Priya Punatar

Kathleen Yaworsky

<p>This paper unpacks each strategy through real examples of our implementation experiences across FSP partners.</p>


Introduction

<p>Digitizing swiftly and effectively is vital for FSPs to successfully and responsibly serve their customers at scale and to remain competitive in the face of many digital challengers entering the market. But most FSPs face challenges that make transformation difficult, including a lack of resources, heavy reliance on manual processes, difficulty attracting technical expertise, and poorly organized customer data. This leaves many organizations asking: is our organization ready to undergo a digital transformation? What are the drawbacks or risks to consider before we dive in? Where do we start?</p>
<p>To help FSPs navigate these questions and enable millions of underserved micro, small, and medium enterprises (MSMEs) to enter the digital economy, <a href="https://bit.ly/3adofG3" target="_blank" rel="noopener">Mastercard and Accion launched a first-of-its-kind partnership in 2018</a> that unites our worldwide networks and resources to support the digital transformation of FSPs around the world, as well as the millions of customers they serve. In our first two years of work, we have guided FSPs’ progress on digital transformation and helped them develop digital tools to reach more small businesses and individuals and serve them more effectively. In 2020, as COVID-19 first spread across the world, we helped our partners leverage digital tools to respond to the crisis. This included reimagining group and individual lending for a no-contact world, enhancing digital channels, and rapidly implementing remote customer service. As digital platforms become more pervasive, accessible, and affordable, MSMEs can leverage digital tools and products to rebuild and relaunch their businesses — and in some cases, digitally transform themselves.</p>
<p><img class="aligncenter wp-image-24059" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_1-Map.png" alt="Digital transformation map" width="1000" height="500" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_1-Map.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_1-Map-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_1-Map-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_1-Map-1024x512.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" /></p>
<p>We recognize that digital transformation is a journey, not a destination. Our partners have travelled far, but their journeys are not complete — and will likely include some obstacles ahead. In this paper, we share learnings from the first two years of working with institutions to navigate their digital transformation efforts, across every aspect of their business: the customer, processes, partnerships, people, platforms, and products, to achieve a fully digitally enabled business model.</p>
<blockquote class="pullquote--right"><p>There is no single path to digital transformation, nor is it a one-off endeavor.</p></blockquote>
<p>This paper shares our challenges, frustrations, and successes, and also builds on lessons from other ongoing digital transformation efforts around the world. Going forward, we will continue to share lessons as our partners digitally transform and begin to realize the return on their investments.</p>
<p>We hope that the initial lessons shared here will help FSPs start their digital transformation journeys and maintain the momentum needed to succeed. We also hope this paper will demonstrate to the financial services industry at-large the impact that digital transformation can have in supporting the resilience of low-income people.</p>
<p><img class="aligncenter wp-image-24121" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_2-Dig-transform-circle-5-3.png" alt="Digital transformation is multi-faceted" width="1000" height="500" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_2-Dig-transform-circle-5-3.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_2-Dig-transform-circle-5-3-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_2-Dig-transform-circle-5-3-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_2-Dig-transform-circle-5-3-1024x512.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" /></p>
<p>An oft-repeated point that bears repeating here: digital transformation is a massive exercise in culture change. It is complex and multi-faceted and requires solid commitment to evolve the core business model from the board all the way down to loan officers. There is no single path to digital transformation, nor is it a one-off endeavor. We believe the goal of digital transformation is not to achieve the same status as a digital-first company, but rather adaptability and an enduring culture of innovation and learning, so that institutions can respond rapidly to changes, challenges, and opportunities as they arise. As Charles Darwin argued, “survival of the fittest” refers not to being the strongest or fastest but being most adaptable to change.</p>


Combat the digital divide on multiple fronts

