Priya Punatar

Yanina Seltzer

<div style="width: 391px" class="wp-caption alignright"><img src="http://accion-staging.flywheelsites.com/wp-content/uploads/2019/05/IMG_0825.jpg" alt="" width="381" height="508" />Azucena, a stay at home mom and former bank teller in Mexico</div>
Although Mexico and Chile are different markets, underserved consumers face similar problems improving their financial health. People and businesses rely on informal means to manage money, including storing cash in lockboxes and borrowing from family and friends. These methods are familiar and convenient, but they don’t provide the guidance, tools, and information people need to better manage their income and expenses, build reserves, and plan for the future.
In Chile, <a href="https://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx">nearly half of the population</a> feels unsure about how they would cover their basic needs for more than a month if they lost their income. Following several financial crises, consumers are hesitant to trust<a href="https://www.accion.org/five-reasons-small-merchants-arent-using-financial-services-in-chile/"> financial institutions</a>, and many see working with banks as a last resort. One business owner in Santiago expressed a sentiment that we heard from many Chileans: “I would prefer to be indebted to my family than to a bank.”
We’ve seen similar patterns in Mexico, where, over the last three years, the percentage of adults who save at financial institutions declined from 15 percent to 10 percent. In an interview, Azucena, a stay-at-home mom who previously worked as a bank teller, told us that she and her husband prefer to <a href="https://www.accion.org/people-saving-money-mexico">save cash </a>in lockboxes in order to have money at home for unexpected emergencies. When it comes to credit, many people told us that they often hear negative stories about defaults, rather than positive stories about people using credit to improve their lives.
These behaviors indicate that FSPs could do more to better understand their clients’ needs and goals, build greater trust, and deliver more valuable products and services.

<div style="width: 4938px" class="wp-caption alignleft"><img src="http://accion-staging.flywheelsites.com/wp-content/uploads/2019/05/DSC_0388.jpg" alt="" width="4928" height="3264" />FSP employees participate in a <a href="https://www.accion.org/building-and-deploying-user-centric-products">human-centered design exercise</a> in Chile</div>
For decades, Accion has worked around the world to help FSPs deliver the products that underserved clients need to access, use, and benefit from the formal financial sector. Our hybrid approach combines human-centered design, insights into emerging technologies, and effective business models to create financial services that accelerate social and economic progress.
Over the next 18 months, Accion, <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion/">in partnership with MetLife Foundation</a>, will apply this approach with five FSPs in Mexico and Chile. We’ll work alongside these institutions to develop viable products and services that reach underserved clients and improve their financial health. This process will include building the business case for customer-centric products; managing organizational change; and designing, testing, and implementing product innovations.
We’ll begin by using human-centered design, which links product and service design to customers’ needs and lives. By first understanding the challenges that low-income clients face and the goals they want to achieve, FSPs can create products and experiences that are available at the right moments, provide visibility into users’ finances, and take into account customers’ aspirations. Such products can lead to improved financial health, better decision-making, and more informed financial management.
While considering our clients’ needs and their goals, we’ll integrate behavioral science to create products and experiences that support healthy financial behaviors and habits. For example, behavioral scientists know that people tend to prioritize the present over the future and put off tasks that feel stressful, like budgeting, saving, and long-term planning. By taking this tendency into account and creating products that balance the management of day-to-day finances with future planning, we can promote clients’ financial health.
Ultimately, our understanding of low-income clients’ needs, the application of behavioral insights, and our focus on business considerations will inform the creation and deployment of new products that improve underserved clients’ financial health and that are sustainable in the market.

To qualify for the program, FSPs developed product proposals that addressed low-income client needs using a customer-centric lens; each of their proposed solutions is tailored to improve clients’ financial health and advance the organization’s strategic business objectives. Our partners will adapt their proposals through several rounds of user research and ongoing support from Accion.
Below is a list of our five partners, their product concepts, and goals for improving the financial health of their customers.

We’ll work alongside our partners to refine their initial concepts into customer-centric, market-ready products and services that help underserved families and small businesses improve their financial health.
Over the next 18 months, Accion and our partners will be working closely with customers, and with the FSP teams responsible for interface, application, operations, marketing and customer engagement to deliver an excellent customer experience. While we will focus on client behavior change, Accion and our partners understand that institutional change management is the real starting point.
For these solutions to promote clients’ financial health over the long-term, we will work with our partners to consider the business case for each product and the organizational changes needed to implement them. It’s only by combining our unique insights into client needs and our understanding of inclusive business models that our partners will be successful. It’s critical to look at longer-term profitability and customer lifetime value to ensure that our partners’ new products advance their long-term strategic goals; we’ll test customers’ willingness to pay for new services throughout their development and adjust product design to increase value to the customer.
These products represent significant new investments that will demand structural support, so we’ll also work to ensure that our partners have the right people, processes, and systems in place to launch and sustain the new products, helping with upskilling or capacity building as needed.
To create a financially inclusive world – to provide entrepreneurs with the means of hiring more employees, parents with the ability to save for the future, and communities everywhere with the tools they need to accelerate social and economic progress – we must develop financial products that clients trust, use, and benefit from. We’ll work alongside our Mexican and Chilean partners to create new solutions and services that help underserved families and businesses improve their financial health, and that realize the vision of a financially inclusive world. Follow us here as we keep you updated on our progress and process with our partners.
<img class="alignnone" src="http://accion-staging.flywheelsites.com/wp-content/uploads/2018/08/MetLife-Foundation.png" width="247" height="115" />This brief is a part of our <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion/">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations project</a>, supported by MetLife Foundation.

“Financial health is achieved when an individual’s daily systems help build the financial resilience to weather shocks, and the ability to pursue financial goals.” Financial Health Network

Brief

<h2>The path to financial health</h2>
People around the world are continually aiming to improve their financial lives – they do so with whatever tools are available, whether formal or informal, and with whatever knowledge they have gathered. Every day, people work hard to grow their businesses, send their children to school, save, make ends meet, and troubleshoot during tough moments. Ultimately, they aspire for greater financial health and a better life for themselves and their families.
<img class="aligncenter" src="http://accion-staging.flywheelsites.com/wp-content/uploads/2019/02/CFSI-1.png" /><a href="https://cfsinnovation.org/">The Financial Health Network</a>, the  <a href="https://www.centerforfinancialinclusion.org/">Center for Financial Inclusion at Accion</a> and <a href="http://www.dalbergdesign.com/">Dalberg's Design Impact Group</a> developed a <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2017/03/FinHealthGlobal-FINAL.2017.04.11.pdf">framework of six indicators</a> for financial health in the developing world.
In order to help consumers improve their financial health, financial service providers (FSPs) can design products, tools and services that empower consumers to better understand and manage their finances and encourage them to improve financial habits. Focusing on financial health also has the potential to impact the FSP’s bottom-line: Gallup found that when customers feel that their bank <a href="https://news.gallup.com/opinion/gallup/176534/looking-customers-financial-table-stakes-banks.aspx">looks out for their financial well-being</a>, they are much more likely to be fully engaged with the bank.

However, in order for FSPs to successfully promote financial health, they first need to understand customers’ opportunities and obstacles to improving it.

Achieving financial health in Mexico and Chile

Featured brief

Article

Entrepreneurship runs in Claudia Salomon’s family. “This is what we love — and that’s why we do it. What we want is the business to grow. We have already opened a second store. But we want it to grow more,” she says. 

To achieve the growth she desired, Claudia sought assistance from Accion partner, <a href="https://www.mibanco.com.pe/">Mibanco</a>. She learned about Mibanco from the advisors that frequently visited her neighborhood to talk with entrepreneurs about opportunities to work together. Mibanco specializes in providing financial services to traditionally underserved small business owners. According to the <a href="http://datatopics.worldbank.org/financialinclusion/country/peru">World Bank’s Global Findex data for 2017</a>, 57 percent of adults in Peru still lack a bank account. Running a successful enterprise is challenging without credit and savings products, so Mibanco offers underserved entrepreneurs sensible products to grow their businesses. <img class="wp-image-19941 alignright" src="http://content.accion.org/wp-content/uploads/2019/10/2018_Accion_MiBanko_Day1__0673-1024x682.jpg" alt="Claudia speaking with a Mibanco representative" width="504" height="336" />

This business support was just what Claudia needed. Her first loan with Mibanco kicked off a lasting relationship. “I remember the first time we worked with Mibanco, we asked for working capital — which was 500 sol all those years ago — and since then we have continued to ask for loans.” With the working capital, Claudia could buy more materials to produce furniture, expand into a larger working space, and in turn, help provide a better future for her family. “Mibanco not only helped my business grow but they also helped us to pay for my children to study,” she says, adding proudly that, “My daughter just finished at law school.”

Claudia and her family had a strong business before working with MiBanco. But, with the help of trusted advisors, she learned how to efficiently access capital to expand and run her business. “I am very thankful because Mibanco has allowed us to grow. And not only has it allowed the business to grow, but it has also trained us.” 

With the right training and funding, she looks forward to a bright future for her business. “We would like to continue to have that — continue to let it grow,” she says.

Growing the family business is a dream come true for Claudia

At a height of 14,000 ft, up in the Andes, lies a thriving economy — La Paz, the capital of Bolivia. During a recent visit, I stopped by El Alto, a neighboring city that hosts the country's largest outdoor market. El Alto sits at an even higher elevation than La Paz. To reach it, I took Mi Teleferico, the aerial cable car system that serves as affordable public transport for the state’s 2.7 million residents.

From a public infrastructure perspective, Mi Teleferico is a monumental achievement. In 2014, upon completion, the system was the longest aerial cable car system in the world. Bolivia is also the first country to use a cable car system as the <a href="https://www.nytimes.com/2014/08/17/world/americas/with-subway-in-the-sky-valley-meets-plateau.html?_r=0">backbone of a mass-transit system</a>. For its innovation in addressing a growing public transportation crisis, Mi Teleferico won a <a href="http://gondolaproject.com/category/installations/mi-teleferico/">Latam Smart City Award</a> in 2018.

While Bolivia is driving innovation in public transport and sustainability, it has lagged in other areas — particularly financial services. Significant regulation has made innovation difficult, especially in serving Bolivia’s informal small businesses sector, which employs over <a href="https://pdfs.semanticscholar.org/3614/d4228fd389c6ec33944b4b394220034b346e.pdf">half of the population</a>. The country also has the <a href="https://www.worldatlas.com/articles/the-richest-countries-in-south-america.html">lowest GDP per capita</a> in Latin America, and it’s the <a href="http://hdr.undp.org/en/composite/HDI">second-lowest in South America on the Human Development Index</a>. In this environment, small businesses can't access the tools they need to grow.
<h2>Serving Bolivia’s small businesses</h2>
<a href="https://www.bancosol.com.bo/">Banco Solidario S.A (BancoSol)</a>, the first regulated commercial bank in the world dedicated to serving micro and small entrepreneurs, is headquartered in La Paz. The bank serves more than 1.5 million clients nationwide. Most of these clients operate in the informal economy, and nearly half are women. Accion has been supporting BancoSol, as a shareholder and advisor, since its original transformation into a <a href="https://www.accion.org/transforming-finance-low-income-people-bolivia">commercially driven microfinance bank.</a>

Bolivia’s small businesses need innovative products to help them grow

In the last decade, China has emerged as a leading market for digital financial services. The government has encouraged this growth by limiting regulation, and while innovation has flourished in this environment — so has malpractice. Millions of people have lost their life savings in the severely unregulated person-to-person (P2P) lending and digital lending industries. Now people find it hard to trust the digital financial tools that were supposed to improve their lives.

