As part of our <a href="https://www.accion.org/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses">partnership</a> with the Mastercard Center for Inclusive Growth, the Center for Financial Inclusion at Accion (CFI) is embarking on an ambitious research program to collect data on micro, small, and medium enterprise (MSME) performance and resilience during the COVID-19 pandemic. CFI’s research will provide financial inclusion stakeholders the insights they need to develop policy, products, and services to support MSMEs across the globe.

Countrywide lockdowns in response to COVID-19 are slowing economies globally, and the impact is likely to be devastating for MSMEs in emerging markets. However, without data, it will be impossible to understand the extent to which COVID-19 has impacted the livelihoods of MSME operators in emerging markets and how they are coping in response. In turn, this will make it more difficult for governments, the donor community, and private institutions to craft effective responses to the crisis. CFI’s research aims to fill the data gap to ensure these stakeholders have visibility on MSMEs in order to address their needs.

The centerpiece of this program will be a longitudinal phone survey of clients at Accion partner institutions in Latin America, sub-Saharan Africa, and Asia, conducted every other month over the course of twelve months.

Broadly, the survey aims to answer the following research questions:
<ul>
 	<li>How has business performance and practice changed since COVID-19 began?</li>
 	<li>Which MSMEs are shuttering operations and why?</li>
 	<li>What strategies are operational businesses using to cope with COVID-19?</li>
 	<li>What financial services are MSMEs using? Can financial assistance be quickly delivered through these channels?</li>
 	<li>How are changes in MSME owners’ livelihoods impacting household well-being?</li>
</ul>
CFI’s survey will collect details of business operations, business practices, and household well-being. The longitudinal methodology will allow CFI to see how these indicators change over time with the aim of providing critical data on the pace of MSME deterioration and recovery in each market.

CFI expects to provide insights into the types of behaviors and products that correlate with better resilience during this shock. Those insights can be used to develop, test, and scale interventions that promote success factors—business practices or use of financial services—amongst struggling MSMEs.

Data collection is set to begin in early May in Lagos, Nigeria with preliminary results published in June.

This new effort is a component of our partnership with the <a href="https://www.mastercardcenter.org/">Mastercard Center for Inclusive Growth</a> to increase the financial health and resilience of individuals and businesses, with a refocused effort to support our understanding of and responses to COVID-19 on MSMEs and vulnerable populations.

&nbsp;

&nbsp;

&nbsp;

&nbsp;

Understanding COVID-19’s Impact on Financial Health of MSMEs

Mastercard Center for Inclusive Growth

Announcement

As I walked through Alaba International and Idumota markets on a recent trip to Lagos, I was in awe of the bustling scene. Not even the rainy season’s torrential downpours could silence the Afrobeat music thumping in the background as buyers and sellers jockeyed for a better deal. Alaba International and Idumota markets reign supreme in Lagos, offering all the goods one can imagine. Alaba International, on the southeastern edge of the city, bursts at the seams with satellite dishes imported from China, secondhand PlayStations shipped in from the UK, and other electronics. Idumota buzzes on Lagos Island, just south of the city center, and is a shopper’s delight replete with wax print hauled over from Ghana, locally produced Nollywood movies, and so much more.

Amidst the action in the markets, I interviewed 22 small business owners who are clients of <a href="https://www.accionmfb.com/">Accion Microfinance Bank</a> (AMfB) to learn more about their financial health and capability. This research will guide us as we develop a framework to help micro, small, and medium enterprises (MSMEs) better understand and achieve financial health. The framework is part of a project we’re undertaking with the support of the <a href="https://www.mastercardcenter.org/">Mastercard Center for Inclusive Growth</a> to increase the <a href="https://www.centerforfinancialinclusion.org/what-financial-health-means-for-small-business-owners">financial health and resilience of individuals and businesses</a> around the globe.

Through my conversations with business owners, I learned about what owners viewed as determinants of their success. We hypothesized that MSME financial health rests on three pillars — earning a profit, having access to capital to seize opportunities, and being resilient to economic shocks. The interviews suggest that our framework is on the right track. For instance, limited and slow access to working capital was commonly cited as a barrier to taking advantage of fleeting business opportunities. We also learned that resilience is not as much about cash-on-hand as it is about being able to quickly shift to other income-generating activities to fill an immediate need.

But arguably, the most eye-opening thing I learned from these interviews had to do with financial capability and the path to entrepreneurship, specifically how owners were able to get the know-how and capital to start their businesses. I had assumed that a commercial bank or <a href="http://www.iosrjournals.org/iosr-jbm/papers/Vol17-issue6/Version-2/J017626267.pdf">esusu</a> — a rotating savings and credit association common in Nigeria — were the first two places that a budding entrepreneur would turn to raise seed funding. However, nearly all the merchants and traders I spoke with started their business with a lump sum they earned after spending several years as apprentices in their trade. This practice is part of the centuries-old Igbo apprenticeship model, <a href="https://pdfs.semanticscholar.org/c77a/7e79ec3fb7ce5c9eccdc72d181205251dfb2.pdf">Imu-Ahia</a>.

The roots of Imu-Ahia date back to the European colonial era when the Igbo ethnic group native to southeastern Nigeria started to gain a reputation as highly-skilled traders and merchants. Today, the apprenticeship model has been widely adopted across the country. Most apprentices-to-be meet their “boss” — someone who is already well-established in a trade — through a family member or close contact. Reasons abound for why one might become an apprentice. Several entrepreneurs I spoke with decided at a young age that they wanted to be masters of a trade, so becoming an apprentice was always part of their plan. Others became an apprentice as a last resort, often after financial constraints forced them to put off academic or other pursuits.