<p>The COVID-19 pandemic has catalyzed the digital transformation of FSPs, especially those reliant on high degree of face-to-face interaction, like microfinance institutions — and expanded digital financial services holds the promise of greater financial inclusion. But with all the enthusiasm around digital transformation, there is little attention paid to the ways this can lead to financial exclusion. Financially underserved and excluded individuals and businesses represent a diverse set of digital maturities, attitudes, and behaviors. For example, some customers may not have access to the internet even if they own smartphones, others may not feel comfortable conducting financial transactions on a mobile device, and yet others may simply prefer to work directly with a person when conducting financial transactions. FSPs must be careful to ensure that digital transformation is not exacerbating an already pervasive digital divide. For example, the digitization of many government cash transfers during the pandemic has been particularly useful to reduce in-person contact while still providing critical economic relief. However, some reports have highlighted the exclusion of beneficiaries, especially women, who often lack access to the digital and financial tools needed to navigate the system of government to person (G2P) payments.</p>
<p><img class="aligncenter wp-image-24060" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_3-Digital-divide.png" alt="The digital divide" width="1000" height="500" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_3-Digital-divide.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_3-Digital-divide-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_3-Digital-divide-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_3-Digital-divide-1024x512.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" /></p>
<p>Therefore, we consider two aspects of the <a href="https://stats.oecd.org/glossary/detail.asp?ID=4719" target="_blank" rel="noopener">digital divide</a>: first, the gulf between those without access to computers, smartphones, and the internet, and those with access, and second, the spectrum of varying digital maturities in terms of trust and comfort with, usage of, and capability to fully enjoy the benefits of digital inclusion. <a href="https://www.gsma.com/mobilefordevelopment/blog/does-just-being-a-woman-reduce-the-likelihood-of-using-mobile/" target="_blank" rel="noopener">Based on recent analysis conducted by GSMA</a>, in low-and-middle income countries, demographics play a key role in determining access to smartphones and usage of mobile internet. Individuals in rural areas, those with lower incomes, and those that have only completed primary education are less likely to own a smartphone or use mobile internet. On top of this, women are less likely than men to own a mobile phone or use mobile internet, even when other relevant socioeconomic and demographic factors are controlled for. For those that do have access to digital tools, results from an <a href="https://www.accion.org/msme-digital-maturity-assessment" target="_blank" rel="noopener">Accion survey of Annapurna clients</a> demonstrated that there are several determinants of how comfortable a person feels using these tools. This includes both trust in digital channels and simply whether they are in the habit of using digital tools.</p>
<p><img class="alignnone size-full wp-image-24122" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_4-Confidence-graphs-5-3.png" alt="Customers with digital habits are more confident using digital technology but are more distrustful of information found online" width="2000" height="1300" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_4-Confidence-graphs-5-3.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_4-Confidence-graphs-5-3-300x195.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_4-Confidence-graphs-5-3-768x499.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_4-Confidence-graphs-5-3-1024x666.png 1024w" sizes="(max-width: 2000px) 100vw, 2000px" /></p>
<p>Digital channels offer some of the most effective ways to reach those that are financially excluded, especially while social distancing orders and lockdowns remain in force. We are already seeing that <a href="https://www.euromoney.com/article/284dqornsk694nkeruz28/treasury/latam-payments-payu-enjoys-e-commerce-boom-during-pandemic">COVID-19 has accelerated digital adoption</a> and has forced some previously reluctant consumers to overcome barriers around trust and tech-savviness because they have few other options. Among our partners, we’ve seen acceptance of digital payments increase 106 percent from December 2019 to September 2020 as microbusinesses move online. However, growth has been concentrated among partners who had digital infrastructure in place prior to the pandemic.</p>
<p>This underscores the pervasive digital divide among low-income people and businesses. Clearly, an undifferentiated focus on digital channels alone is not sufficient to bring useful financial tools to the underserved in a way that promotes trust and comfort. Accion Venture Lab’s 2018 report on the “<a href="https://www.accion.org/the-tech-touch-balance">Tech Touch Balance</a>” demonstrates the importance of continued human interaction in delivering financial services to the poor to build trust, establish relationships, and engage customers. Especially now, in the wake of COVID-19, low-income and vulnerable segments need the support of FSPs to navigate the new normal, restart their businesses, and build financial health so that they can build resilience to future crises and ensure they are not left behind again.</p>