Liang Zhanli runs a small business in Inner Mongolia, selling local specialties like mushrooms and beef jerky. She knows first-hand the harm caused by irresponsible digital financial services. Several years ago, when she decided to try her hand at investing, Ms. Liang used her savings and even borrowed money from friends and family to make investments. She used a P2P platform, which takes capital from individual investors and lends it to another party. But when the P2P platform she used shut down, her investment failed. She had to sell her apartment to repay her friends and relatives.

This experience could have soured Ms. Liang on all financial service providers — leaving her without funds or the tools she needed to rebuild. Fortunately, even in her moment of hardship, Ms. Liang knew she could still trust Accion partner <a href="http://grassfin.com/en/home">Grassland Finance Limited (GFL)</a>. She had been working with the microcredit company for three years to support her business. Now, she plans to leverage capital from Grassland to invest in and grow her business to generate savings and buy a new apartment. From now on, she says she’ll only trust financial service providers that have a physical presence and staff she can meet in person.

Grassland Finance Limited is celebrating its 10th anniversary this month — a decade of supporting entrepreneurs like Ms. Liang with credit for <a href="https://www.accion.org/grassland-filling-gap-chinas-microcredit-industry">advancing their lives and businesses</a>. Unlike digital financial companies, microcredit companies are closely regulated – from interest rates to capital requirements to geographic expansion, but Grassland has managed to grow, even as competition increased. One key to Grassland’s success is the institution’s ability to <a href="https://www.accion.org/the-tech-touch-balance">balance human interaction and technology</a>.

Earlier this year, Accion worked with Grassland staff to interview customers to understand the needs, aspirations, and emotions of Grassland’s client base. Several customers told us that they didn’t want to rely on only digital finance products because they found them difficult and uncomfortable to use. However, once they understand how to use digital products, customers also told us that they like the convenience and ease these products offer with the onboarding and ongoing support from loan officers Grassland is moving towards digitization but will continue to offer a human touch to customers through loan officers and branches.

Grassland’s digitization efforts include designing and piloting a mobile app that allows clients to submit loan applications and sign contracts digitally and securely. Grassland is also working with Accion to build a credit model and automate the underwriting process. Throughout the credit process, loan officers serve as financial advisers to clients. They provide hands-on support, including teaching clients how to use digital channels for loan repayment and how to distinguish between reliable and dubious providers. One of the primary reasons that clients like Liang remain loyal to Grassland is out of trust for the institution’s loan officers, who are often seen as “old friends” they can turn to when they have finance-related questions or challenges.

Many clients are excited for the Grassland mobile application since they trust the institution and its staff. Take, for instance, Qin Xiaobo, who told us he is always cautious with digital finance. Nevertheless, he’s eager for Grassland to become more digitized because he feels it will continue to improve his experience.

Grassland is also moving towards digitizing customer education and support processes. For example, the organization has set up a corporate account with WeChat (similar to a corporate blog) and leverages the platform to publish financial education content regularly. Through insights collected from client interviews, Grassland recognizes that its clients lead busy and stressful lives, so it’s hard to make time to learn about financial management. To make learning more accessible, the institution is planning to leverage a <a href="https://walkthechat.com/wechat-mini-programs-simple-introduction/">WeChat mini program</a> to design interactive financial education activities, embedded in the WeChat corporate account. The game would encourage clients to learn and practice financial concepts in an engaging way and share their newfound expertise with their social networks. Grassland is also planning to partner with colleges to develop games and activities for clients’ kids so they can build financial literacy early. The institution intends to prototype these ideas soon.

It is increasingly evident that outside of major cities, digitization is unlikely to drive sustainable impact for low-income clients in China — unless it incorporates strategic human interactions. For a decade, Grassland has enabled people like Ms. Liang and Mr. Qin to seize business opportunities, increase income, endure economic shocks, and manage their households. While China’s digital financial services and microfinance industries remain <a href="https://www.accion.org/financing-chinas-smallest-businesses">fraught with challenges</a>, Grassland has proven that balancing tech with a human touch is good for business and good for customers.

Arisha Salman and <a href="https://www.accion.org/bio/yiran-lu">Yiran Lu</a> also contributed to this article.

Giving customers a reason to trust digital finance in China

Felicitas Contreras Sarmiento raised three children as a single parent while managing her hardware store in Peru. The most important lesson she taught her children was to persevere no matter what. “They all have to learn to fly, fall, get up, and continue,” she says.

<img class="alignleft wp-image-17289" src="http://content.accion.org/wp-content/uploads/2019/01/2018_Accion_MiBanko_Day1__0267-819x1024.jpg" alt="Felicitas receives a payment from a customer" width="400" height="500" />As a woman entrepreneur, Felicitas has overcome more than her fair share of adversity. Many in the community doubted her when she first started selling hardware, but Felicitas continued to work towards her dream. “I always liked doing electricity work, and just because I am a woman doesn't mean I can’t do this,” she says. She taught herself a skill that she then turned into a successful business. Over the years she developed close ties with her community and customers, always looking for ways to expand her skill set.

Even with her knowledge and determination, Felicitas knew that she needed a trustworthy bank to help her grow her business. In her early days, she worked next to a <a href="https://www.mibanco.com.pe/">Mibanco</a> branch, and after a fire destroyed her stall, she decided to reach out to inquire about a loan. Mibanco understands the importance of knowing their customers and specializes in providing financial services to small business owners like Felicitas who have traditionally been financially underserved.

Felicitas was pleased to find her Mibanco advisor was genuinely interested in helping her rebuild and grow her business. “It’s so important to have advisors who are so warm and close,” she says. Over the years, Felicitas has worked with multiple financial institutions, but she found that Mibanco provided a higher level of support and advice, and for a small business owner, that’s as important as access to loans. “Mibanco does not put up obstacles. They come to you, they tell you that an adviser will come and explain and tell you what the best product is or the best ways to get a loan.”

<img class="alignright wp-image-17284" src="http://content.accion.org/wp-content/uploads/2019/01/2018_Accion_MiBanko_Day1__0107-682x1024.jpg" alt="Flicitas stands in front of an array of hardware store merchandise" width="400" height="600" />Felicitas is happy with how her business has grown and achieved success: “Yes, I have grown definitely! Now we not only have this store but we have storage, where I keep other products that I sell. I have grown. And what you see here, we don’t have enough space. So we have decided to invest in another place.”

Her family has benefitted from the booming business, but she doesn’t have to rely on any of her children to help her with the business, which allows them to find their paths. “They are three good kids. They are working. I feel very proud and happy with them,” she says. As she tells her story, her pride in her family and her business is clear, and she hopes her success will be an inspiration to others: “Women can do it on their own. This is a nice message that you don’t need to depend on someone to make a living and take care of your family.”

Felicitas is determined to build a better future for her family

“It's really difficult when you immigrate to another country,” says Andrea del Valle. She moved to Chile from Venezuela five years ago with a vision of the future she wanted but uncertainty about how to make it work. One day, a poster for Accion partner <a href="https://www.destacame.cl/">Destacame</a> caught her eye, and when she looked it up online, she was glad to see that it offered an opportunity for online financial education. Launched in 2015, Destacame provides a suite of products that allow consumers to manage their financial life and to build their financial health. 

[caption id="attachment_17174" align="alignleft" width="500"]<img class="wp-image-17174" src="http://content.accion.org/wp-content/uploads/2019/01/2018_Accion_Destacame_Day2__0335-1024x682.jpg" alt="Andrea del Valle in conversation with Destacame co-founder Sebastián Ugarte." width="500" height="333" /> Andrea del Valle in conversation with Destacame co-founder Sebastián Ugarte.[/caption]

Andrea explored Destacame’s offerings and seized the opportunity to build her credit history and applied for a microloan through the platform. She used the money from that loan to buy a food truck. Selling snacks and meals from her new truck helped supplement her expenses as Andrea studied natural therapy and planned for her long-term career. During this time, she was able to learn a lot from Destacame about keeping your expenditures proportional to your income and saving and investing money. “At the beginning, it seemed impossible — now I am able to keep my savings as Destacame suggests,” she says.

As Andrea’s income began to grow and she was building a positive credit history, new opportunities opened up for her. She was able to open a bank account and get her first credit card. This allowed her to achieve her dream of opening her own studio offering natural therapy — making the life she had been chasing since she came to Chile a reality.

[caption id="attachment_19299" align="aligncenter" width="700"]<img class="wp-image-19299" src="http://content.accion.org/wp-content/uploads/2019/07/2018_Accion_Destacame_Day1__0874-1024x682.jpg" alt="Virginia Chacón sitting inside Destacame's office" width="700" height="467" /> Virginia Chacón, Destacame’s head of operations, emphasizes understanding customers to serve them better.[/caption]

Chile has become a magnet for immigration in Latin America, and providing this growing population with useful financial services can help immigrants to rebuild their lives and livelihoods in their new communities. As an immigrant herself, Virginia Chacón, Destacame’s head of operations, understands the challenges displaced people face when they try to access financial services. When she moved from Venezuela to Chile, working at Destacame helped her to understand Chilean society better and to become more involved in her new country. Having employees with diverse backgrounds complements Destacame’s advanced use of data to help them better understand and serve customers. “You get to know the real problems of people and therefore give them real solutions to their needs. The more information you have, the better you can help them,” says Virginia.

As Andrea visits Destacame’s office, she recounts how she was able to overcome hurdles and build her life in Chile. “Those credit records helped me to be able to rent this space and so much more, and everything really started with that microcredit that Destacame offered me.” Andrea recently helped a friend who immigrated find a job and a place to live. She was stuck all over again by the struggle immigrants face without any financial history to help establish themselves and find a home to rent. Andrea was glad to be in a position to help her friend, and as she passes along her success, one more person benefits with new opportunities and a shot to build a new life.

After immigrating to Chile, she built a new life for herself

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Series

As I prepared for my first visit to China, I was curious about what I would discover and hoping that what I learned would help me in my work to build more inclusive financial systems in Africa. I would be joining a delegation of digital finance professionals in Africa, including Tunde Kehinde, co-founder of Accion Venture Lab portfolio company <a href="http://lidya.co/">Lidya</a>. The trip was organized by the Mastercard Foundation<a href="https://www.financedigitalafrica.org/blog/2018/07/eight-things-we-learned-in-china-driving-fintech-fortune/"> Partnership for Finance in a Digital Africa (FiDA)</a>  to learn about the ecosystem in China and bring insights and inspiration to our workplaces. 