During their tenure, which can range anywhere between three and seven years, apprentices observe and take notes on the tricks of the trade. They are assigned a variety of responsibilities, and eventually, they’re charged with promoting sales and store management. Although most apprentices aren’t paid, they are afforded accommodation, transportation costs, food, and clothing. Once the agreement — which can be either informal or formal — has been fulfilled, the newly anointed entrepreneurs are provided a lump sum to help them start their shop. One interviewee — a vendor of computer and phone accessories — was compensated with N800,000, the equivalent of approximately US$2,200, after spending five years as an apprentice. This is a decent payout considering he currently spends N350,000 (US $970) a year to rent his shop.

So what exactly does Imu-Ahia tell us about how these entrepreneurs perceive the determinants of their success? Many interviewees captured it perfectly when they shared advice for aspiring entrepreneurs: one must meticulously study and practice the skills needed to run a business before diving into it.

This advice resonates with our team at CFI because it positions financial capability — the knowledge, skills, attitudes, and behaviors necessary to make sound financial decisions — as <a href="https://www.centerforfinancialinclusion.org/four-reasons-focusing-on-financial-capability-is-good-business">an essential contributor to business success</a>. The apprenticeship model serves as a learning and testing ground for those who are set on eventually running their own shop, much in the <a href="https://guardian.ng/technology/apprenticeship-and-mentorship-the-key-to-technology-talent-development/">same way</a> that the modern-day business incubator serves as a testing ground for startups. By the time individuals “graduate” from the apprenticeship model, they will have developed the knowledge and skills to manage business revenues and expenses. They also have plans to take advantage of investment opportunities and experience observing how businesses respond to the ups and downs of the market.

I only interviewed former apprentices who found success in the business world, so there’s still more to learn. We need to do more to understand the relationship between financial capability and business outcomes, especially business failures. Nevertheless, these qualitative findings echo the findings of other research. The <a href="https://www.nber.org/chapters/c8222.pdf">National Bureau of Economic Research</a> conducted a fascinating study that showed the differences in the psychological profile of wage workers, own-account workers, and small and medium enterprise (SME) owners. It found that “ability, motivation, and a competitive attitude are very important in differentiating SME and microenterprise owners.” The World Bank launched a project to measure <a href="http://documents.worldbank.org/curated/en/884291527663849364/pdf/126687-18-6-2018-9-32-12-InvestigatingSMEFinancialCapabilitiesFINALWEB.pdf">financial capability of SMEs</a>. Their analysis showed a positive correlation between financial capability and a firm’s size and level of sales.

The striking thing about what we learned in Lagos is not so much that financial capability contributes to business success, it is how, in the Nigerian system such capability is learned: over a period of years, through experience, and under the watchful eye of a knowledgeable mentor.

Keep reading the <a href="https://www.centerforfinancialinclusion.org/blog">CFI Blog</a>, where we’ll share future findings as we conduct surveys around the world on MSME financial health!

What an Apprenticeship System May Reveal About the Financial Health of Small Business Owners in Nigeria

Nigeria

Sub-Saharan Africa

Credit

Financial Capability

Financial Health

MSME/SME Finance

Resilience

Blog Post

Emma Morse

Gayatri Mehta

Jacqueline Foelster

Liza Guzman

María Belén Garrett

Mona Kapoor

Shannon Dwyer

Bolivia

Colombia

East Asia and Pacific

Ecuador

India

Indonesia

Latin America and The Caribbean

Mexico

North America

South Asia

United States

Access Usage Gap

Advisory Services

Agent Banking

Agricultural and Rural Finance

Behavioral Insights

Challenges and Crises

Customer Centricity

Delivery Channels

Digital Credit

Digital Financial Services

Enabling Environment

Entrepreneurs of MSMEs

Financial Inclusion Strategy

Financial Service Providers

Financial Technology

Fintechs

Human Centered Design

Mobile Banking

Neobanks

Partnerships

Payments

Rural Populations

Smallholder Farmers

Underserved Groups

Women

Article

Case Study

Report

Toolkits and Guides

Low-income microentrepreneurs across the globe have been forced to make an impossible decision: risk their health and safety to remain operational, or shutter their doors and risk their income and savings to ensure the health and safety of their family. For those who have kept their businesses open, COVID-19 has introduced a new world order where people are being asked to limit human interactions in favor of a more digital, remote way of living. But many microbusinesses around the world, which rely heavily on selling and marketing their products in person, as well as on physical storefronts and the use of cash, are unprepared to operate digitally. Small businesses account for nearly <a href="https://www.worldbank.org/en/topic/smefinance" target="_blank" rel="noopener noreferrer">50 percent of global GDP</a> and are vital to the communities in which they operate, and they need help to stay open in our new reality. Now more than ever, it is the responsibility of the financial inclusion community to ensure that technology is an enabler and not a new barrier to economic success.

We’ve seen that when micro and small enterprises have digitized at least part of their business, or reimagined their business altogether, they have been better off during the pandemic. Those who lack digital savviness haven’t been able to adapt as successfully. Many microentrepreneurs in the developing world are not active users of digital services for a variety of reasons, including access, age, cost, and lack of confidence in using new, unfamiliar tools. As digital capability increasingly becomes tied to economic activity, the digital divide will widen and further exclude the world’s poorest citizens. We must help microbusiness owners develop the skills they need to understand and confidently use digital tools to help them survive and succeed.

Financial service providers (FSPs) — who are already closely intertwined in the lives of microentrepreneurs — need to understand that digital transformation starts with their customers. This strategic clarity will allow them to execute a holistic and successful digital transformation that benefits both their organization and their customers. There is a stronger business case for investments in technology and digital financial services when customers become comfortable using these tools, market size will expand. During the current pandemic, FSPs have a clear opportunity to leverage adoption and usage of their digital financial products on the intention of their clients to actively look to be part of the digital world. Now is the time to relaunch those digital channels that have not worked well in the past, introduce digital products and services that can improve customers’ business opportunities, and embrace customer-centric product design processes.