<p>FSPs should be deliberate and thoughtful about how they reach clients on both sides of the digital divide. While they should lean into digital channels when undergoing digital transformation, they should also continue to leverage physical networks (branches, loan officers, groups) to promote greater digital adoption. The percentage of women actively using the digital products and services supported through Accion’s partnership with Mastercard has increased over one percentage point between September 2020 and December 2020, which illustrates the effectiveness of the combined recommendations below in moving us in the right direction to address the persistent gender gaps in digital financial services.</p>


<h5>FSPS CAN ADDRESS THE DIGITAL DIVIDE IN MANY WAYS</h5>
<h2><strong>Build a value proposition for digital products </strong></h2>
<p><a href="https://www.accion.org/helping-small-businesses-build-resilience-in-ecuador" target="_blank" rel="noopener">Banco Pichincha</a> is the largest financial institution in Ecuador, with a 115-year history and a deep commitment to its customers.  The bank is undergoing a complete, large-scale digital transformation, not only to build their own technological capabilities, but to improve its relationship with its customers and to be better able to respond to their needs during tough times. The COVID-19 pandemic has accelerated their digital transformation and improved the uptake of digital channels among their entire client base. In 2020, Banco Pichincha’s mobile app went from having 650 thousand to 1.1 million customers and 50 thousand customers managed the disbursement of their loans entirely through digital channels.  Their recently launched <a href="https://www.pichincha.com/portal/canales-de-atencion/deuna" target="_blank" rel="noopener">Billetera deUna!</a> application, a mobile wallet that supports secure, real time payments for their customers, has been downloaded more than 118 thousand times. While they have seen significant adoption of digital channels, it has primarily been among high-income segments, while uptake has been much lower among merchants and consumers at the base of the pyramid.</p>
<blockquote class="pullquote--right"><p>For customers accustomed to using cash and that enjoy the tangibility it offers, the value proposition of digital is difficult to communicate – particularly when relying on cash is perceived as free and more secure.</p></blockquote>
<p>Accion and Banco Pichincha are working together to promote financial and digital inclusion in Ecuador, and one of the first key actions of the project was to identify the key adoption barriers for the Billetera deUna! mobile wallet through an analysis of the payments ecosystem and conversations with clients and field staff. <a href="https://globalfindex.worldbank.org/archdownload/chapter/11" target="_blank" rel="noopener">Nearly eight in 10 Ecuadorians have mobile phones</a>, but only <a href="https://globalfindex.worldbank.org/sites/globalfindex/files/countrybook/Ecuador.pdf" target="_blank" rel="noopener">32 percent of those with mobile phones are currently using their phones to make digital payments</a>, and cash still accounts for about <a href="https://blogs.worldbank.org/jobs/why-digital-payments-are-key-entrepreneurs-success" target="_blank" rel="noopener">40 percent of payments</a>, particularly in rural communities. The use of digital payments can help small merchants gain more access to credit, formalize, grow their business, reduce time required for reconciliation and risk of theft, and save them multiple trips to the bank to deposit cash. However, for customers accustomed to using cash and that enjoy the tangibility it offers, the value proposition of digital is difficult to communicate – particularly when relying on cash is perceived as free and more secure.</p>
<p>Using this information, Banco Pichincha has reimagined the user experience for underserved microbusinesses by addressing the barriers to adoption with a clear and compelling value proposition. In parallel, the bank is using Accion’s EdTech platform, Ovante, to support their microfinance customers’ digital literacy.</p>
<p>A wallet that can be used for payments and that clearly meets the needs of a small merchant will enable them to build financial resilience, operate digitally where social distancing is still required, and participate in an increasingly digital ecosystem. Being clear about how digital will benefit small merchants specifically, in messages that resonate with them, can thus help overcome any initial barriers to adoption.Using this information, Banco Pichincha has reimagined the user experience for underserved microbusinesses by addressing the barriers to adoption with a clear and compelling value proposition. In parallel, the bank is using Accion’s EdTech platform, Ovante, to support their microfinance customers’ digital literacy.</p>
<h2><strong>Design for both sides of the digital divide </strong></h2>