Tunde and I both live and work in Lagos, Nigeria, home to over 20 million people — one of the world’s megacities. We were fascinated to see how China has galvanized their government, businesses, and citizens to adopt financial products and services and how they’re creating a more seamless financial ecosystem for all. During the trip, we took note of everything we discovered and we’ve distilled our findings into lessons for inclusive finance in Nigeria. 
<h2>From big data to bigger data</h2>
Tunde and I were both impressed by the tremendous amount of valuable data sources companies could tap into for lending decisions. As we met with business leaders from companies such as JD Finance, Ant Financial, and WeBank (the first Internet-only bank in China), we were surprised to learn that they leverage from 30,000  to 100,000 data points on consumers and merchants in their underwriting process. As a comparison, Lidya uses 100 data points, and that’s a pretty robust data set in a region where high-quality and consistent data can be hard to obtain. Despite their advances, one Ant Financial Executive we met claimed that they are “still in the small data age of big data”, and that in 50 years we will look back and laugh at the datasets we have at our disposal today.  
<h2>Payments as the underbelly of a rich dataset</h2>
During the trip, we saw how a strong payment infrastructure is crucial for collecting data to build successful customer profiles to lend to the underserved. China’s impressive data collection starts when customers make a payment. The QR code system has been widely adopted for transactions in China, making it extremely simple for consumers to scan and pay. The low cost of implementing QR code payment infrastructure at the merchant level has led to high adoption rates, rich data sets, and <a href="https://www.techinasia.com/fake-qr-code-scams-china">minimal fraud</a>. In comparison, Nigeria has two primary approaches to payment facilitation: point-of-sale (POS) devices and USSD payments. Unfortunately, high costs, and inconsistent internet connectivity meant that POS devices are hard to come by or unreliable. 
<h2>Collaboration for advancement</h2>
One thing that Tunde and I both found surprising was the <a href="https://www.financedigitalafrica.org/blog/2018/08/you-cant-clap-with-one-hand-how-collaboration-drives-chinas-fintech-success/">high level of collaboration in the Chinese fintech sector</a>. We expected companies to be highly competitive, secretive, and unwilling to work together in their race to the top. Surprisingly, that couldn’t be further from the truth. Instead what we learned is that many share potential customer pipelines. These companies have started to specialize in finance offerings for clients at various income levels and businesses of different sizes, and they found that it was more productive to share a pipeline so each customer segment gets the most valuable experience from the optimal provider for them. 

Tunde and I have both traveled a significant amount, but we both walked away transformed by our time in China. It was a thought-provoking trip — one that allowed us to see the tangible progress of a market that has made significant strides in fintech and financial inclusion. At one point I started to panic, wondering if any African nation, let alone the entire continent, could ever catch up. However, what I came to accept was that our collective goal is not necessarily to imitate China’s model but to forge our own path, centered on the needs of African consumers and small businesses. That path may look entirely different from China’s. There is no one solution for building a financially inclusive future, and each region and country will have their own challenges and successes along the way. While our visit to China inspired us, Tunde and I returned home most excited for what’s to come here in Nigeria.

This article was written with support from Tunde Kehinde, co-founder of Accion Venture Lab portfolio company Lidya. It is also published on the <a href="https://www.financedigitalafrica.org/blog/2019/01/what-can-nigeria-learn-from-chinas-digital-economy-insights-on-big-data-mobile-payments-and-what-chinas-model-means-for-financial-inclusion-in-nigeria/">Partnership for Finance in a Digital Afric</a><a href="https://www.financedigitalafrica.org/blog/2019/01/what-can-nigeria-learn-from-chinas-digital-economy-insights-on-big-data-mobile-payments-and-what-chinas-model-means-for-financial-inclusion-in-nigeria/">a</a><a href="https://www.financedigitalafrica.org/blog/2019/01/what-can-nigeria-learn-from-chinas-digital-economy-insights-on-big-data-mobile-payments-and-what-chinas-model-means-for-financial-inclusion-in-nigeria/"> (FiDA) blog</a>.

What can Nigeria learn from China’s digital economy?

Case Study

MetLife Foundation's longstanding partnership and philanthropic support of Accion’s work, and our joint public engagement efforts, have raised awareness of the opportunities and solutions to advance financial inclusion. Since 2013 MetLife Foundation's core focus has been to improve the financial health of low-income individuals across the globe. Together, we’ve helped underserved people around the world gain access to the tools they need to improve their lives.
<h5>EMPOWERING THE PEOPLE OF MYANMAR</h5>
Since 2015, MetLife Foundation has supported Accion’s partnership with Early Dawn Microfinance (DAWN) to provide entrepreneurs in Myanmar — especially women in rural areas — with microfinance services. When we began working with DAWN, it served 25,000 clients with less than $2 million in loans, and loan officers recorded clients’ activity entirely by hand, which could take up to four hours a day. As an investor and operating partner, Accion has worked with DAWN to reach new customer segments, improve and expand its product offerings, leverage new technologies and channels, and improve its operational efficiency. Today, that previous four hours of work takes just 20 minutes, giving loan officers more time to meet with and understand their clients. Now, DAWN is a premier institution that serves as a model for the country’s nascent microfinance industry, serving more than 160,000 clients with more than $30 million in loans.

MetLife Foundation and Accion: Seeking opportunities to advance financial inclusion

With nearly 5 million residents, Chifeng isn’t a small city. But as it sprawls across the vast prairie of Inner Mongolia, an autonomous region in northern China, some parts of the city feel almost rural. This combination of rural and urban create a diverse mix of clients for <a class="markup--anchor markup--p-anchor" href="http://chifeng.gaoxinlong.com/">Grassland Inner Mongolia</a>.
Initially launched as Accion Microcredit China in 2009, Grassland Inner Mongolia remains a locally registered microcredit company (MCC) but is now part of the Pan-China operation, <a class="markup--anchor markup--p-anchor" href="http://grassfin.com/en/home">Grassland Finance Ltd</a>. <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/grassland-filling-gap-chinas-microcredit-industry/">Accion partners with Grassland</a> to help deliver financial services to China’s underserved businesses using in-person, mobile, and digital platforms. Over the years, Grassland Inner Mongolia has provided more than RMB 1.7 billion (USD 261 million) in loans to over 16,000 customers, with the average loan amount under RMB 105,000 (USD 16,100).
On a recent trip to China, I spoke with Zhu Yanyan, the general manager of Grassland Inner Mongolia, about how the company has developed since its founding, and her vision for its future.
Q: Tell me a little bit about the clients you serve.
A: We provide microloans to farmers, herdsmen, commercial households, and microenterprises. Most are in the trade, services, agriculture, and manufacturing industries. They are diligent and honest entrepreneurs, yet they aren’t targeted by banks since most of them cannot provide the kind of collateral required. However, unsecured loans are our primary product so we can enable access to financial services for such clients.
Q: You’ve been here since the beginning in 2009. How has your job changed over that time?
A: I’ve had the honor of witnessing the transformation of the firm over the past eight years, in several areas.
With the formation of Grassland Group, the company’s geographic coverage grew rapidly, now covering Pan-China, from here in Inner Mongolia, to Chongqing, Hunan, Shandong, Sichuan, Xinjiang, Hubei and Shanxi provinces.
Grassland’s Head Office team is familiar with best practices in Chinese microfinance and has good insight into the Chinese microcredit industry. They’ve been very effective in bringing about new corporate best practices, so we’ve been able to standardize processes and policies across the group, helping us work better with faraway colleagues.
At the same time, the company embraces the principle of “local people managing local affairs,” trusting our local talent and investing in training to help local employees with potential become good microfinance professionals.
I’m proud of our social impact, as well. Through our continuous effort in promoting inclusive finance in Chifeng, Grassland Inner Mongolia has been widely recognized within the microcredit company (MCC) industry as a forefront contributor in promoting financial inclusion. Each year, we’ve won awards from the China Association of Microfinance and from the Finance office at the city and provincial government levels.

<h4 class="graf graf--p">Q: How are you using new technology to support your work?</h4>
A: We feel we’re at the forefront of technology and innovation among MCC industry players. Grassland has built public websites for both investors and customers. In 2016, we also introduced a digital field application tool called Keystone, which is an end-to-end platform loan officers and credit managers use to process loan applications via tablet.

<h4 class="graf graf--p">Q: What do you enjoy most about your work?
</h4>
A: My three favorite things are:
First, taking on the challenge of expanding Grassland Inner Mongolia’s operations. As I explore the market, I seek to identify the best areas for lending, forecast the market potential for growing our loan portfolio and number of clients, and learn how to control risk effectively.
Second, the opportunity for constant learning and self-improvement. Through this job, I continue to work toward being a well-rounded leader, not just in terms of new business development and credit risk management, but also in areas such as operations, finance, and HR, therefore becoming a true General Manager.
And last but not least, I like to see our clients expand their businesses and improve their lives through the services we offer.

<h4 class="graf graf--p">Q: What’s next for Grassland Inner Mongolia?
</h4>
A: I am determined to continue expanding our business operations to other parts of the region and making sure that we continue to be a critical player in the overall Grassland organization as we look ahead to a prospective IPO in Hong Kong in a few years.

Q&amp;A: Entrepreneurs in China  —  A perspective from Chifeng, Inner Mongolia

Despite its astonishing progress in reducing poverty, China remains one of the nations with the greatest unmet needs for financial services. <a href="http://www.worldbank.org/en/programs/globalfindex">Some 234 million low-income Chinese — or about 21 percent of the total population—lack access to formal financial services</a>. One vital strategy for expanding financial access is to strengthen China’s microfinance industry so it can scale up. That, in turn, requires helping senior managers of microfinance institutions (MFIs) overcome the day-to-day business challenges that can slow down growth.

To build the sector’s expertise, Accion, with the support of MetLife Foundation and in partnership with the Chinese Association of Microfinance (CAM), launched the <a href="http://www.accion.org/mmlp-winter-china-microcredit-industry/">International Microfinance Management and Leadership Program</a> (MMLP) in December 2015. This program provides senior MFI managers training in effective strategies to address technical and operational issues in microfinance, and to extend better services to more people. <a href="http://www.accion.org/metlife-foundation-and-accion-reach-more-than-one-million-clients-through-training-program-for-chinas-microfinance-managers/">This month in Beijing, we celebrated the completion of MMLP’s second round of training</a>. In all, two cohorts have participated, totaling 73 mid- and senior-level managers from 34 Chinese MFIs, including market leaders like CreditEase, CFPA Microfinance, Hope Finance, Grassland Ltd., and Hanhua Credit Group.

The International Microfinance Management and Leadership Program was the first holistic, systematic microfinance management training and capacity-building initiative in China. Participants refined their leadership and management skills and developed sound technical knowledge in microfinance operations and human capital management. Over the course of several months, trainees attended in-classroom seminars and participated in monthly webinars, online discussions, and field visits to best-practice MFIs. This blended approach, combining classroom-based and experiential learning, helped participants retain information for longer, strengthened core skills, and put the lessons they learn into practice. This required a much longer commitment than the short, lecture-based trainings that are more commonly seen in China, and exposes the trainees to the more participatory teaching styles of Western institutions.

Graduates rated the program highly (with an average of 4.73 out of 5 in cohort 1, and 4.85 in cohort 2). Said Yang Tao, assistant general manager at CFPA Microfinance and cohort 1 participant, “The program’s courses really touch the pain points and needs of mid and senior managers in microfinance institutions. The content is very practical and relevant.” Another participant from cohort 2, Peng Honglang, senior manager at CreditEase, said, “The training is very comprehensive, guiding me through key points in strategic planning, human capital and operation management, and adoption of new technology, which will be very useful in my future work.”

