as Pradhan Mantri Jan Dhan Yojana, Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, Atal Pension Yojana, and complex concepts like cash flow.

Between 2012 and 2021, out of approximately 300,000 agents, who appeared for the IIBF BC/BF exam, only 62% passed the exam. Therefore, an estimated number of about 1.3–2 million agents lack the IIBF BC/BF certification[1]. The inability to clear the examination affects BC agents and Business Correspondent Network Managers (BCNMs). While the agents lose their livelihood, BCNMs or Banks lose active agents and spend additional resources recruiting and training new agents. Further, changing an agent reduces the trust locals have in the BC channel.

To overcome challenges in clearing the examination, MSC ran a pilot with the Centre for Development Orientation and Training (CDOT)—a BCNM that operates across eight states and 3,000 villages in India.

As most agent network managers in India have a dedicated team to train agents, we used the existing training structure at CDOT but modified the pedagogy and content. The interventions improved the conventional training method that handed over a guidebook or translated version of prescribed content to the BC agents earlier.

A design thinking approach to create an agent-centric solution

The MSC team observed that the current IIBF BC/BF module was complex for many potential agents. The technical terms and complex concepts often confuse the agents when they read the module. Further, they could not find answers to their questions in the module. For example, agents may know some commonly used English words like “fixed deposit” and “fund transfer,” but their Hindi translations are complex and archaic. In addition, from our interviews, we found out that most agents had never heard of concepts like “cash flow.” To tackle this, we divided the monolithic learning session into smaller, manageable modules and conducted counseling sessions for the agents.

The BCs were trained in smaller groups using a virtual classroom setup (Zoom/Google meet). The training was conducted in a counseling mode, and the content was shared upfront with the agents. The counselor (trainer) discussed the concepts and addressed questions in a session. The counselor encouraged the agents to discuss concepts and terminologies and highlighted the best approaches to attempt the exam and the commonly asked questions.

Enhancing agent certification rates by more than 43%

The immediate outcome of the overall intervention was encouraging.

Interactions with the agents revealed that their confidence while dealing with customers increased. As found in our earlier work, a confident agent will likely attract more customers. The counseling-led training increased revenues for the agents.

CDOT’s 175 agents appeared for the exam (see figure above). Of them, 151 (86%) passed the exam—a significantly higher number than earlier experience and comprehensive market data. The commission of certified agents also improved substantially.

In 2020, 128 agents saw an increase in revenue compared to 2019, with a median increase of INR 3,855 (USD 50)—150% from the previous year’s commission income. Of these, 110 (86%) had passed the exam. The remaining 18 agents, who failed the exam, only saw an increase of INR 2,014 (median increase of 67%).

In the few cases where agents’ income declined, the reduction in revenue over the past year was lower for the agents who passed the exam (median decrease of 27%, INR 1,330 (USD 17)) than for those who failed the exam (median reduction of 35%, INR 1917 (USD 25)).

“Earlier, I was afraid of cash handling matters. Now I can deal better with the customers as I am aware of products better. I provide services in the entire panchayat area.” (A CDOT agent in Bihar).

CICO agents in India have specific characteristics. These include their diversity (see figure below), the contexts in which they operate, the varied bouquet of services they offer, and the associated risks posed by the different technologies they use.

Figure 1: India has different archetypes of Business Correspondents (BCs)

Variations in these characteristics give rise to a persistent question — “Is the present system of certification through a single examination an appropriate long-term strategy for India?”

With an overwhelming 90% of the existing BC ecosystem providing essential CICO services, policymakers may like to relook at the level of competency or the skill set required. One way to look at the solution is to have graded certification for different levels of BCs. The graded certification can vary by the type of services offered by BCs, as is available for payment banks (PBs) agents. The agents of PBs can pass the first module and start working as agents of PBs, while they offer restricted services. Then, the agents can graduate to the next level if they want to serve as agents for universal banks.

Finally, we believe that the providers must take a long-term strategic view to build their agents’ skills, considering adult learning principles and agent needs. CDOT’s pilot is an early indicator to adopt the counseling-led training model that increases agent income and reduces agent drop-out.

[1] As of December, 2020, the RBI provisional data suggests that there are 1.5 million agents countrywide. The industry estimates and some extrapolation based on NPCI unique device (AePS) activities suggest 2.3–2.4 million agents in India. Since 2012, 187,667 agents have passed the IIBF BC/BF examination. Hence, the number of agents without certification ranges from 1.3 million to 2.1 million.

Could 2022 be the watershed moment for the CICO networks in Indonesia?

Posted on by MSC

Cash-in and cash-out (CICO) networks are the backbones of any digital financial inclusion program. Despite having one of the largest unbanked populations in the ASEAN region, it was only in 2014 that the Indonesian policymakers passed regulations for branchless banking. The regulations gave impetus to the CICO networks as a last-mile delivery channel for financial access. The country has made remarkable progress on financial inclusion ever since. SNKI’s recent survey shows that financial account access increased from 24% (2015) to 62% (2020) over the past five years. This tremendous growth in financial account access is accompanied by an exponential growth in the CICO networks, both in numbers and services offered.

