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The Revolution MUST be Digitalized

Posted on by M1croSave!2025

In “After the Fall (Part 2): The Revolution Might Not be Digitized,”  Daniel Rozas, Sam Mendelson & Timothy Ogden eloquently argue that Covid-induced digitalization among MFIs is happening much more slowly than expected. “There remains a gap in the capabilities and resources of MFIs, along with a large segment of customers who are not yet ready to make the leap… Many futures are still possible.”

The authors reach this conclusion based on discussions with CEOs of leading MFIs across the globe under the remarkable Sentinel Project. But we at MSC believe it is important to amplify some of the points made in the blog, and repeat the plea for microfinance institutions (and those supporting them) to invest in digitalization and accelerate the pace at which they are digitizing their operations.

It is clear that digital transformation is a journey, not a destination – so incremental progress is to be expected. Equity Bank, one of the leading microfinance providers in Kenya, developed a well-articulated approach and took over a decade to digitalize its operations. It started with the equivalent of a digital readiness assessment (see figure 1 for MSC’s approach to this), on which it based its digital transformation strategy in 2010. MSC worked alongside Equity Bank, providing consulting services, for much of its digital transformation journey.

Equity Bank’s strategy comprised a wide range of strategic and operational variables. With M-PESA playing an increasing role in the market, many of these were context-specific, but digital transformation typically encompasses six key focus areas (see figure 2).

While the digital transformation of Equity Bank was time-consuming and resource-intensive, the results have been spectacular (See graph 1). The vast majority of transactions are conducted outside the bank’s branches, which has allowed it to redeploy tellers and branch staff members to play the role of advisors and wealth managers. Ninety percent of transactions are self-initiated by customers on mobile or e-banking channels. The resultant cost savings, and thus profitability, have been enormous – far eclipsing the very significant investments made in the digital transformation of the bank.

Equity Bank: Growth in customers, profits, and digital transactions

Graph 1

See this short video for more details on Equity Bank’s digital transformation and its remarkable impact.

So while MFIs and the investors behind these often very profitable organizations might claim that they do not have the resources to invest in digitalization, this seems to be a very short-term perspective. This might reflect short-term key performance indicators, but often in our experience, it also reflects a lack of vision and/or a fear of change.

But the pace of change is also slowed by the reality that few countries in Africa, or indeed in Asia, have the level of digital capability that we see in Kenya. Ogden et al.’s concern that many customers are unwilling to “take the leap” into a digital world is well-grounded. Mathematica has developed an elegantly simple approach to segmentation:

Table 1: Segmentation approach by Mathematica

Applying this to four countries in East Africa, based on the Findex 2017 data, we can see that the levels of inclusion and usage are alarming – particularly amongst women (see figure 3). Segments 1 and 2 deserve special attention as they are likely to lack the digital capability to engage with digital financial (or indeed any other) services.

“Surely the Findex 2017 data is old and presents an outdated and thus paints a pessimistic picture?” we hear you say. You may be right. Findex 2021 will tell. But, our discussions with industry experts in Uganda and Tanzania suggest that taxation on mobile money transactions and the debilitating impact of COVID-19 on household income, are leaving increasing numbers of women stranded in segments 1 and 2 … on the wrong side of the digital divide.

Addressing the digital divide will require a greater emphasis on assisted transactions (typically agent-assisted), not self-initiated transactions. By way of example, in Kenya, even after a decade of M-PESA, about half of users (66% of women and 34% of men) still sought agent assistance with transactions. Agents are uniquely well-positioned to deliver money management tools and services tailored to the oral and poor segments – thus enabling MFIs to deepen their service to these groups. This can be done through smartphones or (better still) tablets at agent outlets running apps that provide intuitive user interfaces and reflect the mental models people use to manage their money.

However, to achieve this, MFIs will need to develop products that respond to the needs, aspirations, perceptions, and behavior of their target market and then market them through agents and other opinion influencers and social marketing channels. The poor have more resources and more propensity to save than expected. For example, after about five years, the 450 million PMJDY accounts opened for the unbanked masses of (primarily) rural India. Despite around 50% dormancy, these accounts now have an average balance of INR 3,623 (USD 48). And these relatively stable balances are growing over time. Furthermore, poor people also seem willing to adopt market-priced life and accident insurance policies, when these are adequately marketed. And, of course, the demand for credit can be taken as a given … the question will be how to modify existing products to tailor them to the rural poor.