The partner institutions behind MMLP brought complementary strengths to the project. Accion is a financial inclusion pioneer with 50 years of experience building 65 MFIs in 32 countries on four continents. The Chinese Association of Microfinance is the first member-based association in China’s microfinance sector, and advocates for the development of rural microfinance and public-interest MFIs.

Given the size of the financially excluded population in China, scaling financial inclusion in China translates to global impact. Combined, the first and second cohorts will impact more than one million MFI clients. CFPA Microfinance, China’s largest microfinance institution, is now poised to take over the MMLP, building on the achievements of the first two rounds of training to continue developing financial services for all.
By Dandan Wang and Yiran Lu for Accion. An earlier version of this post was published on the <a class="markup--anchor markup--p-anchor" href="http://partners.wsj.com/metlife/multipliers/articles/making-small-loans-on-a-bigger-scale-in-china/" target="_blank" rel="noopener noreferrer">Wall Street Journal’s Multipliers of Prosperity</a>, in partnership with the MetLife Foundation.

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Vijay Mahajan

For fintech to live up to its potential for financial inclusion, client protection is critical

We’re living in a period of spectacular innovation in financial services: new technologies are changing nearly every aspect of the formal financial sector. It’s a very exciting time for everyone who aspires to create a financially inclusive world: for the first time, we have new tools that work anywhere, anytime, and can help us achieve our vision. Given that financial inclusion <a href="https://www.uncdf.org/financial-inclusion-and-the-sdgs" target="_blank" rel="noopener nofollow noreferrer">enables eight of the United Nation’s Sustainable Development Goals</a>, fintech can ultimately help provide better food, promote economic growth, increase women’s autonomy, and contribute to a safer, more equitable world.

But, to realize that potential, we must acknowledge that fintech—like any financial product or service—can either help people thrive or exacerbate inequality. Nano-loans can provide someone with a quick loan so they can fix their car and get to work, but they can also enable <a href="https://www.centerforfinancialinclusion.org/red-flags-in-kenyas-nano-credit-market" target="_blank" rel="noopener nofollow noreferrer">gambling and over-indebtedness</a>.

And, much like with traditional finance, a given fintech’s quality largely depends on its provider: emerging technologies provide entrepreneurs and startups with new tools and channels to reach the world’s 3 billion financially underserved. But, in some cases, developers use these technologies to create services that don’t help users—and may even harm them.

Despite that risk, we still believe that inclusive digital financial services tend to improve peoples’ lives and help businesses thrive. But to cultivate beneficial digital financial services, providers, investors, and regulators need a deep understanding of users, as well as their needs, priorities, and behaviors. They also must understand the specific ways that technologies can help the world’s underserved. And, just like traditional financial services, fintechs must constantly strive to emphasize the positive effects and minimize the possibility of negative consequences.

Striking that balance can be difficult: fintech innovators and their investors see an enormous need and sometimes rush to meet it. Regulators have a difficult time, too—especially in such a rapidly changing field.

But difficult isn’t impossible, nor is it an excuse. Early inaction can have lasting consequences. As microfinance institutions were just beginning to scale, the industry suffered major setbacks because it failed to prioritize consumer protection. Whether this was brought on because of regulators’ benign neglect or institutions’ failure to self-regulate, clients in <a href="http://documents.worldbank.org/curated/en/300751468269382514/Andhra-Pradesh-2010-global-implications-of-the-crisis-in-Indian-microfinance" target="_blank" rel="noopener nofollow noreferrer">Andhra Pradesh</a> and around the world suffered because of it. We can’t allow that to happen with fintech.

One way to begin fostering consumer protection in digital financial services is to have open, frank conversations about what’s working and what isn’t. Recently, the Center for Financial Inclusion at Accion established a <a href="https://www.smartcampaign.org/about/fintech-protects-community-of-practice" target="_blank" rel="noopener nofollow noreferrer">Community of Practice</a> where fintech providers discuss the challenges they must address when embedding consumer protections into their work. Their conversations about the successes and failures they’ve encountered in the provision of digital credit helped the Smart Campaign—the leading global voice on financial consumer protection and empowerment—align its Client Protection Principles with emerging trends in digital financial services.

The Community is an important first step—but it’s only a first step. It’s time to embrace the next phase in digital client protection by developing a comprehensive definition of responsible digital finance and the norms, frameworks, and tools necessary to operationalize it on a global scale. New technologies, delivery channels, service providers, and customers necessitate adapting and expanding how we approach consumer protection and digital empowerment. That’s only possible if digital financial service providers understand how to do so and why they should.

To ensure that they have that knowledge, we should articulate the incentives that can motivate fintechs to embed ‘protection by design’ into their products, delivery channels, and business models. With the right data on business model economics—including the potential upside for fintechs that prioritize consumer protection and the risks that they face if they don’t—we can show fintechs the business case for incorporating sound consumer protection principles into their products and services. We’ll also need to continue working with fintechs and their users to ensure that new standards are informed by customers’ evolving expectations and address their needs.

We all stand to benefit from building digital financial services that emphasize client protection: they reduce risks, promote trust, and develop a positive reputation for the financial sector. More importantly, responsible digital financial services help ensure that we harness the ongoing transformation of the financial sector to help people everywhere build better lives.

Building responsible digital financial services

Justin Matheson-Turner

Mibanco helps small businesses access capital and advice in Peru


Funding from Accion Microfinance Bank in Nigeria helps MSME clients thrive

For many entrepreneurs around the world, the difference between running a subsistence-level microenterprise and a small business with growth potential is being able to secure a bank loan. With a loan, an individual can buy supplies, rent space, and even employ others. Without one, they’ll be dependent on personal savings or borrowing from friends and family. Such loans can be very hard to get, however, as smaller or younger businesses tend to lack the kind of collateral and paper trail loan officers like to see. This gap between the financing needs of micro, small, and medium enterprises (MSMEs) and the availability of bank loans is often called “the missing middle.”

This missing middle problem is especially severe in Nigeria. The most recent <a href="http://www.enterprisesurveys.org/data/exploreeconomies/2014/nigeria#finance">World Bank Enterprise Survey</a> of the country found that the most common issue cited as an obstacle by Nigerian business owners was access to finance — 30.2 percent said it was a challenge. And while worldwide, one-third of business owners reported having a bank loan or line of credit, for sub-Saharan Africa, that number dropped to about one-fifth, and for Nigeria, it was lower still at only one-tenth.

Longtime Accion portfolio partner Accion Microfinance Bank (Accion MfB) of Nigeria is a bright spot in this challenging landscape, providing almost 40,000 loans in 2017. On a recent visit, we had the opportunity to meet several of its MSME clients and hear how Accion MfB has helped their businesses grow and thrive.

<img class="size-large wp-image-19914 alignnone" src="http://content.accion.org/wp-content/uploads/2019/10/Accion_Clients_0001-1024x683.jpg" alt="Entrepreneur Ezeh inside his shop" width="1024" height="683" />

Ezeh began his business selling car batteries, but as he explains, he’s been able to start offering a wider range of products. He says, “With customers needing a lot of parts, now I sell parts as well. The loan has had a good impact by allowing me to expand to a second shop and sell two main items now.” Ezeh has also been able to hire employees to operate that second location.

<img class="size-large wp-image-19915 alignnone" src="http://content.accion.org/wp-content/uploads/2019/10/Accion_Clients_0014-1024x683.jpg" alt="Chief Moses Akintunde stands in front of his restaurant" width="1024" height="683" />

Chief Moses Akintunde has been able to expand his restaurant with the money he borrowed from Accion MfB. He says, “When I started, all I had was a room, now I’ve extended it. I have enough space for my customers. I have chairs so they can all fit inside. I have had times when we get very full and there’s not enough space for everyone to sit, so they stand. So it is good.”  He’s been so happy with his experience with Accion MfB, he recommends it to others, he says.

<img class="size-large wp-image-19916 alignnone" src="http://content.accion.org/wp-content/uploads/2019/10/Nigeria_Accion_Clients_0007-1024x683.jpg" alt="Yusuf Omolara sits in front of the jewelry she sells" width="1024" height="683" />

Yusuf Omolara, who sells jewelry, says of Accion MfB, “They have really changed my life. When I met them, I was in my former shop, which was very small. I told them I needed money, and they gave it to me. I used the money to buy some rings. After I finished paying that loan, they increased it.” Yusuf has been with the bank for years now. “Once I’ve paid for the month, I get the next loan,” she says, adding, “I’m thankful for Accion. I remember where I started. My children were in primary school then, now one of them is in university with Accion money. I love the people who work there, too. When I’m in trouble, my friends don’t help me. Accion helps me every time!”

&nbsp;

It’s not easy to build a small business in Nigeria

Scott Stefanski

Related resources 

To enable MSMEs to benefit from supply chain finance, we need a collaborative and digital approach

Small businesses are crucial for unlocking job growth and sustainable development, but they can’t succeed if they aren’t able to keep their shelves stocked. Micro, small, and medium enterprises (MSMEs) face a $5.2 trillion funding gap, according to <a href="https://www.ifc.org/wps/wcm/connect/03522e90-a13d-4a02-87cd-9ee9a297b311/121264-WP-PUBLIC-MSMEReportFINAL.pdf?MOD=AJPERES&amp;CVID=m5SwAQA">IFC analysis.</a> This gap means business owners struggle to stock the supplies they need, which makes it impossible to serve more customers and grow a business. In developing countries alone, there are <a href="http://documents.worldbank.org/curated/en/653831510568517947/pdf/121264-WP-PUBLIC-MSMEReportFINAL.pdf">141 million</a> MSMEs. If they had the opportunity to grow, imagine what that would mean for families, for communities, for economies around the world.

It turns out there is a solution that could unlock more inclusive growth.  Until recently, <a href="https://www.accion.org/series/supply-chain-finance">supply chain finance (SCF)</a> has been used only by the largest firms and their primary buyers and suppliers. Establishing <a href="https://www.accion.org/the-supply-chain-finance-opportunity">collaborative partnerships that leverage digital data</a> can bring the benefits of this solution to smaller businesses. Many firms, including members of the <a href="https://iccwbo.org/publication/standard-definitions-techniques-supply-chain-finance/">International Chamber of Commerce</a> and a partnership between <a href="https://btca-prod.s3.amazonaws.com/documents/332/english_attachments/Driving_sales_through_digital_working_capital_loans_for_small_merchants.pdf?1528522098">Mastercard, Kenya Commercial Bank, and Unilever</a>, are already pursuing the supply chain finance opportunity. The excitement is palpable from banks, fintechs, and corporations alike, and it is clear that the time and environment are ripe for this solution.

Through SCF, small merchants that tend to be underserved by traditional lenders can access high-quality, low-risk financing. This gives them the flexibility to order supplies as needed and take advantage of opportunities to grow. But everyone else in the supply chain also benefits from the merchants’ success: fast-moving consumer goods companies (FMCGs), agribusinesses, distributors, and retailers along the chain could see higher sales, faster turnover, and increased net profit through greater efficiency and lower costs of credit. And financial service providers (FSPs) have a low-risk way to build relationships with untapped micro and small business market segments.
<h2>Why hasn’t supply chain finance reached MSMEs?</h2>
Despite the benefits for all parties, no one along the supply chain has had a straightforward path for helping MSMEs benefit from supply chain finance. Fast-moving consumer goods companies don’t interact with end merchants directly, so they aren’t well-positioned to extend financing to MSMEs. Corporate efforts to work through their banks to provide funding are complicated because banks that serve the large corporations do not usually serve small businesses. Financial institutions that do typically work with MSMEs face difficulties in lending because credit histories and collateral are scarce. While these institutions could benefit from supply chain data to assess credit risk, they don’t always have relationships with large corporates to facilitate supply chain financing. Distributors face challenges in the collection and reconciliation of cash. Suppliers sometimes resort to offering credit to merchants, but this subjects suppliers to risks associated with collecting cash from merchants and managing delinquency.