<p><a href="https://www.accion.org/expanding-the-benefits-of-a-growing-digital-economy-in-indonesia-and-india" target="_blank" rel="noopener">Annapurna Finance Limited</a>, headquartered in Odisha, India, serves 1.9 million individuals in eastern India who would otherwise lack access to high-quality financial services. More than 99 percent of these individuals are group lending customers. When lockdowns due to the pandemic put an end to group meetings, this created a challenge for the members that depended on meetings to access much needed finance, especially during one of their most difficult times of need. Responding quickly to the crisis, Accion worked with Annapurna to reimagine their group lending process and supported the creation of a new digitally accessible emergency loan product for clients to help them manage liquidity constraints or any other financial emergency.</p>
<p>Though Annapurna is interested in developing more smartphone-based lending solutions, only 10 percent of their group lending customers currently own a smartphone. However, a greater percentage had access to less advanced feature phones. To address the digital divide, we created an SMS-based digital loan product that incorporated both <em>tech</em> and <em>touch</em>. Interested customers can provide a few details to their loan officer to ensure they meet the qualifications. If qualified, the loan officer can make an emergency loan limit available to them up to a pre-defined amount. Once this limit is created, a customer can access the funds at any time by simply sending an SMS to a dedicated phone number, which would result in the money being disbursed to the customer’s loan account.</p>
<p>We designed the solution to enable an easy upgrade to a smartphone version when relevant for their customers. Accion’s <a href="https://www.accion.org/msme-digital-maturity-assessment">digital maturity assessment</a> of Annapurna’s customers found that customers who use a digital device more than once per day are more than three times as likely to feel confident in using technology for different purposes and exhibit a greater willingness to try new products in the future. Therefore, Annapurna’s feature-to-smartphone product roadmap will allow customers to increase their digital maturity over time.</p>
<h3><img class="aligncenter wp-image-24123" src="https://content.accion.org/wp-content/uploads/2021/04/Customer-story-stacked-r3-5-3.jpg" alt="Getting back to business: Rosina Das's story" width="1000" height="1278" srcset="https://content.accion.org/wp-content/uploads/2021/04/Customer-story-stacked-r3-5-3.jpg 2000w, https://content.accion.org/wp-content/uploads/2021/04/Customer-story-stacked-r3-5-3-235x300.jpg 235w, https://content.accion.org/wp-content/uploads/2021/04/Customer-story-stacked-r3-5-3-768x982.jpg 768w, https://content.accion.org/wp-content/uploads/2021/04/Customer-story-stacked-r3-5-3-801x1024.jpg 801w" sizes="(max-width: 1000px) 100vw, 1000px" /></h3>
<p>On the opposite side of the digital divide, Annapurna found that the more digitally mature segment of their MSME clients that have individual rather than group loans were interested in greater convenience and wanted to be able to move away from having to visit physical branches. Annapurna knows that they need to digitize even faster for this segment and we are supporting the bank to develop an end-to-end digital loan that clients can apply for without needing to speak directly to a loan officer and through which all repayments can be made remotely.</p>
<h2><strong>Balance tech and touch to bridge the digital divide </strong></h2>
<p><a href="https://www.accion.org/in-a-no-touch-world-tech-cant-leave-low-income-people-behind" target="_blank" rel="noopener">FSPs can do many things</a> to ensure that customers get the human touchpoints they need to feel supported and engaged. For customers with low digital maturity, such as group lending clients who traditionally rely on high-touch models of interaction, institutions should think strategically about hybrid models that leverage digital to automate manual processes while still maintaining the human touch that customers value.</p>
<p><a href="https://www.accionmfb.com/" target="_blank" rel="noopener">Accion Microfinance Bank</a> (Accion MfB), one of Nigeria’s most successful microfinance institutions, is seeking to make digital the new norm and encourage digital behaviors in their client base. As part of this goal, they made the end-to-end application process for their new digital loan accessible only through mobile app or the web portal. But Accion MfB knew that not all their customers are ready for a fully digital process end-to-end, so the product was designed so that customers can initiate the digital loan application process with Accion MfB through several different channels. Customers can submit a request for a digital loan application via USSD mobile codes, which prompts the call center to reach out to better understand their characteristics: Do you have the documentation needed to apply digitally? What is your comfort in completing the application form online? Based on answers to these questions, the call center agent may direct applicants to one of the self-service channels to complete an application, or may refer applicants to a branch where a staff member can assist with a loan application.</p>