Digital transformation provides unique and compelling opportunities to build and deliver tailored products for the different market segments served by MFIs (see figure 4). Many of these will require strategic relationships with other financial service providers endowed with the relevant licenses, but doing so will allow MFIs to offer a comprehensive suite of products to enable their clients to manage their household and business finances much better.

The business imperative to undertake the digital transformation journey is compelling. McKinsey estimates that the digital transformation of financial institutions could add 45% to their annual net revenues: 15% from enhanced product uptake and 30% from reduced operational costs. And MFIs have an excellent opportunity to build on the relationships that they have with their current clients to offer an assisted, “phygital” hybrid experience combining physical and digital to meet their needs.

Failure to do so comes with many attendant risks. As Wright noted in The digital transformation: Four opportunities and three threats for traditional financial institutions: “There is a clear and present threat of a yawning digital divide—and with it the demise of many MFIs unwilling, or unable, to transform to operate in the digital world. FinTechs are building their customer base in urban and peri-urban areas with connectivity, smartphones, and the ability to buy data packages. They are serving the high-value customers. Thus, MFIs will be left trying to serve rural communities with poor connectivity, no smartphones, and not enough money for data packages – the low-value customers.”

This means that MFIs would no longer be able to cross-subsidize services to their rural, lower-value customers with the profits from urban, higher-value customers. And most fintechs would not be able to reach rural customers without access to 3G data services and smartphones—even if they were interested in doing so.

If MFIs fail to digitalize, it could mean the end of financial services for the rural poor, because the business case is so challenging, particularly compared to the diverse, low-cost opportunities to serve the higher-value, connected urban market. In short, this could end years of progress towards financial and social inclusion.

The Financial Access first published this article on 2nd June, 2022.

The “Mool” mantra – A neobank for everyone

Posted on by MSC

Opportunity knocks on every phone through the power of digital lending

Posted on by MSC

Only 10% of rural people in India have access to formal credit. The lack of financial history and limited digital literacy makes it difficult for them to avail of loans from formal institutions.

Prakash is a 28-year-old self-employed milk vendor from Kurawar village in Madhya Pradesh. His customer footfall reduced during COVID-19. He could not sell milk to the nearby dairy due to restrictions on travel, and his income reduced. Many others like Prakash had to use their savings to sustain their families during the pandemic. After the situation improved, Prakash needed a working capital loan to expand his business. He asked his friends and relatives about formal institutions where he could get credit. Prakash had never availed a loan before the pandemic. Banks and NBFCs would not give him a loan since he lacked formal credit history.

He spoke about his problem to Kashi, a fellow merchant. Kashi explained how he could use the FLYK application on his smartphone to get a loan to stock his kirana store. This got Prakash interested to understand the process of application.

Many credit FinTechs in India offer solutions to the unbanked and underbanked, with easy digital application processes. Yet they face several hurdles while lending to rural borrowers. Such challenges include limited financial awareness of borrowers, language barriers, lack of income proof, and limited availability of data. FLYK is one such startup that provides credit to the underserved with a specific focus on a simple digital application process.

An idea that pivoted to fulfill the needs of the rural segment

FLYK’s founder Apratim Ganguly had struggled with the rigid norms of the lending system when he applied for a credit card. The bank did not process his application despite his income, lendable CIBIL score, proper documentation, and digital literacy. Apratim realized he was not alone, and young people like him had a need for credit. He developed the idea of lending small ticket-size loans to young people like college students who faced a shortage of money in the absence of income.

Apratim introduced FLYK for such borrowers to avail of loans without a credit history. FLYK’s algorithm analyzes a customer’ eligibility based on data collected by the platform. Apratim realized that FLYK’s scope of lending could include rural borrowers too. He ran a pilot across selected villages near Bhopal and decided to push ahead with rural borrowers after receiving a positive response.

From dreamers to creators

FLYK was Apratim’s second startup. He had met Prafful while developing his first app. Prafful was drawn to startups that worked to make a social difference. Apratim and Prafful decided to build the platform together to enable meaningful change for rural customers through loan services.

FLYK and CRN

We now return to our milk vendor from Madhya Pradesh, Prakash, who was in conversation with fellow vendor Kashi. Kashi explained the concept of the Combined Responsibility Network (CRN), through which FLYK lends. He warned Prakash to thoroughly screen the person he plans to add to his network, as an unscrupulous member would hurt his score.