For a solution to work, it will need to remove the barriers of working in silos to make the process run smoothly and unlock the knowledge to provide supply chain financing. A collaborative — and digital — approach will make SCF beneficial to all.
<h2>Eight key areas to enable supply chain finance</h2>
Bringing supply chain finance to small and micro businesses will require a holistic approach. It demands a robust business model and strong partnerships, which address a range of interdependent activities, as illustrated below:

<img class="wp-image-19901 size-full alignnone" src="http://content.accion.org/wp-content/uploads/2019/10/scf_graphic.png" alt="Supply chain finance model" width="974" height="704" />
<ul>
 	<li>Data &amp; Risk Analytics: SCF leverages trade flow data among merchants, suppliers, and end customers. This data includes inventory purchases, goods sold, and payments made. It can be leveraged by FSPs to evaluate the creditworthiness of small businesses, which often lack credit histories.</li>
 	<li>Lending: By working closely with merchants, distributors, and suppliers, financial service providers gain increased visibility into stock and turnover so they can provide the right amount of working capital. Suppliers will no longer need to extend credit to the merchants they work with, which frees up funds in the supply chain.</li>
 	<li>Education of Chain Participants: MSMEs have limited exposure to SCF and require dedicated education programs to explain the value proposition, learn how it works, and, most importantly, build trust in a new solution.</li>
 	<li>Merchant/Distributor Acquisition and On-boarding: A successful SCF solution needs to have a lot of merchants and distributors on board. Suppliers can leverage their existing distribution networks, and FMCGs can actively engage with merchants who demonstrate the potential for achieving the highest sales. Innovative business models should leverage existing networks and automation to achieve scale.</li>
 	<li>Payments: SCF solutions need to facilitate easier payments for supply chains to operate smoothly. Payment solutions need to expedite the flow of payments among buyers and sellers while easing the disbursal of loans and their repayment through multiple channels. Digitizing these payments unlocks data for critical loan analytics.</li>
 	<li>Account and Collections Management: Underlying SCF is a need for an account to facilitate distributions and repayments with MSMEs. Managing this account and the collections process requires digital methods to achieve the level of scale needed.</li>
 	<li>Orders and Invoicing: Accurate and valid orders and invoices create high-quality data that makes SCF possible. Mobile applications are simplifying this process and expanding accessibility to the smallest firms.</li>
 	<li>Stock and Distribution Management: The logging of stock and inventory has cascading positive effects on FMCGs, distributors, and suppliers who can orient their operations to cater to the needs of merchants and the demand of end consumers. It’s also crucial for extending SCF to those with no credit history.</li>
</ul>
Digital innovation allows this comprehensive approach to work. Digital platforms facilitate coordinated decision-making among multiple stakeholders, record movements of goods in real-time, and reduce the risks associated with cash. <a href="https://sokowatch.com/">Sokowatch</a> and <a href="https://ke.kcbgroup.com/jaza-duka">Jaza Duka</a> in East Africa are promising examples of digital partnership-based models. The business case for these models is clear, as merchants that have access to SCF experience a <a href="https://www.ifc.org/wps/wcm/connect/45f62b14-ef6b-4c89-9403-511dd2291d39/Credit+to+Merchants.pdf?MOD=AJPERES&amp;CVID=mCrv7gV">15-25 percent increase in inventory turnover</a> — which translates to higher sales for corporations. Based on our analysis, a corporation that sells 20 percent of its products to MSMEs would see a 2-3 percent increase in overall revenue for the region, assuming only half of the merchants they serve have access to SCF.

At Accion, we’ve been researching, investing in, and advising on supply chain finance for the last few years. We’re eager to ensure this solution reaches its potential for driving financial inclusion among small businesses. Whether you are an FMCG, FSP, distributor, wholesaler, or supplier, if you’re interested in working with MSMEs in emerging markets, <a href="mailto:glassupport@accion.org">reach out to us</a>.

Stay tuned for our ongoing <a href="https://www.accion.org/series/supply-chain-finance">insights on supply chain finance</a>.

Arisha Salman also contributed to this article.

How banks, fintechs, and corporations can expand supply chain finance

Socremo and its micro and small business clients see each other as family

For two decades and counting, Accion portfolio company <a href="http://www.socremo.com/">Socremo</a> has been <a href="https://www.accion.org/plan-bring-small-businesses-in-mozambique-support">serving entrepreneurs</a> in Mozambique. Since its founding in 1998, it has become a microfinance bank offering a full suite of financial services, including loans, savings, transfers, and insurance. For many of its clients, Socremo is the first bank they’ve had, so the staff takes extra care to stay in close touch with clients and make sure they stay on top of their finances.

Fatima, Socremo’s compliance manager, has been with the bank from its earliest days. She gets to the office every day at 7 am, and immediately starts responding to email messages. “I see if the clients need any help, and then take them through the correct procedures,” she explains. Fatima takes great satisfaction in having seen her clients’ businesses grow over the years. As she says, “Some people have started with very little money, and now have huge amounts that they can use to help their families and build homes and ultimately improve the country — because our country’s economy will grow.”

[caption id="attachment_19889" align="alignleft" width="500"]<img class="wp-image-19889" src="http://content.accion.org/wp-content/uploads/2019/10/Socremo_0010-1024x683.jpg" alt="Claudia reads through records while on the phone with a client." width="500" height="333" /> “I’m helping people and their families to grow and make their dreams come true,” says Claudia.[/caption]

Another Socremo employee, Claudia, is in her first job after finishing school. As a loan officer, she also communicates often with clients. She keeps track of their payments. “Sometimes I use WhatsApp for reminders, but most of the time I phone them directly,” she says. “I see how they are doing and how it’s working out,” she adds. “[It’s] teaching me to make wise decisions myself. I learn from their example,” she says.

On the other end, Socremo’s clients learn to appreciate the interest the staff takes in their progress and well-being. Joaquim, a garment manufacturer, recalls that when he first heard of Socremo, he was hesitant about whether taking out a loan was right for his business. After the bank got in touch with him and invited him to visit, he did decide to take out a loan — the first of several. He says, “I think they are a great bank, and I know I am only where I am now because of Socremo.”

Other clients describe their relationship to the bank in family terms. Jose, who has a construction and transport business, says, “With Socremo you feel at home. They take care of us.” Likewise, Palomisa, a beverage producer, says, “I used to be scared to get a loan with a bank, but since I started with Socremo, I never regretted it. They are like a family. They’re like a mother and father — they help you.”

24-year-old Claudia certainly sounds like a proud parent when she speaks of her clients’ successes. “I’m helping people and their families to grow and make their dreams come true,” she says.

In Mozambique, this bank builds human connections

Prateek Shrivastava

BancoSol shines for its innovation and efficiency. Even as competition grows, the bank serves more clients in the microenterprise sector than any other institution in the country. Despite many obstacles, including <a href="https://www.export.gov/article?id=Bolivia-Banking-Systems">strict regulations</a>, the bank has managed to continuously improve its performance by expanding its outreach to underserved clients through automated processes and channels. By exploring better ways to serve its target market with new products, alternative delivery channels, and technological solutions, BancoSol maintains client trust and continues to grow. BancoSol’s delinquency rate hovers at less than 1 percent, the lowest in Bolivia’s microfinance industry and one of the best in the world.
<h2>Unleashing a new era of innovation </h2>
Kurt Koenigsfest, BancoSol’s Chief Executive Officer, has led the bank since 2000. Kurt and his team recognized the importance of developing low-cost products that enable small businesses to grow. By innovating processes and products, BancoSol has continued to grow even through market uncertainty.
To ensure continued growth, BancoSol has aligned on a three-pillared strategy:
<ol>
<li>Continue strengthening the efficiency of current operations</li>
<li>Enhance and drive adoption of existing products and customer-facing channels to serve clients more effectively</li>
<li>Drive disruption through an innovation hub that supports long-term innovation.</li>
</ol>

Accion, as part of <a href="https://www.accion.org/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses">our partnership with Mastercard</a>, is supporting the bank to create an innovation hub that would offer a safe space for experimentation. Through the hub, Bancosol will develop new products and improve on existing ones to further strengthen the bank’s value proposition with micro merchants in Bolivia. The hub will foster disruptive innovation by improving existing products and delivering them to new client segments. This will ensure that innovations can be absorbed into the bank and supported by existing processes. Through this methodology, 10 percent of outputs will reflect incremental innovation, 20 percent differentiating, and 70 percent disruptive.
<div id="attachment_19861" style="width: 760px" class="wp-caption alignnone"><img aria-describedby="caption-attachment-19861" class="wp-image-19861" src="http://content.accion.org/wp-content/uploads/2019/09/alchemy_chart.png" alt="Alchemy of Growth chart" width="750" height="381" srcset="https://content.accion.org/wp-content/uploads/2019/09/alchemy_chart.png 974w, https://content.accion.org/wp-content/uploads/2019/09/alchemy_chart-300x152.png 300w, https://content.accion.org/wp-content/uploads/2019/09/alchemy_chart-768x390.png 768w" sizes="(max-width: 750px) 100vw, 750px" /><a href="https://www.innovationexcellence.com/blog/2018/09/20/the-70-20-10-rule-for-innovation/">From Baghai, Coley, and White’s book, The Alchemy of Growth</a></div>
Over the next two years, Accion will help build BancoSol’s “innovation methodology”— a blueprint of how to develop, test, and implement data-driven, digitally enabled innovations. We&#8217;ll also establish linkages and partnerships with key innovation hubs around the world and build minimum viable products that can scale and support change management within BancoSol. This approach will support the bank&#8217;s digitization and help micro merchant customers finally enter the formal economy.
The ingenuity that led Bolivia to develop Mi Teleferico is the same spirit I see when I meet with our partners at BancoSol. And I have no doubt that Kurt and his team will harness this spirit of innovation to make a real impact for micro and small business owners. As BancoSol puts this new strategy into action, Bolivia is poised to become a global leader in innovative digital financial products.

Accion will work with BancoSol to build an innovation hub to create world-class digital financial services

Dandan Wang

With a customer-centric approach that balances technology and human interaction, microcredit company Grassland Finance empowers entrepreneurs

Pula’s agricultural insurance helps smallholder farmers be more resilient

Rose Kilonzo comes from a long line of farmers in Kitui County, Kenya. “I love it because when you farm, you won’t go hungry,” says Rose. She has always valued being able to provide for her family through the crops she grows, both by putting food on the table and by selling the surplus to earn money for school fees and clothes for her five kids. Plus, she enjoys the autonomy of being her own boss. But Rose knows that a good harvest is never a certainty. She compares farming to playing a game of cards — the outcome is never guaranteed. A season of scarce rains can destroy her fields and leave Rose and her family with no food or source of income. 