For example, these institutions can help to enable cashless payments and quickly deliver relief funding to clients. They can also relaunch their banking apps and highlight the top benefits and features that are most relevant to their customers’ current challenges. They can use simple channels like WhatsApp for onboarding and customer support, and to offer interactive learning tools that build confidence and boost motivation for clients to embrace a digital transformation of their businesses. For example, Banco Pichincha is helping small businesses in Ecuador <a href="/helping-small-businesses-build-resilience-in-ecuador">restart their businesses using credit from a digital supply chain product and a new platform to accept digital payments</a> — tools we're helping them develop as part of our project with the Mastercard Center for Inclusive Growth. To complement the strategy, Banco Pichincha is giving clients access to Ovante, Accion’s digital platform designed to strengthen the managerial, financial, and digital capabilities of microentrepreneurs by incentivizing actual behavior change that helps them thrive in a competitive and digital world.

Whether on their own or through partnerships with edutech providers, these five key questions can guide financial service providers to support their clients as they transition to digital:
<ol>
 	<li>How can we mitigate the negative impact on clients’ financial health? Providers can give users key information to help them identify their most pressing financial service needs during the immediate crisis and learn what solutions are available to them, such as potential scenarios where restructuring their loan may make sense, the importance to put together a short-term budget for family and business, or ideas for reducing expenses. Support means not only giving information, but making sure clients understand and know exactly what they need to do first.</li>
 	<li>How can we enable and empower clients to be digital citizens? Building a digital foundation must go beyond a promotional campaign for digital products. FSPs must be intentional about building the awareness, knowledge, and confidence of their microbusiness customers so they have all they need to interact responsibly in the digital world. This should not only to help them access financial services like digital lending and online payments, but also to show them how these tools benefit their businesses. Depending on the user, basic information such as navigating web browsers, search engines, or downloading a mobile app may be necessary. Training on managing email, social networks, and maintaining data privacy is also critical.</li>
 	<li>How can we accelerate the learning, adoption, and usage curve of digital tools? The best teachable moment is when customers identify how a solution can improve their businesses, and therefore improve their income and family wellbeing. Once microbusinesses are comfortable with basic digital tools, many will require more advanced training on how to leverage digital promotions and sales, the benefits and costs of different payment platforms, and a better understanding of logistics and product distribution options Business needs and goals are good motivators to drive clients to adopt new tools.</li>
 	<li>How can we support clients to still thrive and project themselves and their businesses? Microbusinesses need resilience and motivation to re-envision their futures. It may seem unwieldy to provide the personal support clients need right now, but it is worth the effort, not only because of the value added to society in general but for future loyalty and positioning returns. Simple initiatives like sharing examples of how other MSMEs have successfully shifted gears, and pointing them to relevant sources of information in their market, can make them feel supported and help them to navigate today’s uncertainty. In the middle of a crisis, it might be difficult for some entrepreneurs to think creatively and therefore providing them with information on how to identify new market opportunities, including observing unmet demands for products or services within their communities can be a way to bring hope and motivation again.</li>
 	<li>How can we seize the moment to help customers to change their financial behaviors for good? When entrepreneurs reflect on what could have made the current situation easier to navigate, they can use that information to be more prepared for other crises. For example, acknowledging how an emergency fund would have reduced the stress of uncertain income might set the ground for a behavior change around savings in the future. FSPs can help clients to be more resilient by providing education and tools to build emergency savings for potential crises and learn techniques for goal setting and investing in their future. These strategies might resonate more now and lead to the adoption of more financially healthy practices.</li>
</ol>
The odds are against small businesses during this crisis: research in the U.S. indicates that <a href="https://www.govtech.com/em/preparedness/Small-Businesses-Are-a-Vital-Part-of-Community-Resiliency-but-Often-Overlook-Vulnerabilities.html" target="_blank" rel="noopener noreferrer">40 percent of small businesses never reopen after a disaster</a>, and 25 percent of those that do reopen fail within a year. To help these businesses survive, they need access to digital tools and support to build the capabilities needed to use these tools effectively. Financial service providers must step up to help entrepreneurs and ensure that they have the tools that they need to be part of the new digital world and seize opportunities to thrive and prosper.

Accion works with large and small FSPs to help build customers’ financial, business, and digital capabilities by incentivizing behavior change. If your company is experiencing challenges related to COVID-19 and building customers’ digital capabilities and you need personalized support from our team of experienced advisors, please <a href="mailto:GLASSupport@accion.org">contact us</a> to determine how we can support you.

Microbusinesses need help to cross the digital divide

Banco Pichincha

Ovante

FedEx

Financial Inclusion Practitioner

Financial Service Provider

Institutional Funder

Accion Global Advisory Solutions

COVID-19: Economic response and resilience

India is a global leader in financial inclusion. For over a decade, Accion has worked with and learned from India’s innovators, investors, and policymakers to expand economic opportunity for its people and businesses.

Each morning, Laal Kumari Singh rises early to feed her herd of cows, milk them, and leads them to a pasture to graze. As the sun begins to set, she leads them back home for another feeding and milks them once more. When her regular customers arrive to purchase fresh milk – an important source of protein and nutrients — throughout the day, Laal carefully measures the milk that her cows produce, saves exactly what she needs for her family, and sells the surplus both to people in her community in Raipur, India and to larger suppliers.

There are millions of small business owners like Laal in India, each working hard to support their families and fulfill a need in their communities. When these enterprises thrive, so do the families and communities that depend on them. That’s why our partner <a href="https://www.subk.co.in/index.php" target="_blank" rel="noopener noreferrer">Sub-K</a> set out to bring financial tools to underserved businesses in India, particularly the last mile where no financial services have reached before. Sub-K uses <a href="/instead-sending-people-bank-sub-k-brings-banking-people">its large network of agents</a> to reach people in rural communities in India and connect them to banks. “It’s really critical for us to have the touchpoints on the ground to interact with these communities that probably have never had a banking relationship. So to that extent, our agents play a very important role in introducing these communities to the banking system,” explains Sub-K’s CEO Sasidhar Thumuluri.