A borrower can join a pre-existing group on the FLYK platform through CRN or add more members through it. FLYK’s underwriting assessment system for lending combines the study of borrower behavior and alternative data. Any bad repayment behavior affects all group members’ credit standing and the services they can access. The CRN-based approach differs from the traditional joint liability group (JLG) approach that underpins much of global microfinance.

FLYK offers incentives to borrowers to avail platform services like money transfer, credit, soft collections from defaulters, and to refer other customers. Borrowers receive monetary and non-monetary rewards like larger ticket sizes, better interest rates, and cashbacks. If a borrower helps with loan recovery from their network, they get a monetary reward on the FLYK app. Besides motivating borrowers to use the FLYK platform more, the reward system also helps rural borrowers learn the digital process flow as they encourage and support each other to use the app.

Progress for FLYK

With 8,000+ successful downloads, FLYK is taking its first steps toward success. The startup has processed about 1,508 loans until April 2022 and envisions expanding rapidly. Out of 635 users, FLYK has an 86% retention rate on its platform.

Besides the numbers, Apratim is happiest when people like Prakash call him to thank him for the services they receive and leave positive feedback. For the FLYK team, such moments spark the motivation to spread the network further.

 

Where a challenge arises, so does a solution

Addressing the various needs of the rural customers can be difficult due to their low awareness and reluctance to change. Yet FLYK sees rural customers as an opportunity to grow and improve for its platform.

Customer challenges to adopting FLYK

During the pandemic, FLYK struggled to connect with borrowers in the field, so it could not gather vital insights into its borrowers’ credit aspirations. However, this proved to be an opportunity since the team could double down on developing the app and its customer interface. As the team seeks to expand, it continues to play multiple roles to complete tasks effectively.

Support from the FI lab

Earlier, FLYK mainly focused on product development. With MSC’s help, FLYK identified the need to shift the focus toward borrowers. MSC helped FLYK understand potential partnerships to scale up FLYK’s business. Through this research, MSC gathered insights on how FLYK can quickly onboard and train such potential partners.

Future milestones

FLYK’s vision is to become an umbrella platform for various financial and non-financial services. FLYK plans to expand across different geographies, increase its outreach toward the deeper ends of the rural population, and emerge as a holistic financial well-being platform. People like Prakash, who had lost hope of receiving credit earlier, now see a ray of hope through FLYK.

Role of data in micro-credit

Posted on by MSC

Highlights of the webinar on “Catalytic interventions for better CICO management”

Posted on by MSC
  • 01:15 – 03:45 – Akhand Tiwari, Partner, MSC – Welcome note and introduction to the schedule – Catalytic interventions for better CICO management.
  • 04:15 – 13:27 – Dr. Pawan Bakhshi, India Lead, Financial Services for the Poor, BMGF – Highlighted the importance of CICO networks and their growth across India and other countries.
  • 14:30 – 30:40 – Anil Gupta, Partner, MSC – Introduced the range of CICO agent personas in India and their journeys through the agent lifecycle. He also highlighted the complex environment in which the CICO agents operate and the variety of support systems they need.
  • 31:56 – 34:12 – Dave Kim, Program Officer, BMGF – Welcome note and introduction of the panelists and three questions to the panelists: A little bit about themselves, a bit about their organization, and if they had a magic wand to solve one problem for their organization, agents or customers today, what would it be.
  • 34:15 – 35:08 – Abhinav Sinha, Co-founder, Eko India – Introduction about himself and Eko India and answers to Dave’s questions
  • 35:19 – 36:10 – Rachit Narang, Head of Strategy and Investor relations, Airtel Payments Bank – Introduction about himself and Airtel Payments Bank and answers to Dave’s questions
  • 37:50 – 42:03 – Airtel Payments Bank pilot video on “Behavior change communication to encourage the use of agent banking among rural LMI women.”
  • 42:05 – 45:37 – Eko India pilot video on “Banking Correspondent (BC) Agent incentives.”
  • 45:45 – 01:16:12 – Dave, Abhinav, and Rachit – Discussed the problems, the intervention design of each pilot, and the impact it had on agents and customers.
  • 47:20 – 52:00 – Abhinav – What drives the belief that Eko has an additional 15 years of work remaining in the CICO space, and how would CICO innovation show up in these 15 years?
  • 53:19 – 56:22 – Rachit – The process adopted by APB to come to the simple and elegant solution of behavioral communication as a result of MSC’s pilot
  • 57:05 – 1:04:20 – Abhinav and Rachit – Did their convictions about agent networks change, or were any of their existing beliefs strengthened due to the pilots with MSC?
  • 01:05:00 – 01:16:12 – Audience interaction and questions
  • 01:17:04 – 02:02:00 – Graham Wright, Group Managing Director, MSC; Hillary Miller-Wise, Deputy Director, BMGF; Samuel Brawerman, Partner, Kuunda; Sanchita Mitra, National Coordinator, SEWA Bharat – Identified the integral factors that helped create a formidable and responsible agent ecosystem, specifically by efficiently recruiting and onboarding more women agents and providing agents credit, etc. They also explored how technology can help provide better financing opportunities for agents.
  • 01:17:04 – 01:20:20 – Graham – Introduction of the panelists and welcome note
  • 01:20:26 – 01:26:56 – Hillary Miller-Wise – The key challenges that limit the creation and expansion of CICO networks to offer inclusive financial services to the last-mile
  • 01:29:11 – 01:36:05 – Sanchita Mitra – Challenges in selecting, recruiting, and onboarding women agents at SEWA and building an inclusive agent network
  • 01:38:58 – 01:48:22 – Samuel Brawerman – Financing of agents for agents to meet their liquidity and working capital needs, and how the Kuunda product works and if it needs customizing for women agents
  • 01:48:24 – 02:02:00 – Solutions to what we could do to build inclusive CICO networks and empower women agents in CICO