When Rose heard about Accion Venture Lab portfolio company <a href="https://www.pula-advisors.com/">Pula</a>, she was excited to learn more about how their innovative insurance and agriculture advisory services could benefit her. Pula provides agricultural insurance for traditionally excluded small-holder farmers by leveraging cutting-edge technology and an extensive network of partners, including the <a href="https://www1.wfp.org/r4-rural-resilience-initiative">World Food Program’s R4 Rural Resilience Initiative</a>. In addition to insurance, Pula provides data-driven insights and advice to help farmers like Rose gain higher yields on their crops in sustainable ways. 

Rose now has confidence that she can provide for her family no matter the circumstances. “When you plant, you have faith it will be taken care of should your crop fail,” she says. Rose has become an advocate of insurance for farming and shares her experience with other local farmers. With a more secure income, she’s looking forward to expanding into commercial agriculture and teaching her children and grandchildren the trade.

For Rose in Kenya, crop insurance is a game-changer

Five areas of innovation we’re excited about as we recommit to investing in inclusive fintech 

We’re living in a period of spectacular innovation in financial services, with fintech changing every aspect of how people build savings, borrow money, get insurance, and more. And that is why I am so excited that Accion Venture Lab — our seed-stage investing initiative in inclusive fintech — is quadrupling its capital pool to support more early-stage innovators.

Today’s technological advancements can have a profound, positive effect on how we meet the financial needs of the 3 billion people who are still left out of the global financial system. New technologies can extend high-quality, affordable financial services to the billions of people who, today, lack a safe place to save, can’t get the insurance to protect their family from a crisis, or can’t get the credit they need to build a home or a business. With innovative technologies, there’s no longer any such thing as an insurmountable distance. We can now process, track, and learn from even the smallest transactions. Data and data analytics, when used responsibly, make it possible to better understand and serve customers, based on their behaviors, habits, and priorities.

The recent surge in innovation has the potential to catalyze a financially inclusive world. If we can harness these new and improved technologies, then we can find new ways to help people manage their daily lives, navigate unseen challenges, and capitalize on new opportunities. The following trends are just a sample of the many new innovations that are changing financial services and that can help more people thrive:
<ol>
 	<li>There’s more data today than ever before, and our ability to organize, interpret, and understand it is increasing exponentially: That’s valuable for every conceivable financial product and service, but it’s particularly important for providing individuals with credit and <a href="https://www.accion.org/helping-small-businesses-and-communities-thrive-with-digital-financial-services">micro, small, and medium enterprises (MSMEs)</a> with working capital and financing.</li>
 	<li>Mobile money, remittances, and other electronic payments are more common today than ever: They help ensure that money reaches its intended recipients quickly, safely, and inexpensively. E-payments can also create detailed transaction histories for individual consumers as well as for <a href="https://www.accion.org/this-company-has-cash-in-their-name-but-not-in-their-business-model">MSMEs</a> that can be used as proxy credit scores.</li>
 	<li>Insurtech can help protect the world’s most vulnerable people: The <a href="https://www.economist.com/international/2019/08/22/the-poor-who-most-need-insurance-are-least-likely-to-have-it">world’s poor are the least likely to have insurance</a>. But insurtech reduces the costs of designing, administering, and <a href="https://www.accion.org/how-can-we-bring-insurance-to-those-who-need-it-most">delivering insurance for the world's underserved</a>.</li>
 	<li>Agritech helps smallholder farmers thrive: <a href="https://www.worldbank.org/en/topic/agriculture/overview">Most of the world’s poor working adults make their living in agriculture</a>, so we can catalyze social and economic progress by providing them with the financial tools they need. Agritech does just that by <a href="https://www.accion.org/driving-resilience-for-farmers-through-tech-and-human-interaction">protecting against crop loss</a> and giving farmers the <a href="https://www.accion.org/learning-new-skills-helped-this-longtime-farmer-thrive">fertilizer, seeds, and financing needed to grow larger crops</a>.</li>
 	<li>Consumers are more empowered to understand and improve their financial lives: Before fintech, wealth management was a luxury reserved for only a few. Today, we can analyze consumer behavior to provide automated, personalized wealth management insights and advice that help users improve their financial lives. We can also use <a href="https://www.accion.org/using-fintech-with-a-human-touch-to-improve-credit-scores-in-the-us">technology to expand the most effective ways to promote savings and financial health</a>. Likewise, these technologies are building personal financial management tools that are changing clients’ expectations. You can construct your Facebook profile – why not your credit profile? Customers won’t accept a black box that takes in data and constructs their financial lives; instead, they’ll value the services that help them <a href="https://www.accion.org/pursuing-social-innovation-at-creditmantri">evaluate and improve their credit scores</a></li>
</ol>
We’ve seen incredible creativity from entrepreneurs working around the world to harness these trends and develop better, faster, cheaper, and safer financial services for those who have been left out: since we launched Accion Venture Lab in 2012, we have invested in more than 40 early-stage startups operating in 30 markets. Venture Lab’s portfolio companies have provided us with the means to harness emerging fintech trends in a sustainable, scalable way, and to develop new tools that help us pursue our mission.

That’s why we worked to <a href="https://www.accion.org/accion-venture-lab-launches-new-fund-quadruples-capital-for-inclusive-fintech-startups">quadruple Venture Lab’s initial capital pool</a>, adding $33 million in new capital with the launch of a new $23 million fund and an additional, separate $10 million investment from Accion. The oversubscribed fund signals investors’ belief that these startups have significant potential to reach underserved families and businesses; it will allow Venture Lab to keep pace with evolving fintech trends through new investments and more follow-ons that can help scale its portfolio companies’ impact.

We’re onto something big here. Technology can disrupt the status quo, and thoughtful innovation can help us create a better world. Venture Lab is just one component of how we’re developing an inclusive fintech ecosystem to better meet the needs of the world’s 3 billion financially underserved. Other elements of this strategy include our partnership with <a href="https://quona.com/">Quona Capital</a>, a venture firm focused on later-stage inclusive fintechs. Quona and Accion work closely together to support inclusive fintechs at the growth stage. That strategy also includes our work with industry initiatives like the <a href="https://www.inclusivefintech50.com/">Inclusive Fintech 50</a> to create greater visibility for early-stage fintechs addressing financial inclusion.

By combining these efforts, we can continue harnessing the most groundbreaking and inclusive fintech to support entrepreneurs, improve farmers’ resilience, help parents pay for their children’s education, and build a world with more opportunities for everyone.

Fintech for Inclusion: Why Accion is betting big on startups

Megan Peterson

Fintech platform Destacame uses alternative data to serve and educate users in Chile and Mexico

“People are desperate for solutions. No one wants debt — people need credit for work or to get a better life,” says Maile Dominguez, a customer support executive for Accion partner <a href="https://www.destacame.cl/">Destacame</a>. Making sure individuals get the financial support they need is what drives Maile and her colleagues at Destacame every day. The fintech platform helps people in Chile or Mexico who have had little to no access to financial services or those who have suffered from negative experiences in the past. Data is a cornerstone of Destacame’s model — it analyzes alternative data to create credit profiles for each user, and then packages user data in an accessible way to empower customers to understand their finances, access appropriate services, and build their financial health. Maile explains that “the more data we have, the more services we can give. We can give more detailed products as our service data is tailor-made to each one of the users that we have.”

[caption id="attachment_17150" align="alignleft" width="500"]<img class=" wp-image-17150" src="http://content.accion.org/wp-content/uploads/2019/01/2018_Accion_Destacame_Day1__0622-1024x682.jpg" alt="Camila smiles at the camera in the Destacame office" width="500" height="333" /> “The more data we have, the more services we can give,” says Maile Dominguez.[/caption]

“When you don’t use data, you don’t give services that are as good. By giving people data, you give them access to services that they never had before,” says José Luis Birrer, Destacame’s product manager in Chile. Alternative data, such as utility payments, give a fuller picture of someone’s creditworthiness. For example, in the past, quality financial services were often only available to big businesses, but Destacame’s innovative use of alternative data can help small merchants with no formal financial history obtain the funding they need to keep their shops stocked and expand their opportunities. “That’s the difference we are making in Destacame, we are helping those communities who are actually excluded from financial services,” says Jose.

Camila Valdés is Destacame’s chief data officer. She uses her skills as a data scientist trained in psychology to collect and analyze information to make the platform as useful to users as possible. In addition to using data to drive user experience improvements, she shares it with others in the company so they can use it to make decisions. Camila places a great deal of value on smart, data-based decision-making for helping users on the platform: “It’s very important to get to know the person before you give them access to the product, as you need to give them the right product in the right way, so you don’t give them the wrong product and put them in a worse place.” By making smart decisions, Destacame can make a profound impact it can make in an individual’s life. “We help people start a new path to pursue their dreams,” says Camila. 

[caption id="attachment_17145" align="alignright" width="500"]<img class="wp-image-17145" src="http://content.accion.org/wp-content/uploads/2019/01/2018_Accion_Destacame_Day1__0378-1024x683.jpg" alt="Nel sits at his computer in front of a white board covered in data" width="500" height="333" /> Nel Pérez, Destacame’s chief technology officer[/caption]

In addition to enabling better credit decisions, data is also crucial for helping customers to understand and take control of their financial health. “People are prone to get into financial debt because they don’t have enough information about it, so information is important and needed by the people. It helps people to have more opportunities and be better off,” says Nel Pérez, Destacame’s chief technology officer. His team ensures that the platform makes people’s data easy to view and comprehend. “This way, people can understand their financial situations and be empowered by it and use it wisely,” he says. “They can understand their data and benefit from it.” 

Through every step of a person’s journey with Destacame, data is put to use to break down barriers and open doors to a healthier financial future. As Maile says, “Destacame is helping people to make better decisions, to empower them through the data, and in that way, it makes a difference in their lives.”

Using data to open doors for the underserved

Latest insights

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

After months studying the drivers of financial health and mobile and internet usage in eastern Europe, I was excited when our team finally landed in Serbia. During the hour-long taxi ride from Belgrade’s Nikola Tesla Airport to Novi Sad, we finalized our work plan for the coming days while catching glimpses of the countryside.

We came to Serbia to join our colleagues at the <a href="http://mfc.org.pl/">Microfinance Centre</a> (MFC) in conducting in-depth interviews with current and prospective customers of <a href="http://www.obs.rs/eng/">Opportunity Bank Serbia</a> and <a href="http://fiiw.pl/">Fundacja Innowacja i Wiedza</a> (Foundation for Innovation and Knowledge). We wanted to learn everything we could about the interviewees’ ambitions, challenges, attitudes, and technology use, so we can use these insights to design and develop a digital tool that will help clients understand and improve their financial health. This research is part of the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/">Building Financial Capabilities &amp; Strengthening Institutions through Customer-Centered Innovations</a> project, supported by <a href="https://www.metlife.com/corporate-responsibility/metlife-foundation/">MetLife Foundation</a>.
<h2>Euros vs. dinars: Serbia’s dual-currency dynamic</h2>
[caption id="attachment_18520" align="alignleft" width="500"]<img class="wp-image-18520" src="http://content.accion.org/wp-content/uploads/2019/05/ECA-pic-2-1-1024x767.jpg" alt="Novi Sad taxi" width="500" height="375" /> Taxis in Novi Sad, Serbia, often quote cab fares in euros.[/caption]

As we pulled up to the hotel, I was perplexed when our driver, Božidar, quoted the cab fare in euros. Last time I checked, the dinar was the currency of Serbia, since it remains an EU candidate country. Yet Božidar demanded that we pay him in euros, as did many other local vendors. We discovered that our interviewees commonly use euros alongside dinars. One farmer said that she quickly deposits any payments made in euros, but she tends to use her dinars for everyday purchases or stash them at home for emergencies. A shop owner said the majority of her suppliers pay her in euros while she accepts payments from customers in both currencies.