<p><img class="alignnone size-full wp-image-24125" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_5-AMFB-digital-loan-5-3.png" alt="Accion Microfinance Bank digital loan" width="2000" height="1400" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_5-AMFB-digital-loan-5-3.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_5-AMFB-digital-loan-5-3-300x210.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_5-AMFB-digital-loan-5-3-768x538.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_5-AMFB-digital-loan-5-3-1024x717.png 1024w" sizes="(max-width: 2000px) 100vw, 2000px" /></p>
<p>Customers who completed the digital loan application but were denied were redirected to a branch so that they could reapply using the traditional application process. Interestingly, the Accion MfB team found that some of the customers who were denied a loan using the digital process were approved using the in-person process for the same loan amount. After digging into the data, they found that customers were responding to questions on the digital loan application differently than they did in the in-person loan application process. It seemed that some customers were misinterpreting the questions on the digital loan application. When they were face to face with someone who could ask the same questions in several different ways, offer clarifications, or suggestions, the number of errors greatly reduced. For example, when asked about their revenues, they may have entered revenue for the <em>day</em> rather than the <em>month</em>. Given this finding, Accion MfB made several changes to the digital loan application to incorporate this human element. They changed how many questions were phrased to more closely resemble how an account officer would ask them, and made more help, examples, and tips available.</p>


Optimize organizational design

<p>Most microfinance institutions were built to be high-touch businesses, focused on meeting the needs of their customers through replicable processes conducted face-to-face and mostly in cash. Technology has helped automate some processes, such as field staff tools and credit risk decisioning. While this model worked well in ensuring that some underserved populations get access to the responsible finance they need, the heavy reliance on loan officers and physical branches results in higher costs and limits scalability.</p>
<blockquote class="pullquote--right"><p>The digital transformation of financial service providers requires careful thought about how two very different operating models, one current and one future state, should be integrated, under the same roof.</p></blockquote>
<p>A purely digital financial services model — with remote application, application processing, approval, and digital transactions — is very different than the high-touch model of traditional microfinance institutions. When a microfinance institution is restricted only by a customer’s access to the right type of device and access to a mobile network, the potential for scale is massive. However, this newer model is diametrically opposite to the historical one in terms of ethos, culture, and style.</p>
<p>The reality for FSPs serving the underserved is that some of their customers do not yet have access to digital devices or a mobile network and will continue to require the high-touch service offered through the traditional microfinance model. Other customers, becoming more accustomed to transacting digitally in other areas of their life, are demanding the accessibility, convenience, and speed of service that digital financial services can provide. Therefore, the digital transformation of financial service providers requires careful thought about how two very different operating models, one current and one future state, should be integrated, under the same roof.</p>
<p>There’s no one right way to organize for digital transformation, and what it looks like can be very different from one organization to the next. A lot depends on the starting point — the as-is digital maturity of the institution — as well as the desired end state.</p>
<ol>
<li>Some companies may want to <strong>integrate digital processes across all departments</strong> from the start.</li>
<li>Others may <strong>create a digital center of excellence, like an innovation lab</strong>, within the organization that is tasked with creating products that serve the institution’s client base.</li>
<li>And finally, others may decide to <strong>create a separate unit or even a wholly owned subsidiary to experiment in a controlled environment</strong> and ensure little or no impact on business as usual.</li>
</ol>
<p><img class="aligncenter wp-image-24065" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_6-Org-design-overview.png" alt="Companies should carefully select an organizational design that will enable them to digitally transform. " width="1000" height="590" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_6-Org-design-overview.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_6-Org-design-overview-300x177.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_6-Org-design-overview-768x453.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_6-Org-design-overview-1024x604.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" /></p>