By working with Sub-K to purchase additional cows for her herd, Laal has expanded her business dramatically. When she first started her milk business, she only owned five cows. Now, her herd of cows, calves, and buffaloes has grown to nearly 40, producing 30 to 40 liters of milk for her to sell each day. Because of Laal’s success, she’s been able to support her three kids: two sons and one daughter. She uses her increased income from the expansion of her milk business to help pay for her children’s education. She’s thinking of the future, too — she’s already invested in buying a shop in nearby Sarura to further build her family’s financial security.
<h2>Continuing to serve small businesses during the pandemic</h2>
As the coronavirus pandemic leaves its impact on communities, the entrepreneurial dream that led Laal to build a better life for her family is in danger. To help small business owners in India overcome this devastating financial shock, Sub-K is introducing emergency loans and accelerating digital solutions. Even before the crisis hit, Sub-K recognized this opportunity for driving financial inclusion. “Digital is the way to go to reach the large-scale masses and the last mile,” says Sasidhar.

Despite the clear advantage in connecting small business owners like Laal to digital services, Sasidhar also knows the great challenges this presents. Many of Sub-K's clients have never had a formal bank account before, much less access to any digital banking services. So Sub-K is used to giving clients extra support to learn about products and become comfortable with new platforms. Their agents have typically done this work hands on in local communities, but as face-to-face interactions are halted, Sub-K is offering digital payment options on their mobile phones. Only 20 – 30 percent of Sub-K's clients in rural areas currently have smartphones, but even those without online access can utilize digital services through Sub-K's call center or by reaching out to local agents. As Sub-K works to quickly expand their digital platform to address new challenges from the pandemic, they are taking a multichannel approach that will continue to meet these clients where they are. If clients are given what they need to use digital financial services, this shift could make it possible to reach even more financially excluded people in the longer term.

Sasidhar stresses the importance of rebuilding from COVID-19 in a way that brings the most vulnerable microbusinesses into the digital economy: “Let’s not go back to our old normal, and let’s not wait for the situation to get normalized and then get back to the old way of doing business. Here is an opportunity that we need to grab. Let’s develop tools. Let’s educate them. Let’s make sure we build a new normal, which to me is a [digital] ecosystem play. It is possible. Let’s get together, collaborate, and make this happen.” With the right tools and support, entrepreneurs like Laal can grow their businesses and build stability for themselves and their families. The future of these small businesses — under threat from the pandemic — depends on their ability to access the financing they need digitally. Learn more from Sasidhar by watching our recent webinar, <a href="/going-digital-an-essential-move-for-msmes-in-a-post-covid-19-world">Going digital: An essential move for MSMEs in a post COVID-19 world</a>.

Finding a new way to reach the last mile in India

Sub-K

Social Good

The real impact of financial inclusion

The world’s largest archipelago, Indonesia is an extraordinarily diverse and culturally rich country that spans across 17,000 islands in the Asia-Pacific region. The country is one of the fastest growing economies today — in part, because of digitization. Its digital economy is predicted to <a href="https://fintechnews.sg/35731/indonesia/the-digital-ecosystems-that-will-help-indonesia-reach-80-financial-inclusion/">more than triple to US $133 billion by 2025</a>.

Yet, despite the rapid growth, half of Indonesia’s adult population is still unbanked, and the majority of its <a href="http://www.depkop.go.id/data-umkm">64 million micro-enterprises</a>, like rice mill owner Ibu Oom, have been financially excluded. This has forced many micro-enterprises to borrow from family and friends or via informal money lenders, which often results in high interest rates and potential overindebtedness. Several large state-owned banks, private banks, microfinance companies, and more recently, fintechs, have begun addressing the needs of this market.

As part of <a href="https://www.accion.org/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses">Mastercard and Accion’s partnership</a>, we’re excited to partner with <a href="https://bina-artha.com/">Bina Artha Ventura (BAV)</a>, a leading financial service provider determined to bridge the gap between Indonesia’s formal and informal financial sectors. Established in 2011, BAV serves more than 300,000 clients through an extensive network of 330 branches across peri-urban and rural regions of Java and Sulawesi. BAV supports micro-entrepreneurs, the majority of whom are women, with affordable group and individual lending products to empower them with the economic means to grow their businesses and improve their financial well-being.

Expanding the benefits of a growing digital economy in Indonesia and India

Annapurna Finance

Bina Artha Ventura

Mastercard

Business Leader

Most of Mexico’s people lack access to a formal bank account. Accion has worked in Mexico for decades to create a thriving and competitive financial sector that embraces innovation and protects its clients.

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

We know from our work that digital technology can be a powerful tool for financial inclusion.

Yet, despite advancements in mobile connectivity, improvements in payments infrastructure, and investment in new technologies, cash is still used in the majority of transactions around the world. In fact, the use of cash is rising.

Cash is slow, expensive, and exacerbates a broader issue: without digital tools to record transactions, store owners struggle to build the credit history they need to obtain financing. That, in turn, keeps merchants from expanding their business and limits inclusive, sustainable growth.

In the past year of our ongoing project with<a href="https://www.accion.org/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses"> the Mastercard Center for Inclusive Growth</a>, we have built partnerships and shaped strategies to drive the digital transformation of millions of microbusinesses and the financial institutions that serve them. We are excited to be working with institutions that are making the digital economy more inclusive by developing meaningful and responsibly designed products and services. Our current partners, Accion Microfinance Bank in Nigeria, Bancosol in Bolivia, CÍVICO in Colombia and Mexico, and Sub-K in India, already serve more than 2 million microbusinesses.