The trend of “euroization” or “dollarization” — a foreign currency substituting or complementing the domestic one — is well studied. The graph below, from the <a href="https://www.oenb.at/en/Monetary-Policy/Surveys/OeNB-Euro-Survey.html">Austrian central bank’s Euro Survey</a>, shows that among its neighbors in central, eastern, and southeastern Europe, Serbia is the most euroized, with the highest proportion of all its cash and deposits held in the form of euros.

Why multiple currencies create financial health challenges in Serbia

If you’ve never used financial services in the past, you’re going to encounter a significant learning curve when you finally get access. That’s why more institutions are rolling out products to support first-time clients and equip them with actionable tips and tools to simplify their experience. These new services aren’t just good for customers, they’re good for business. By helping consumers attain the <a href="https://www.centerforfinancialinclusion.org/a-change-in-behavior-catalogue-of-innovations-in-financial-capability">knowledge, skills, attitudes, and behaviors</a> necessary to make sound financial decisions — what we call financial capability — customers can become more informed and engaged. In other words, they become better customers.

For any financial institution interested in increasing customer loyalty, building better financial capability is crucial.

<a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion/">As we work with MetLife Foundation</a> to expand financial capability through customer-centered innovations, we’re excited about the potential benefits for both customers and institutions. Here are four reasons why helping clients build their financial capability is a win-win:
<h3>1. Financial capability drives active use of financial products </h3>
Products that help increase financial capability, <a href="https://www.centerforfinancialinclusion.org/financial-capability-building-practices-in-mexico">drawing insight from behavioral science</a>, can encourage customers to use products more often, which translates to higher profitability for providers and greater usefulness to customers.

Take the case of <a href="https://www.grupobancolombia.com/wps/portal/personas/productos-servicios/cuentas/ahorro/transaccional/ahorro-a-la-mano">Ahorro a la Mano</a>, a mobile savings product and e-wallet from Bancolombia, the largest bank in Colombia. The bank discovered that if a customer does not make a transaction within the first month of opening the account, she is unlikely to make a transaction at all. It decided to use <a href="https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/nudge/">“nudges”</a> to remind users to put money into their savings.

Bancolombia worked with<a href="https://www.forbes.com/sites/petercohan/2011/06/01/juntos-finanzas-helps-latinos-save-plan/#3c0a808d5db3"> Juntos</a>, a fintech company that specializes in data science and behavioral insights. Juntos developed a chatbot named <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/IIF-CFI_FI-Fintech_Partnerships_Final.pdf">“Emilia,”</a>  that could point out opportunities to use the product and makes special offers to encourage transactions within the first month. Because they provide individually tailored messages in a friendly, personal voice, Emilia’s nudges and reminders build trust with clients, and they become more likely to act on her suggestions.
<h3>2. Customer loyalty increases</h3>
As customers use their products more frequently, they are likely to become more loyal. Most financial service providers’ balance sheets and product viability calculations do not figure long-term customer loyalty into their calculations, but customers that stick with a provider over time are important to business success.

In September 2017, BBVA launched <a href="https://www.bbva.com/en/bbva-opens-its-banking-app-in-spain-to-accounts-and-products-from-other-providers/">Bconomy</a>, a digital platform meant to add value to the customer experience by giving them a full picture of their financial health. Fueled by data analytics, the platform uses behavioral insights to encourage positive behavior. Clients can see an overall snapshot of their finances, turning their bank accounts into financial management hubs. The tool ensures that customers continue returning to the platform and rely on BBVA as their primary financial provider. To date, the platform has had over <a href="https://www.centerforfinancialinclusion.org/banking-sector-approaches-to-customer-engagement-and-capability">2 million users per month.</a>
<h3> 3. Capable customers use more products</h3>
Part of the accepted definition of financial capability is a person’s confidence in using a wide range of products to meet their financial needs. Savvy institutions that promote financial capability also build appropriate follow-on products for customers. Institutions that ignore this strategy may see their first-time customers move on to other providers as they become more comfortable with formal finance.

<a href="https://acreimex.com.mx/">Acreimex,</a> a savings and credit cooperative in Mexico, has incorporated savings into payroll loan repayments so that customers who opt in can save painlessly while they repay their loans. Savings discipline is a key attribute of financially capable people, and automated savings is a tool that assists people to stick to their best intentions. Acreimex built this option by combining its two most popular products. It merged its payroll loan and savings services by rounding up repayment installment amounts and automatically depositing the excess amount into clients’ savings.

The combination of products resulted in significant increases in savings activity and balances. An <a href="https://optixproject.org/acreimex/">evaluation</a> showed that participants made about twice as many deposits and saved 30 percent more than those who didn’t participate. Additionally, <a href="https://nextbillion.net/stealthy-saving-building-on-payroll-credit-to-automate-savings/">96 percent of savers chose not to withdraw</a> the balances from their accounts throughout a 12-month pilot. 
<h3>4. Investing in financial capability is more effective — and less expensive </h3>
Traditional, classroom-based financial instruction is costly. Features that build financial capability are often cheaper and more effective because they generate direct and longer lasting behavior change.

When <a href="https://www.nefe.org/Portals/0/WhatWeProvide/PrimaryResearch/PDF/CU%20Final%20Report.pdf">researchers analyzed</a> more than 200 individual impact studies on financial education, they found that only 0.1 percent of the observed positive changes in people that had attended classroom-based financial education programs could be attributed to the programs themselves.

On the other hand, impact evaluations of financial products that incorporate behavioral insights to nudge client behavior consistently find statistically significant positive impacts. For example, in a study with <a href="http://www.bancoadopem.com.do/app/do/frontpage.aspx">Banco ADOPEM</a>, <a href="https://www.povertyactionlab.org/sites/default/files/publications/124_303%20Rules%20of%20Thumb%20AEJ%20Apr2014.pdf">researchers tracked customers</a> who attended either a traditional accounting-based financial education class or a class that, in keeping with behavioral insights, offered simple rules of thumb in accounting. Both classes aimed to assist customers to separate business and personal accounts. In the end, the customers who received the simplified rules of thumb displayed more positive business outcomes — they saw a 30 percent increase on average in the level of sales during weeks with typically low sales and saved an average of 6 percent more in personal savings.

More and more institutions are thoughtfully designing products and experiences that not only match their customers’ experiences and lives, but also consider their attitudes, skills, and behaviors. Financial institutions that invest in building up financial capability are likely ensuring they will have customers that are more active users of their products, that are loyal for longer, and that will use a wider variety of products.

We’ll continue to share insights on financial capability based on research conducted by Accion’s Global Advisory Services team and the Center for Financial Inclusion as part of our project on <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations project</a>, supported by MetLife Foundation.

Four reasons focusing on financial capability is good business

India is one of the fastest growing and most complex markets for inclusive finance, and there is a massive opportunity to extend financial services to the underserved. But the country has struggled in the past with unbridled growth of the microfinance sector leading to a crisis in debt stress, notably in <a href="https://www.huffingtonpost.com/elisabeth-rhyne/on-microfinance-whos-to-b_b_777911.html">Andhra Pradesh</a> in 2010.

Policymakers and networks of microfinance institutions actively responded to these crises and elevated consumer protection on the policy agenda. But it’s one thing for regulators to signal policy support for consumer protection. It’s quite another to tackle the nuts and bolts of implementing best practices, especially in a market as complex as India.

One of the scalable solutions to arise in India is the concept of microfinance networks as Self-Regulatory Organizations (SROs). Networks that have been designated by the Reserve Bank of India (RBI) as SRO networks are responsible for monitoring compliance of member microfinance institutions (MFIs) to the microfinance industry code of conduct and providing an effective grievance redressal mechanism between borrowers and member institutions. <a href="http://www.sa-dhan.net/">Sa-Dhan</a>, the largest organization of community banks in India, was designated an SRO in 2015. While Sa-Dhan had previously filled a quasi-regulatory role, this official designation expanded its mandate for monitoring and enforcement, in turn increasing its need for tools to identify and respond to risks at both the market and institution levels.
<div id="attachment_33139" class="wp-caption alignleft">

[caption id="attachment_33139" align="alignleft" width="500"]<img class="wp-image-33139" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/10/Sa-Dhan-tool-launch-photo-1024x714.jpg" alt="announcement-of-sadhan-monitoring-tool-group-photo" width="500" height="349" /> The Sa-Dhan monitoring tool was announced at a launch event during the Sa-Dhan Annual Conference in New Delhi in September 2018.[/caption]

</div>
Aiming to make a country-wide impact on the state of consumer protection in India, CFI’s Smart Campaign and Accion’s Global Advisory Services collaborated with Sa-Dhan to build a digital monitoring tool based on the <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Smart Campaign’s global standards</a> for financial consumer protection and local regulatory guidelines. The tool is to be the vehicle through which Sa-Dhan collects the information it needs from its members to fulfill its supervisory role in maintaining compliance with the code of conduct. Accion’s advisory team led the digitization of the tool, building of the data warehouse, and the corresponding web platform. The tool was officially launched at <a href="https://www.accion.org/sa-dhan-the-smart-campaign-launch-ifc-backed-monitoring-tool-to-strengthen-consumer-protection">Sa-Dhan’s annual conference</a> with technical and financial support from the International Finance Corporation. Sa-Dhan’s members can now efficiently self-report data through the tool’s online interface, and Sa-Dhan can quantitatively assess market dynamics, especially areas of overindebtedness risk.

This new monitoring mechanism will help to instill consumer protection in Sa-Dhan’s nearly 200 member institutions and protect more than 30 million clients in India.

Across the microfinance sector, new examples of “regtech” and “suptech” are emerging. Just as technological transformation of microfinance institutions can scale their services to new clients, technology can help regulatory bodies meet their broadened responsibilities to oversee the proliferation of lenders. P. Satish, Executive Director of Sa-Dhan sees the new tool as an essential component for self-regulation because it will “help member MFIs with their data analytics and compliance measures, as well as reduce potential client distress.”

After the initial rollout and training workshops for microfinance institutions across the country, Sa-Dhan will put the tool into practice and will use the reports in consultation with the RBI to identify “hot spots” of overindebtedness or lack of compliance to the code of conduct. These reports will also help Sa-Dhan identify under-penetrated areas and help lenders to expand services.

India’s experimentation with self-regulation holds lessons for the world. Traditionally, self-regulation models have been met with skepticism, especially regarding how non-government networks can monitor and enforce compliance among members. The collaboration between the RBI and self-regulatory organizations in India give weight to the microfinance networks through a layered regulatory approach, and technology advances can build the capacity of networks like Sa-Dhan to access data from their members and oversee performance.

The Sa-Dhan monitoring tool can serve as a model for expanding consumer protection in other markets, especially those where there are concerns about rising debt stress. Better monitoring tools can serve as an early warning system and help provider networks or regulators head off crises before they spread.