<h3>For an organization to determine the best model to start with, they should consider the following dimensions:</h3>
<ul>
<li><strong>Target customer segment:</strong> An institution should determine whether they are primarily focused on creating new products for new market segments to expand their reach, or on transforming existing products for existing market segments in order to serve them more efficiently. Those looking to serve new customer segments should look to create some separation between their existing and digital operating model.</li>
<li><strong>Macro-level factors:</strong> Factors such as access to talent, potential for partnerships, level of digital readiness in the country, level of investment in digital transformation, and competitive landscape play a role in determining organizational design.</li>
<li><strong>The level of disruption faced by the business:</strong> Often, a fully integrated digital transformation model takes more time and can create major distractions for business as usual. The higher the potential for disruption, the better to keep the digital unit separate until a point of maturity.</li>
<li><strong>The level of digital maturity:</strong> The earlier a company is in its digital evolution — including digitally enabled processes, skills, and infrastructure — the more likely it is to need a bit of separation from standard operations to concentrate digital skills and move quickly.</li>
<li><strong>Openness to change:</strong> Companies that have a more resistant or traditional culture usually fare better with a separate unit that is solely focused on digital evolution.</li>
</ul>
<p>It is important to remember that organizational design can and should change over time. For most companies, having the dedicated focus of a separate or semi-integrated digital unit may make sense when starting on the journey — but over the longer term, they may want to ensure that digital capabilities become embedded across business lines. We took variations of the fully integrated digital transformation and digital center of excellence approaches with each of the FSPs we worked with as demonstrated by the examples below.</p>
<p><img class="aligncenter wp-image-24066" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_7-Org-design-fully-integrated.png" alt="Fully integrated digital transformation" width="1000" height="590" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_7-Org-design-fully-integrated.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_7-Org-design-fully-integrated-300x177.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_7-Org-design-fully-integrated-768x453.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_7-Org-design-fully-integrated-1024x604.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" /></p>
<p>In a fully integrated digital transformation model, digital capabilities and processes are integrated across business lines and all business lines have a responsibility to drive business agility, growth, and innovation.</p>
<p>Sub-K IMPACT Solutions Ltd., a banking correspondent company focused on reaching underserved populations in India, started their digital transformation journey from a relatively high level of digital maturity, and with a clear understanding of where they wanted to go with a digitally enabled model.</p>
<p>The team socialized digital transformation across the entire organization, utilizing town hall meetings with those at headquarters and in the field to discuss the importance of digital. They trained nearly all staff to adopt a digital-first approach to customer acquisition, application processing, account servicing and collections and put in place KPIs to drive forward a digital operating model. They also created several working groups with members from product, data strategy, training, compliance, marketing, call center, and agent networks to ensure that the existing assets and infrastructure of the institution could be completely leveraged to offer a distribution model for digital products. These cross-functional teams work together to develop and implement digitally enabled, customer-centric products and services, and to ensure a successful digital transformation at Sub-K.</p>


<p>Aligning around this model enabled Sub-K to launch the <a href="https://www.accion.org/banking-goes-digital-to-reach-rural-entrepreneurs" target="_blank" rel="noopener">SARTHI fintech platform</a> in August 2020. This platform currently offers their customers products such as MSME credit, digital micro-loans, gold loans, health insurance and micro-investments. The platform is integrated with multiple banks and third-party partners. Customers can access the marketplace on their own mobile devices or with the assistance from Sub-K’s staff and agents.</p>
<p><img class="aligncenter wp-image-24068" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_8-Org-design-digital-center.png" alt="Building a digital center of excellence" width="1000" height="590" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_8-Org-design-digital-center.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_8-Org-design-digital-center-300x177.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_8-Org-design-digital-center-768x453.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_8-Org-design-digital-center-1024x604.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" /></p>