As we think about what successful digital transformation looks like, we look to the small business owners that our partners serve for insight and inspiration. Their stories bring to light how microentrepreneurs benefit from financial technology innovation and digital transformation.
<h3>Promise appreciates a faster loan process in Nigeria</h3>
[caption id="" align="alignleft" width="527"]<img class="" src="http://content.accion.org/wp-content/uploads/2019/10/Promise-AMfB.jpg" alt="" width="527" height="351" /> Promise owns a business importing leather for making shoes and bags and has been an AMFB client for 11 years.[/caption]

Accion Microfinance Bank in Nigeria (AMFB), an Accion partner, has invested in systems that make it easier for small business owners to get the funding they need. AMFB is using mobile tablet devices, SMS payment reminders, automatic loan deposits, and other digital features to make applying for and managing a loan much more convenient for its busy entrepreneur clients. And those clients notice the difference. Promise, a microentrepreneur, who has a business in which he imports leather for making shoes and bags, has been an AMFB client for 11 years. He appreciates the new digital banking service. For example, he says, the time it takes to apply for a loan has decreased dramatically. “I don’t have a lot of paperwork anymore because it’s all done digitally,” he says, adding, “Before, you waited for more than a week for your loan, and it would make you angry. But now I get it in three days.”
<h3>Alfonso is going digital in Mexico — and bringing the whole market with him</h3>
[caption id="" align="alignright" width="523"]<img src="http://content.accion.org/wp-content/uploads/2019/10/Alfonso-Civico.jpg" alt="" width="523" height="392" /> Accion CEO, Michael Schlein speaking with Alfonso Lopez Carmona, a merchant in the Medellin market who sells candies and beverage among other items.[/caption]

CÍVICO, a digital platform that maps micro and small businesses and connects communities in Colombia, Mexico, and Chile, is working with Accion to provide credit services to merchants. In Mexico City, Mercado Medellin (also known as “The Little Habana”) has over 500 market stalls, offering products from across Latin America. One of the merchants in the Medellín market, Alfonso López Carmona, sells international products, such as candies and beverages He appreciates CÍVICO’s efforts to bring Medellín market into the 21st century. He actively uses the platform to promote his business and also uses CÍVICO Pay and QR codes to receive payments. Alfonso hopes to leverage CÍVICO to increase the digital presence of his business. He believes this will enable him to attract more customers, sell a greater variety of products from other countries, and grow his business. He also actively promotes the adoption of CÍVICO among other merchants in the market.
<h3>In Bolivia, Carolina's clothing business is powered by tech</h3>
[caption id="" align="alignleft" width="530"]<img src="http://content.accion.org/wp-content/uploads/2019/10/Carolina-BancoSol-1.jpg" alt="" width="530" height="354" /> With BancoSol's help, Carolina was able to afford the machines and staff she needed to grow her business.[/caption]

Bolivia, like much of Latin America, has lagged behind other countries in the <a href="https://www.globalinnovationindex.org/analysis-indicator">Global Innovation Index</a>. To boost innovation in the country, Accion is working with BancoSol to create an innovation hub that would offer meaningful financial products and services to BancoSol’s nearly one million customers.

Carolina Yesica Rodriguez Alcon, an entrepreneur who runs her own clothing company under the “Jhonny Dey” trademark in Bolivia, has been a BancoSol client for several years. The loan from BancoSol helped her buy machinery and recruit staff to run her company. Carolina is a driven and ambitious entrepreneur — she is working towards expanding her brand nationally and internationally. She appreciates that she can manage her finances and grow her business with financial technologies offered by BancoSol, including AppSol and SolNet — BancoSol’s mobile and internet banking platforms. She even uses QR Pay to conveniently and swiftly collect payments from customers and make payments to suppliers. By prioritizing innovation, BancoSol will be able to help more entrepreneurs like Carolina spend less time at the bank so they can focus on their customers.

As we continue to work with Mastercard and partner with more forward-thinking institutions around the world, we hope to equip millions of microentrepreneurs with the tools and technology that accelerate the growth of their businesses and help improve the quality of their lives.

Arisha Salman contributed to this article.

Three small business owners who show why we need better digital tools

Accion Microfinance Bank

BancoSol

Civico

Done right, financial inclusion shouldn't just be about making financial tools available to all — we need to ensure that those tools are useful and make a positive impact on customers and their financial health. Building financial health is especially critical as the future of work takes shape, bringing with it both flexibility and uncertainty.

The newest addition to the <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab">Accion Venture Lab</a> portfolio, <a href="https://joust.com/">Joust</a>, is a neobank targeting microentrepreneurs, freelancers, and self-employed workers in the United States. It has set out to tackle many of the financial pain points associated with a shifting economy. Joust offers a suite of financial services tailored to the needs of freelancers, including a business bank account, payments processing, and invoice factoring — all in a single mobile app.

I recently sat down with Lamine Zarrad, the co-founder and CEO of Joust, to discuss what he believes is driving the current economic shift, the issues it creates for the self-employed, and Joust’s unique positioning to solve them.

Q: There are over 57 million freelancers in the US, and Freelancer’s Union projects that by 2027 over half of the American workforce will freelance in some capacity. In your eyes, what is driving this shift?

A: There are several factors we believe are driving this shift. First, we believe there is a seismic shift in labor economics, with the paradigm of the corporation eroding through the advent of new technologies. These technologies are giving individuals the ability to engage with parties across the globe. This leads us to point number two — freelancers value flexibility. Seven out of 10 freelancers are interested in moving somewhere other than a large city, allowing them to optimize for cost of living while participating in the work available in a city hub. Finally, self-employed individuals value the work life balance and job fluidity the type of work often allows.

Q: How do you think this new form of working impacts the way individuals engage with financial institutions?