This post was originally published on <a href="https://www.centerforfinancialinclusion.org/a-new-digital-monitoring-tool-in-india-could-boost-consumer-protection-capacity">the Center for Financial Inclusion at Accion blog</a>.

Increasing consumer protection for 30 million clients in India

According to the <a class="markup--anchor markup--p-anchor" href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">Global Findex</a>, the percentage of adults in Mexico who are saving money at a formal institution plunged from 15 percent to 10 percent in just the <a class="markup--anchor markup--p-anchor" href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">past three years</a> — despite financial inclusion strategies <a class="markup--anchor markup--p-anchor" href="https://cfi-blog.org/2016/07/01/mexico-launches-comprehensive-financial-inclusion-strategy/" target="_blank" rel="noopener noreferrer">enacted by the government</a>. This steep decline in usage of savings accounts came as a surprise and also hit close to home for me as a Mexican. This <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/is-financial-inclusion-stalling-af0fbd502550" target="_blank" rel="noopener noreferrer">trend is a cause for concern</a>, and it’s also a call to action. At Accion, we took this as an opportunity to listen to the people we’d like to see benefit from financial services. <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/how-accion-metlife-foundation-will-improve-financial-inclusion-in-latam-1838b934d3e0" target="_blank" rel="noopener noreferrer">With the support of MetLife Foundation</a>, we wanted to understand why fewer people were saving in banks, what products and services people were using — and who was providing those services if it wasn’t formal institutions.
To get answers about what people in Mexico want from their financial service providers, I recently traveled home to Mexico City as part of a team of researchers. We listened to small merchants map out their entire financial lives; their motivations, goals, and aspirations, how they feel about various types of financial services, the strategies they use to stay financially healthy, and more.
Our biggest surprise? The individuals we talked with know about and can access a lot of financial products — they just aren’t using them.
All of the individuals we spoke to reported having access to microloans, consumer store credit, credit cards, and savings accounts. Financial access didn’t seem to be an issue for them — not even in the more rural areas we visited two hours outside the city. Even though our small, qualitative study may not be rigorous enough to extrapolate to the broader population, this finding seems to be consistent with national data. In Mexico, <a class="markup--anchor markup--p-anchor" href="https://www.cnbv.gob.mx/Inclusi%C3%B3n/Documents/Reportes%20de%20IF/Reporte%20de%20Inclusion%20Financiera%208.pdf" target="_blank" rel="noopener noreferrer">86 percent of banking branches are located in urban areas</a>, so people close to the city are unlikely to deal with a shortage of services. What our interviews revealed is that a different issue is preventing further inclusion: lack of alignment between what low-income customers want and what current financial products offer. Most people we talked to dislike dealing with large commercial banks, and they continuously decline the offers for financial services they regularly receive, at their doorstep or in public places

<figure class="graf graf--figure graf--layoutOutsetLeft"></figure>
<div id="attachment_8449" class="wp-caption alignleft">

[caption id="attachment_8449" align="alignleft" width="500"]<img class="wp-image-8449" src="http://blogs.accion.org/wp-content/uploads/2018/07/IMG_0825-768x1024.jpg" alt="Woman holding baby" width="500" height="667" /> Azucena works as a housewife in Alpuyeca, Morelos in Mexico.[/caption]


</div>
Many of the people we interviewed still prioritize saving cash at home, even if they also have a formal savings account. For example, Azucena, a former teller at a large commercial bank branch, told us that despite her relationship with a bank, she and her husband still prefer to store cash informally. “We save at home, but we do so separately, using different lock boxes for different purposes,” she says.
Through our conversations with clients like Azucena, we discovered that informal alternatives like lock boxes continue to be more convenient for clients and preferable to formal options. Keeping cash at home is, after all, indispensable for unexpected emergencies. If your money is in a bank, you’d have the hassle of getting there and waiting. Plus, it may not be available 24/7, and you can run into issues if the ATM is offline or the pharmacist, mechanic, or whomever else you’re turning to for help doesn’t take a debit card.
In many cases, the interviewees’ savings accounts had been opened for them by former employers to serve as payroll accounts or by government programs for disbursement of benefits. These accounts were less “savings accounts” and more “distribution” accounts that were immediately turned into cash and saved at home. Because the savings aspect wasn’t used — in fact, was never emphasized — once they switched jobs or stopped receiving benefits, they let the accounts lapse.
Convenience may be a key issue, but it is not the only one. Feeling unsafe withdrawing money from a bank branch is also an issue because thieves wait where the money is — outside bank branches and near ATMs. The lack of trust our interviewees placed in financial institutions was often less about security and more about the unclear, high (real, or perceived) maintenance fees banks charge on savings accounts.
Despite this perceived aversion to formal accounts, we found that people still continue to save and set high financial goals for themselves. In all the interviews we conducted, the number one financial goal was saving to access better opportunities: the education of their children, a home for their family, or the chance of opening their own business. The demand is clearly there, and most of the people we talked to were indeed saving.
We heard from customers, and now we’re working with a mix of fintechs and financial service providers of all sizes to use those insights to create financial products that customers will want to use as key tools for their financial lives. Stay tuned!
This research was conducted by Accion, the <a class="markup--anchor markup--p-anchor" href="http://www.centerforfinancialinclusion.org/" target="_blank" rel="noopener noreferrer">Center for Financial Inclusion at Accion</a>, and <a class="markup--anchor markup--p-anchor" href="http://www.dalbergdesign.com/" target="_blank" rel="noopener noreferrer">Dalberg Design</a> as part of our part of our <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion/" target="_blank" rel="noopener noreferrer">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations</a> project, supported by MetLife Foundation.

Why aren’t people saving money in Mexico?

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Accion, MetLife Foundation, and the Chinese Association of Microfinance launched the first holistic, systematic microfinance management training and capacity building initiative in China. The program involved a hands-on approach so participants could develop their leadership and management skills, as well as sound technical knowledge in microfinance operations and human capital management. The program reached 73 participants from 34 leading microfinance institutions which serve more than one million clients.

We recently expanded our partnership with programs that leverage digital solutions to enhance underserved customers’ financial capabilities and engagement. In Latin America, we are working to better understand customer needs and help financial service providers design, test, and implement innovations that drive usage and improve customers’ financial capabilities. In Eastern Europe, we are partnering with Microfinance Centre, a regional microfinance resource center and network of organizations in Europe and Central Asia, to develop and promote digital tools that providers can use to diagnose clients’ financial health, identify gaps, and develop actionable plans to improve their financial well-being.

Accion and MetLife Foundation pursue joint opportunities — like content collaborations, speaking opportunities, research, and commentary — to engage the industry and help it better reach the underserved. Accion shares stories of our impact through MetLife Foundation initiatives like the Wall Street Journal’s <a href="https://partners.wsj.com/metlife/multipliers/articles/bridging-entrepreneurial-gender-gap/?cx_testId=0&amp;cx_testVariant=cx_1&amp;cx_artPos=24&amp;cx_type=search&amp;cx_spnsr=djcc_metlife&amp;cx_navSource=djcc_metlife-unfiltered#cxrecs_s">Multipliers of Prosperity</a> platform and the <a href="https://nextbillion.net/does-greater-inclusion-lead-to-financial-health/">Next Billion</a> blog. Together, the Center for Financial Inclusion at Accion (CFI) and MetLife Foundation support the Economist Intelligence Unit&#8217;s Global Microscope, which benchmarks national progress on financial inclusion around the world and catalyzes reform. And a two-year initiative between CFI, the Institute of International Finance, and MetLife Foundation is using research, knowledge exchange, best practices, real world examples, and expert insights, to identify and share practical guidance that financial institutions can use to expand quality services to the poor.

In 2011, CFI launched an initiative using 2020 as a target date to spur the financial inclusion community to more significant impact. MetLife Foundation advised the effort and provided financial support to CFI’s working groups, each tasked with creating a roadmap for a different enabler of inclusion. This effort culminated in a global forum that brought together practitioners and thought leaders in financial inclusion. To help sustain the momentum, the Foundation sponsored several CFI initiatives to develop tools and research for the industry.
Today, MetLife Foundation continues to be a thought partner, a collaborator, a funder, and an advisor to Accion, providing critical support for our efforts to build a financially inclusive world.

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People choose to use euros instead of local currency to protect wealth and hedge against risks of exchange rate depreciation —  something that’s a relatively recent bad memory in Serbia. Many of our interviewees recall the <a href="https://www.nytimes.com/1996/07/09/world/isolated-and-corrupt-serbia-s-economy-stagnates.html">hyperinflation</a> that plagued the economy in the early- to mid-1990s around the dissolution of the Socialist Republic of Yugoslavia. At the peak of Yugoslavia’s hyperinflation, <a href="https://www.vice.com/sv/article/4w38wq/poorest-billionaires-serbia-876">500,000,000 dinars bought a loaf of bread</a>. Several of our interviewees recognized that some of their attitudes toward money might be rooted in the past. And while current realities suggest that the dinar is stable today, risk aversion may be the more prudent course.
<h2>Euros are for saving — dinars are for spending</h2>
Our interviews revealed several insights, particularly around operating in multiple currencies. First, people form mental constructs about the purpose and use of each currency. For the farmer, and several other of our interviewees, euros are for saving, and dinars are for spending. People perceive euros as more stable, and depositing the euros in a bank account or any other formal or informal savings instrument may remove the temptation to spend them If these constructs hold, it could mean that individuals who receive most of their cash in dinars may spend their money more quickly than their peers who rely more on euros.
Our interviews also highlighted the need to manage liquidity properly, which is more complicated in two currencies. The shop owner we spoke with uses euros to pay for her inventory, but she also needs to ensure that her till is stocked with dinars so that she is ready to accept customer payments in both currencies.
Perhaps most important, our field research also confirmed that the risks involved in using multiple currencies, such as borrowing in one currency while operating in another, are a significant consideration when it comes to building financial health. Financial institutions, which have offered loans in a hard currency to people operating primarily in a soft local currency, have often exported currency risk to clients who are not well positioned to handle it. And they have suffered along with their customers when devaluations made it too costly for customers to repay hard-currency loans.
<h2>Next steps in our financial health project </h2>
As we start to develop a digital tool that clients can use to understand their financial health better, one challenge is making sure it accounts for the particular financial behaviors and cognitive biases of a dual-currency system. In addition to brainstorming ideas for behavioral nudges, we need to consider the tool’s user interface, i.e., for our target users in Serbia, are we going to express the value of money in terms of dinars or euros — or both?
We’re excited to put the insights we gained in Serbia to the test and use a customer-centered approach to designing and developing a new solution to help customers build their financial health. Keep an eye on the <a href="https://www.centerforfinancialinclusion.org/blog">CFI Blog</a> for an update when we’re done prototyping in a couple of months!
We’ll continue to share insights on financial capability based on research conducted by the Center for Financial Inclusion at Accion (CFI) and Accion’s Global Advisory Solutions (GLAS) as part of our project on <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations project</a>, supported by MetLife Foundation.
This post was originally published on <a href="https://www.centerforfinancialinclusion.org/dinars-vs-euros-financial-health-and-the-multiple-currency-dynamic">the Center for Financial Inclusion at Accion blog</a>.

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