The graphic below outlines the evolution of CICO agent networks in Indonesia through the years:

Some estimates indicate more than 5 million CICO agents operate in Indonesia, including more than 2 million banking agents (OJK, 2021) and 3–4 million FinTech (non-banks) agents. However, the growth in the absolute number of CICO agents did not affect the quality of access provided through such networks. Further, while the number of CICO agents in Indonesia is considerably high for its size and population, MSC estimates that the actual number of active agents may be significantly less.

In 2017 and 2019, MSC assessed the health and sustainability of CICO networks in Indonesia, which highlighted low benchmark scores for crucial access, usage, and quality parameters. These issues were related mainly to the limited last-mile penetration of CICO networks, low volumes of transactions, and the overall sustainability of such networks as a complementary business line for an agent. The studies also showed that, except for one or two big players with deep branch networks, most service providers struggled to sustain the CICO network, particularly in remote rural locations.

Backed by evidence-based insights, MSC highlighted some of the significant regulatory and policy roadblocks that prevented Indonesian CICO networks from achieving their full potential over the past five years. A critical regulatory issue that slowed the development of quality CICO networks was the lack of professional agent support services. Indonesia did not permit or encourage the concept of experienced third-party agent network managers. Third-party ANMs have been critical to the success of CICO network development in other more mature markets, such as India, Brazil, and Kenya. In January, 2022, OJK announced amendments in the branchless banking regulations. These changes address some of these issues and lay the foundation of an efficient and competitive CICO network infrastructure for the last mile.

The section below provides significant highlights of the new draft regulations:

Amendments in the draft regulations might appear incremental. Yet, the overall impact of these regulatory changes could be significant when combined with the changes announced by Bank Indonesia for the operations of payment service providers (Bank Indonesia Nomor 23/6/PBI/2021).

MSC published a paper in 2018 on “Aligning regulations to enhance digital financial inclusion in Indonesia.” We highlighted aspects of e-money and branchless banking regulations that required harmonization to reduce entry barriers and create a more level playing field for the service providers engaged in CICO network infrastructure. Bank Indonesia’s latest regulations address some of these concerns by allowing banks or non-banks to recruit individual agents (Article 172) and allowing service providers to collaborate with third parties for agent network management (Article 175).

We expect the recently announced amendments in the regulations to transform the CICO networks in Indonesia. In particular, we anticipate the following critical implications:

Deepening of CICO networks: MSC’s research highlights that in Indonesia, around 85% of bank agents for most service providers operate within a 15-minute distance from a bank branch. Therefore, despite the significant number of CICO agents, many households in remote rural areas lack convenient access to CICO services. The new regulations reduce the entry barrier for service providers to expand their CICO network into remote areas. They can now partner with professional agencies that have the capability and competence to build and manage distribution networks. This model has worked remarkably well in other more mature CICO markets like India, Bangladesh, and Kenya.

Increased competition and consolidation: One or two big players dominate the CICO landscape in Indonesia. Despite the challenging business case, these players either have a brick-and-mortar presence through their existing branch networks in rural areas or have deep pockets to sustain their networks. However, many FinTech players operate on the PPOB (payment point online bank) model and provide a limited set of over-the-counter (OTC) services, primarily top-ups and bill payments. These players may merge or collaborate with large incumbents to sustain such high-volume, low-margin businesses. The new regulations may also increase the choice for customers to access alternative channels for CICO, including a more comprehensive bouquet of digital financial services through non-bank or FinTech agents.

Improvement and innovations in agent management practices: With a booming FinTech ecosystem, Indonesia may also witness the emergence of new FinTech solutions that redefine the existing agent network management practices, including recruitment, training, liquidity management, monitoring, and supervision, and make them more efficient. Given concerns around sustainability, most service providers have not invested adequately in technology-enabled agent network management solutions. Further, due to the regulatory uncertainty, many FinTechs shied away from building agent network management as a standalone business line. MSC highlighted the type of changes that may emerge in a recent report for GSMA, including the use of big data and advanced analytics to monitor agents and track or predict their liquidity positions.

The significant role of agents in customer acquisition: MSC’s ANA research highlighted that only 28% of CICO agents offered account-opening services. This means that most customers transacting at CICO agents were the bank’s existing customers. The Laku Pandai program added only a few new customers. However, the revised regulations may encourage CICO providers to design an efficient digital process that allows customer acquisition for savings accounts and credit. MSC’s research on KYC practices in Indonesia shows that providers can reduce customer acquisition costs significantly through digital identity solutions. However, its success will depend on an enabling digital identity infrastructure provided by the Government of Indonesia.