A: The microbusiness has very similar needs to any other business when it comes to banking. They need access to somewhere they can store funds, the ability to accept payments from clients, and access to liquidity to perpetuate growth. However, because they’re often new, small, and sometimes insignificant to large financial institutions, they struggle to utilize or afford the comprehensive services that are designed for large corporations. As such, freelancers end up piecing together 10 different tools to run their business, while still missing out on some critical financial offerings.

Q: Can you give a brief overview of the product you provide, and which part of that offering you’re most excited to be bringing to market?

A: As a first step, Joust offers a fully functioning business bank account, with streamlined onboarding and no monthly fees or minimum balances. Through the account, users can accept payments and utilize our fully integrated invoicing tool, allowing them to send and accept invoices directly through the app. We are also planning on launching new features later this year based on feedback we’ve received from existing customers.

Last but not least is the PayArmour tool, which we’re especially excited by. PayArmour allows our customers to instantly fund a sent invoice, if they need access to capital, or guarantee invoice payment within 30 days, if they need to manage cash flows. PayArmour is what we believe to be the single most exciting part of our platform and gives us an interesting differentiation from other players in the market.

Q: For this product suite that you’re offering, who is that target customer?

A: When we were building this product, we wanted to help the most vulnerable of this freelancing population. In our eyes, that is not necessarily the individuals who work for a platform, but rather the individuals who are running and managing their own business. Consequently, a lot of the folks in this population fall into the creative side of things —ranging from a marketing consultant to a musician. We work to help our customers feel confident in their operations, and not anxious about the ability to collect.

Q: How is Joust uniquely positioned to address its users' financial health needs?

A: As mentioned before, freelancers need several tools in order to run their business. They often have a bank account with a traditional provider, a payments product, like PayPal or Stripe, an analytics tool like Mint, a bookkeeping tool like Xero or Quickbooks, an invoicing tool, a timekeeping tool, and more. Joust has consolidated a number of these tools into an “all-in-one” app, designed to solve freelancers’ pain points and simplify their operations.

Additionally, by integrating all of this into a single platform, we can glean into the financial health of our users and create a holistic picture. Consequently, we will have the ability to underwrite our customers in a way traditional institutions cannot. We hope to eventually develop a risk score — imagine FICO for the freelancer — that will allow our users to obtain services they otherwise wouldn’t qualify for.

Q: What are your thoughts on the future of work, both in the US and potentially even globally?

A: It’s most certainly a global phenomenon — the US is not alone. While the US and Western Europe are most similar in their dynamics today, a lot of developing countries’ freelancer populations are also growing. When you look at platforms like Upwork, their users are spread across the globe. Technology continues to bring job opportunities to a lot of new places, spurring freelancing activity.

&nbsp;

 We're working with <a href="https://www.mastercardcenter.org/">Mastercard Center for Inclusive Growth</a> to bring <a href="https://www.accion.org/mastercard-and-accion-partner-to-unlock-growth-for-millions-of-underserved-microbusinesses-around-the-world">more small businesses and individuals into the digital economy</a> by partnering with companies in communities around the world to better leverage digital financial tools.

The future of work is here, and financial health is more important than ever

Entrepreneur

Impact Investor

Accion Venture Lab

As I walked through Alaba International and Idumota markets on a recent trip to Lagos, I was in awe of the bustling scene. Not even the rainy season’s torrential downpours could silence the Afrobeat music thumping in the background as buyers and sellers jockeyed for a better deal. Alaba International and Idumota markets reign supreme in Lagos, offering all the goods one can imagine. Alaba International, on the southeastern edge of the city, bursts at the seams with satellite dishes imported from China, secondhand PlayStations shipped in from the UK, and other electronics. Idumota buzzes on Lagos Island, just south of the city center, and is a shopper’s delight replete with wax print hauled over from Ghana, locally produced Nollywood movies, and so much more.

Amidst the action in the markets, I interviewed 22 small business owners who are clients of <a href="https://www.accionmfb.com/">Accion Microfinance Bank (AMfB)</a> to learn more about their financial health and capability. This research will guide us as we develop a framework to help micro, small, and medium enterprises (MSMEs) better understand and achieve financial health. The framework is part of a project we’re undertaking with the support of the <a href="https://www.mastercardcenter.org/">Mastercard Center for Inclusive Growth</a> to increase the <a href="https://www.centerforfinancialinclusion.org/what-financial-health-means-for-small-business-owners">financial health and resilience of individuals and businesses</a> around the globe.

Through my conversations with business owners, I learned about what owners viewed as determinants of their success. We hypothesized that MSME financial health rests on three pillars — earning a profit, having access to capital to seize opportunities, and being resilient to economic shocks. The interviews suggest that our framework is on the right track. For instance, limited and slow access to working capital was commonly cited as a barrier to taking advantage of fleeting business opportunities. We also learned that resilience is not as much about cash-on-hand as it is about being able to quickly shift to other income-generating activities to fill an immediate need.

But arguably, the most eye-opening thing I learned from these interviews had to do with financial capability and the path to entrepreneurship, specifically how owners were able to get the know-how and capital to start their businesses. I had assumed that a commercial bank or <a href="http://www.iosrjournals.org/iosr-jbm/papers/Vol17-issue6/Version-2/J017626267.pdf">esusu</a> — a rotating savings and credit association common in Nigeria — were the first two places that a budding entrepreneur would turn to raise seed funding. However, nearly all the merchants and traders I spoke with started their business with a lump sum they earned after spending several years as apprentices in their trade. This practice is part of the centuries-old Igbo apprenticeship model, <a href="https://pdfs.semanticscholar.org/c77a/7e79ec3fb7ce5c9eccdc72d181205251dfb2.pdf">Imu-Ahia</a>.