What does HealthTech have to do with financial health? Let us Qonect the dots!

Posted on by MSC

“If I could save 10% of my father’s medical bills, I would not need to ask anyone for money,” Lian Thangvung thought as his phone chimed with an INR 10,000 (USD 132) transfer notification from his sister. A year later, the budding entrepreneur did what few can do—act on his conviction, so others do not suffer. Lian founded Qonect, a HealthTech platform, in Manipur.

Qonect is a subscription-based digital health platform that offers various online medical services, such as discount medical orders and online booking of appointments, and diagnostic services, such as access to labs, archiving, and digital access to diagnostic reports. Personal experiences, an entrepreneurial mindset to solve complex problems, a supportive family, and ambition shaped Lian and fueled Qonect to its current stage.

Born out of empathy and personal experience—the phone call in 2017:

A phone call in 2017 kickstarted Lian’s journey when he heard about his father’s ailment. He immediately rushed to his home state of Manipur from New Delhi. What followed was emotional and formative for Lian and shaped his uncanny mix of grit and empathy. The doctor recommended a CT scan for his father during the diagnosis.

CT scan facilities are difficult to find in Manipur. On locating a facility, Lian found that a CT scan can cost anywhere between INR 8,000 (USD 105) to INR 10,000 (USD 132) in India. Lian did not have enough money to support his father’s diagnosis and treatment. Nor did he have the time to go through the protracted process of taking a bank loan, which had a fair chance of being rejected. His sister’s timely intervention helped Lian manage the crisis at that time.

Lian did not want others to suffer in similar circumstances and started to build solutions for these issues.  Out of his efforts, Qonect was born in Manipur in June 2018.

The malaise runs deep—out of pocket expenses have pushed more than 55 million Indians into poverty:

Typical of a developing country, India’s population is also underinsured, leaving large sections vulnerable. Before the pandemic, roughly 8 out of 10 Indians met medical expenses out of pocket (OOP). In rural India, such OOP expenses averaged around INR 816 (USD 11), constituting roughly 12% of non-food expenses. Such high OOP expenses on medical care pushed 55 million Indians into poverty, even before the pandemic.

The COVID-19 pandemic was a double whammy. The cost of ICU hospitalization during COVID-19 was almost equal to nearly 16 months of work for a daily wage laborer or 10 months of work for a salaried or self-employed worker. Various estimates show that the pandemic drove another 32 million middle-class Indians into poverty. At a time, when loss of income rendered most LMI households vulnerable, out-of-pocket medical expenses and the high cost of healthcare were the top two reasons that plunged people into poverty. Such debilitating costs instill fear in patients, and as a result, they avoid medical care altogether, fearing that diagnosis of any acute diseases can break the household’s finances.

Qonnecting the dots—a bridge between healthcare providers and negligent at-risk patients:

Qonect has taken the bull by its horns by solving the problem of rising healthcare costs, starting with one of the most vulnerable and excluded regions of India—the Northeast. Qonect began as a health card in Manipur that offered discounts on medicine purchases, thereby reducing the OOP expenses. But soon, the pandemic hit, and the physical engagement with clients came to a halt.