While the new regulations ease some of the supply-side pain points, the success of CICO networks will continue to depend primarily on critical demand-side issues, such as building appropriate use-cases that drive transaction volumes at the CICO agent point. Meanwhile, questions persist, such as—how will the commercial engagement models between the incumbents and third parties pan out?

The existing regulations maintain the earlier stance of not allowing service providers to price their CICO services over and above the regular transaction pricing in traditional delivery models. Yet, the concerns around sustainability in the existing business delivery model could limit service providers’ ability to adequately reimburse the third parties for their services.

Overall, the new policy direction for the CICO networks looks promising on paper. However, we are yet to see how the industry embraces these recent changes. Are the service providers already fatigued due to sustainability concerns, or do they see the proposed draft amendments as an opportunity to reassess and reframe their CICO strategy?

Impact of COVID-19 on FinTechs: India

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MSC conducted a three-phase study to analyze the impact of COVID-19 on the Indian FinTech ecosystem. Our first report assessed the impact of the pandemic and the strategies of FinTechs to adapt to changing market conditions. In contrast, our second report shed light on how the FinTech ecosystem has progressed and adapted to the new normal. Our third and final report comprehensively assessed investor sentiments, policy response, and customer behavior in 2021. It looked into the strategies of FinTechs and developments in the ecosystem to bolster business growth over the second wave of COVID-19.

Top MSC blogs of 2021

Posted on by MSC

1. How did COVID-19 affect the incomes of migrants and low-wage workers in India?

The case study is about the impact of the COVID-19 pandemic and resulting lockdowns on migrants and the low-income groups in India. It captures the stories of migrants who were stranded away from their homes without any livelihood. The case study also highlights the adverse effects of the pandemic on the income and jobs of daily wage workers.

2. PMAY-G: Transforming the rural housing program in India (Part I)

The Government of India has envisioned providing shelter to the homeless since the country gained independence. This blog outlines the evolution of various rural housing programs. It also examines the Pradhan Mantri Awaas Yojana-Gramin (PMAY-G), an initiative of the government to provide housing for the rural poor. The blog explores how PMAY-G has improved the provision of housing across the country.

3. MSMEs in Kenya amid COVID-19: A question of survival

This blog presents critical insights from MSC’s research on the impact of the COVID-19 pandemic on micro, small, and medium enterprises (MSMEs) and their coping strategies. We conclude with recommendations for the government to formulate policy measures and for the donor agencies to support the recovery of Kenyan MSMEs and build their resilience.

4. Bangladesh – the basket case that taught microfinance to the world

As Bangladesh celebrates 50 years of independence, we look back at one of its greatest gifts to the world—microfinance. This blog highlights the role of Bangladesh’s four pioneering institutions—Grameen Bank, BRAC, ASA, and BURO Bangladesh. We look at the origin of microfinance and learn how it gained popularity at the local level, global adaptation, business model optimization, and product innovation.

5. Impact of COVID-19 on farmers in Kenya and the government’s response

This blog distils MSC’s analysis of COVID-19 on the farmers in Kenya and their coping mechanisms. The blog further explores how the government supports the sector with relief measures and what more public and private agencies can do to help the sector recover.

6. Digitizing the operations of MSMEs: A big step to strengthen their resilience

About 17% of businesses surveyed by MSC in India, Indonesia, Kenya, and the Philippines have closed due to local restrictions and low demand for goods and services. Meanwhile, micro and small enterprises (MSEs) in the informal sector fared worse. In this situation, digitization has brought ample opportunities for MSMEs.

7. Vietnam’s changing digital landscape: The transformation of FinTechs to super apps in the time of COVID-19

Vietnam is a cradle for the next generation of FinTechs that will drive financial inclusion. This blog explores the impact of the COVID-19 pandemic on the country’s FinTech ecosystem.

8. Getting behind the corona statistics: How a small shopkeeper took on the pandemic

This blog has been written by Rahul Chatterjee, Manager, MSC, with additional material from Stuart Rutherford and Md Kalim Ullah of the Hrishipara Daily Diaries Project. Based on a case study, this blog analyzes how a small corner shop owner in Bangladesh survived the COVID-19 pandemic. It also explores strategies for small shopkeepers to speed up recovery and bounce back from the pandemic’s effects.

9. Mid-day Meal Scheme: How India feeds 115 million children every school day

Over the years, India’s Mid-Day Meal program has capitalized on improvements in the digital infrastructure in the country. It now incorporates systems that enable real-time monitoring and quality checks. Our blog takes a deeper look at this flagship initiative.

10. NFHS 5 calls for urgent action on child nutrition in India

The article highlights findings from the first round of National Family Health Survey (NFHS) 5, a large-scale nationwide survey of households in India, released in December, 2020. The article primarily focuses on five major indicators of child nutrition. It compares the outcome of the first round of NFHS 5, covering 54% of India’s population, with previously conducted NFHS 3 and 4 in 2005-06 and 2015-16, respectively.

Read more publications on our website here.

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

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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

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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.