The roots of Imu-Ahia date back to the European colonial era when the Igbo ethnic group native to southeastern Nigeria started to gain a reputation as highly skilled traders and merchants. Today, the apprenticeship model has been widely adopted across the country. Most apprentices-to-be meet their “boss” — someone who is already well-established in a trade — through a family member or close contact. Reasons abound for why one might become an apprentice. Several entrepreneurs I spoke with decided at a young age that they wanted to be masters of a trade, so becoming an apprentice was always part of their plan. Others became an apprentice as a last resort, often after financial constraints forced them to put off academic or other pursuits.

During their tenure, which can range anywhere between three and seven years, apprentices observe and take notes on the tricks of the trade. They are assigned a variety of responsibilities, and eventually, they’re charged with promoting sales and store management. Although most apprentices aren’t paid, they are afforded accommodation, transportation costs, food, and clothing. Once the agreement — which can be either informal or formal — has been fulfilled, the newly anointed entrepreneurs are provided a lump sum to help them start their shop. One interviewee — a vendor of computer and phone accessories — was compensated with N800,000, the equivalent of approximately US$2,200, after spending five years as an apprentice. This is a decent payout considering he currently spends N350,000 (US $970) a year to rent his shop.

So what exactly does Imu-Ahia tell us about how these entrepreneurs perceive the determinants of their success? Many interviewees captured it perfectly when they shared advice for aspiring entrepreneurs: one must meticulously study and practice the skills needed to run a business before diving into it.

This advice resonates with our team at CFI because it positions financial capability — the knowledge, skills, attitudes, and behaviors necessary to make sound financial decisions — as <a href="https://www.centerforfinancialinclusion.org/four-reasons-focusing-on-financial-capability-is-good-business">an essential contributor to business success</a>. The apprenticeship <a href="https://guardian.ng/technology/apprenticeship-and-mentorship-the-key-to-technology-talent-development/">model serves as a learning and testing ground</a> for those who are set on eventually running their own shop, much in the same way that the modern-day business incubator serves as a testing ground for startups. By the time individuals “graduate” from the apprenticeship model, they will have developed the knowledge and skills to manage business revenues and expenses. They also have plans to take advantage of investment opportunities and experience observing how businesses respond to the ups and downs of the market.

I only interviewed former apprentices who found success in the business world, so there’s still more to learn. We need to do more to understand the relationship between financial capability and business outcomes, especially business failures. Nevertheless, these qualitative findings echo the findings of other research. The <a href="https://www.nber.org/chapters/c8222.pdf">National Bureau of Economic Research</a> conducted a fascinating study that showed the differences in the psychological profile of wage workers, own-account workers, and small and medium enterprise (SME) owners. It found that “ability, motivation, and a competitive attitude are very important in differentiating SME and microenterprise owners.” The <a href="http://documents.worldbank.org/curated/en/884291527663849364/pdf/126687-18-6-2018-9-32-12-InvestigatingSMEFinancialCapabilitiesFINALWEB.pdf">World Bank</a> launched a project to measure financial capability of SMEs. Their analysis showed a positive correlation between financial capability and a firm’s size and level of sales.

The striking thing about what we learned in Lagos is not so much that financial capability contributes to business success, it is how, in the Nigerian system such capability is learned: over a period of years, through experience, and under the watchful eye of a knowledgeable mentor.

Keep reading the <a href="https://www.centerforfinancialinclusion.org/blog">CFI Blog</a>, where we’ll share future findings as we conduct surveys around the world on MSME financial health!

A version of this post originally appeared on the <a href="https://www.centerforfinancialinclusion.org/what-an-apprenticeship-system-may-reveal-about-the-financial-health-of-small-business-owners-in-nigeria">Center for Financial Inclusion at Accion blog</a>.

In Nigeria, apprentices can learn more than a new trade

Center for Financial Inclusion

A practical and comprehensive tool designed to help service providers navigate the complex digital landscape. The framework outlines five critical stages of digital transformation, as well as the primary drivers and enablers that are needed to create a digitally-driven, scalable enterprise. This framework can be used by financial service providers as a diagnostic tool- to determine their status along the digitization continuum, to set a digital transformation vision, or as a reference for defining and prioritizing the organization’s many initiatives.

Digital Transformation Framework

Digital transformation should be a holistic approach that supersedes any one product, business function, or initiative. It is the catalyst through which the organization evolves into an insight-driven and agile enterprise that operates efficiently at scale. This checklist provides a clear and consistent tool for organizations for use in benchmarking, assessing the current state and planning a roadmap to guide the business' digital evolution. It will help organizations quickly identify their critical gaps and assess the organization’s current state of readiness for digital transformation.

Digital Transformation Checklist

Mr. Martín is a third-generation entrepreneur who owns a business selling specialty products in Mexico City. As we visited his stall in the <a href="https://www.civico.com/lugar/mercado-martinez-de-la-torre-zona-mexico-1">Mercado Martínez de la Torre</a>, he told us about the family tradition surrounding the business. After he earned his degree in mathematics and computer science, he made the decision so many others have made throughout the years — to take over the family business. But these days, family tradition doesn’t always have the same pull. While Mr. Martín wants his children to inherit the enterprise, they would rather pursue more modern lifestyles and their own careers.

Mr. Martín, along with his brothers and uncles, manages six other stands, which makes them part of a vast population who depend on Mexico’s markets for their livelihoods. Because so many people work in markets, they’re of particular interest to Accion partner, <a href="https://www.civico.com/">CÍVICO</a>. CÍVICO is a <a href="https://www.accion.org/how-one-platform-connects-cities-and-boosts-small-businesses/">digital platform that connects small businesses and individuals</a> to their cities and to each other. Users can map and interact with local enterprises, and micro, small, and medium business owners can use the platform to access financial tools. For people who work in markets, this is often their first opportunity to use quality financial services and can make a real difference in modernizing the business.