Lian and his team at Qonect lost no time adapting to the pandemic’s new norms. They went digital to its current avatar—a digital subscription platform. Qonect partners with medicine retailers and negotiates preferential rates for medicines which are passed on to the users as discounts. The subscription amount helps to maintain the technology, as well as in pay the premiums for the insurance offered to the users as part of the plan. Their next objective was to provide fast and affordable financing to users for medical emergencies. Qonect partnered with a lender to offer instant credit for such emergencies. The credit is currently offered through partnership with an NBFC and is based on the credit history and bank account balance of the users. Gradually, Lian and his team have managed to give shape to their vision through the Qonect app.

Lian remains focused on the purpose of Qonect as he says, “Qonect should be the bridge between healthcare providers and people who delay or avoid medical care because of costs.” Qonect has already impacted the lives of vulnerable low-income people in Manipur. Qonect has established the relationship between HealthTech and financial health.

Patients who make OPD bookings through the app save money that would otherwise result in significant OOP expenses, given the hilly and often inaccessible terrain of Northeast India. Furthermore, test results and doctors’ prescriptions can be delivered over the platform, thus saving patients from having to travel to collect these from the OPD. While the subscription model currently offers substantial discounts on medical costs, Qonect plans to offer a completely cashless experience to its customers and provide buy-now-pay-later (BNPL) credit for any medical expense. Such a BNPL product feature will underwrite customers on the basis of their transactions done on the Qonect platform as well as other alternate data points. Such an all-inclusive subscription will fortify the financial and physical health of the households as customers inculcate sustainable and repeatable behavior that reduces negligence and encourages timely attention.

Figure 1: Translating product design to impact

One of the proudest feats for Lian so far has been helping customers save more than a month’s salary equivalent in medical bills. Customer impact is the guiding force that drives product design and business decisions at the Qonect headquarters. The struggle for money and handling the trauma of a medical emergency may have developed the extraordinary amount of empathy that is evident in Lian when he talks about Qonect helping thousands of users in Northeast India get access to timely and affordable medical services.

No shortcuts to success

But, building products based out of Manipur in the Northeast is hardly a walk in the park. Geographical constraints, such as lack of access to infrastructure and resources along with widespread information asymmetry among customers, are daunting barriers for any startup. For example, Imphal, where Lian wants to set up offices, lacks good internet connectivity and suffers from power outages. “Sometimes, I am forced to miss calls with investors or partners because of internet outages or running out of backup during prolonged blackouts,” says Lian. However, Lian and his team have found strategies to overcome each such challenge with their grit.

The government has provided satellite internet at the village panchayat, and Lian, with his elder brother and the village chief, uses this connectivity during consumer internet outages. Such efforts, combined with the network and handholding from CIIE.CO and MSC have helped Qonect beat the odds.

However, an obvious question remains—why go through such difficult paths when Lian can move his offices to Guwahati, the biggest city in Northeast India? Lian’s headstrong conviction reflects in his answer, “I want the young ones from these regions to believe that it does not matter where you come from as long as you have zeal and passion.” No surprise then that Qonect now attracts investors from the metros across India, who frequently fly to Imphal to keep close tabs on Qonect’s operations.

What next?

Qonect’s vision is clear. It wants to be the first startup from Northeast India to expand and provide healthcare services across India. For the immediate next steps, MSC is supporting Qonect in understanding the needs of a diverse set of customers through market segmentation. MSC is also helping Qonect to achieve a product-market fit for LMI customers across various states of India by packaging credit and healthcare in an intuitive subscription model.

In the mid to long term, Qonect wants to develop predictive capabilities to mitigate risks for medical emergencies from preventive and financing perspectives. Apart from delivering impact at scale, Qonect has set ambitious but achievable business goals. The goal is to hit a revenue of INR 300 million (USD 4 million) in the next 18 months.

With Qonect’s empathetic product design and rapid growth to date, no mountain is too high. The future is not far away when a family a medical emergency will be able to afford the best medical attention for their loved ones without the additional concerns of access and funds.

This blog post is part of a series covering promising FinTechs making a difference in underserved communities. These startups receive support from the Financial Inclusion Lab accelerator program. The Lab is a part of CIIE.CO’s Bharat Inclusion Initiative, co-powered by MSC. #TechForAll #BuildingForBharat