Mercado Martínez de la Torre is one of the 329 public markets in Mexico City, some of which are over 100 years old. These markets are considered centers of the Mexican economy, providing income for about <a href="https://www.sedeco.cdmx.gob.mx/comunicacion/nota/gcdmx-quiere-que-los-mercados-publicos-brillen">280,000 families</a>, according to the Government of Mexico City. Different government initiatives have been introduced to organize, formalize, and develop these markets to improve how they function. Today, they still evoke the traditional way of carrying out business, the exchange of essential goods and consumer products, with a somewhat nostalgic cultural and social function that goes beyond strictly business.

Most of these markets have a specific focus; the Mercado Martínez de la Torre specializes in basic household needs, while the <a href="https://www.civico.com/lugar/mercado-de-granaditas-mexico">Mercado de Granaditas</a> mainly sells leather goods. In the latter, we had the opportunity to speak with Ms. Bertha, who sells handmade leather handbags. Ms. Bertha learned this trade from a very young age from her dad, whom she deeply admires and who ensured she would grow up to be self-sufficient and know the value of hard work. An estimated <a href="https://www.sedeco.cdmx.gob.mx/comunicacion/nota/mujeresinnovando-en-los-mercados-publicos">70 percent of public market tenants are women</a>, and Ms. Bertha is proud to work among her fellow female business owners, stating that “we women are warriors, and we are the pillar of Mexican families.”

[caption id="attachment_18979" align="aligncenter" width="700"]<img class="wp-image-18979" src="http://content.accion.org/wp-content/uploads/2019/06/Doña-Bertha-1024x768.jpg" alt="Ms. Bertha standing in front of her handmade leather bags in Mercado de Granaditas" width="700" height="525" /> Ms. Bertha shows off her handmade leather bags in Mercado de Granaditas[/caption]

As we spoke to business owners like Mr. Martín or Ms. Bertha, we learned about the different challenges that they face, such as finding someone trustworthy to help with daily business needs, growing sales in an increasingly competitive world, and in particular, dealing with the ways that technology is changing business. While technology can be tricky for traditional enterprises to navigate sometimes — it also offers opportunities. Customers are better informed and ready to purchase with digital payment methods, which they see as easier to use and more secure. People are also becoming interested in buying products online or using messaging applications such as WhatsApp to make orders, and merchants who know how to use digital platforms to promote themselves and enable sales can take advantage of these new channels.

It’s unclear whether the markets as we know them today will disappear, but what is certain is that the way to do business and promote products is already changing and evolving. That is why, in collaboration with CÍVICO, Accion’s Global Advisory Solutions team has been interviewing these businesses to identify the main barriers they face. Supporting small business owners is crucial if we want to drive inclusive economic growth. We need to understand the different challenges they face today so we can work with CÍVICO to create financial products and services that meet their needs.

Our initial interviews revealed two primary opportunities:
<ul>
 	<li>In their search to diversify and attract new clients, entrepreneurs are very interested in new ways to promote their businesses through digital platforms</li>
 	<li>Business owners are increasingly open to accepting electronic payments through different systems (Clip, Sr. Pago, iZettle, etc.)</li>
</ul>
Family-owned enterprises are steeped in tradition, but it’s clear that the modern world has a lot to offer them, too. These entrepreneurs can’t wait for the next generation to take over the business and modernize — these changes are happening right now. We’re hopeful we can use our findings to give people the tools they need so their businesses can continue to stand the test of time.

This research is part of the <a href="https://www.accion.org/helping-small-businesses-and-communities-thrive-with-digital-financial-services">partnership</a> between the <a href="https://www.mastercardcenter.org/">Mastercard Center for Inclusive Growth</a> and Accion that aims to give 10 million clients, including 4 million merchants, access to the necessary financial tools to run better, buy better, and sell better. To achieve this goal, this partnership will support a number of institutions across the world, with <a href="https://www.accion.org/helping-small-businesses-and-communities-thrive-with-digital-financial-services">CÍVICO being one of our first collaborators</a> in Colombia and Mexico.

This article was written with support from <a href="https://www.accion.org/bio/leonardo-tibaquira">Leonardo Tibaquira</a>, <a href="https://www.accion.org/bio/juan-alberto-almonacid">Juan Alberto Almonacid</a>, and Gabriel Quiros Rubio.

The faces behind Mexico City’s mercados públicos

Accion Global Investments

Mastercard has supported Accion since 2011, primarily through the Mastercard Center for Inclusive Growth, an independent subsidiary founded in 2013. Multiple Accion programs and teams, including the Center for Financial Inclusion, Accion Venture Lab, and Accion in the US, have benefited from the partnership.

The Mastercard Center focuses much of its efforts on a subset of entrepreneurs it calls “strivers.” Strivers are entrepreneurs with the motivation and propensity for growth and who with strategic, well-tailored support can grow their businesses into profitable entities and engines for job creation. The Center’s focus on strivers resonates with Accion and together the two organizations have been able to catalyze real impact for this segment of micro and small businesses.

Mastercard and Accion: Partnering for inclusive growth

Micro, small, and medium enterprises (MSMEs) constitute the foundation of the global economy – from New York to Lagos to Jakarta. While the range of their activities spans the spectrum of agriculture, manufacturing, and services, all MSMEs face the same challenge in finding the money they need to hire new employees, purchase inventory, or upgrade their equipment in order to grow. This Accion Insights paper explores how innovative, tech-enabled lenders are using niche marketing, digital or mobile platforms, and enterprising partnerships – and often a combination of all three – to make financing available to underserved MSMEs. Informed by its investments and work with more than a dozen fintech start-ups in the MSME finance space, Accion Venture Lab charts a course for investors, regulators, microfinance institutions, and entrepreneurs to seize today’s opportunity to close the gap.

Venture Lab developed this report with the support of the Mastercard Center for Inclusive Growth.

Bridging the Small Business Credit Gap Through Innovative Lending