<p>A center of excellence within FSPs can take a variety of forms. The center could have their own profit and loss (P&amp;L) responsibility for products that they develop and take to market, or they could emerge as an internal service that is responsible for working with existing P&amp;L owners to drive new and innovative solutions. As FSPs decide what model is right for them, it is important to consider which existing assets within the business will be leveraged in new digital initiatives. Usually, this model requires a significant shift in how departments such as IT, marketing, audit, and compliance, will operate, plan, and resource themselves to support the new venture, making clear agreements about how to share resources to achieve the organization’s priorities critical.</p>
<p>BancoSol is a financial institution serving more than one million low-income clients in Bolivia. As BancoSol embarked on their digital transformation journey, the bank opted to develop a digital center of excellence – an innovation hub – that would be responsible for leading the digital transformation of the bank. This group would enable BancoSol to better serve current customers and to explore what the future of the bank looks like. To encourage experimentation, the innovation hub was not configured to have P&amp;L responsibility immediately. It was given the freedom to develop a digitally native identity and culture, and the responsibility to work closely with the other business lines to deliver new products and services. This structure enables the innovation hub to leverage the existing capabilities of the bank, including the tech stack,marketing, and operational staff.</p>
<p>The innovation hub also serves as an incubator for new skills for the bank. Currently the hub is focused on building capabilities in three areas: human-centered design, data analytics, and open innovation. As these mature, they will be embedded within the business units — moving the organization closer and closer to a fully integrated digital transformation model. As the digital maturity of the organization grows through this process, the innovation hub will continue to foster cutting edge capabilities.</p>
<p>In the long run, as the capabilities of the innovation hub grow, the vision is to transition to a standalone digital unit that has its own P&amp;L responsibility, and that acts as a service provider for the bank, charging for its services. This bank-led innovation hub model has shown to be successful with <a href="https://www.dbs.com/innovation/dbs-innovates/spaces.html" target="_blank" rel="noopener">DBS Asia</a> X (DAX) and the <a href="http://innovation.brac.net/" target="_blank" rel="noopener">BRAC</a> Social Innovation Lab. Both these innovation hubs were developed by banks to create a space where ideas could be generated, developed, and implemented. The innovation hubs continue to bring internal innovation capability to the bank.</p>
<p><img class="alignnone size-full wp-image-24069" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_9-Org-design-standalone-unit.png" alt="Building a standalone digital unit" width="2000" height="1000" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_9-Org-design-standalone-unit.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_9-Org-design-standalone-unit-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_9-Org-design-standalone-unit-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_9-Org-design-standalone-unit-1024x512.png 1024w" sizes="(max-width: 2000px) 100vw, 2000px" /></p>
<p>A standalone digital unit is a powerful idea for many innovators in the industry. The allure of being able to build, test, learn, and launch products without having to worry about the FSP’s existing business operations is strong. One notable example is ALAT, Nigeria’s first fully digital bank, which is a child of the country’s oldest bank, Wema Bank. ALAT was built from the ground up to provide a branchless customer experience. Today, <a href="https://www.wemabank.com/alat-is-to-nigerian-banking-what-technology-is-to-humanity/" target="_blank" rel="noopener">ALAT has over 200,000 active clients</a>, is Wema Bank’s primary banking platform, and is bringing significant transformation to the Nigerian banking industry. In order to set up a stand-alone unit, the strategy, focus, investment requirement, and management structure of the new unit need to be absolutely clear.</p>
<p>Under the Mastercard and Accion partnership, we have opted not to work with any institutions to create a stand-alone digital unit. Rather, we remain focused on the transformation of the microfinance operating model in order to help existing and new clients access credit faster, make payments digitally, save remotely, purchase insurance, and access other benefits.</p>


Build (and rebuild) a culture of experimentation

<p>Culture is a key determinant of a successful digital transformation. An institution can upgrade technologies, infrastructure, and processes, but without addressing the human element, lasting change will not happen. Many microfinance organizations struggle to build digital capabilities internally, as employees prize their deep relationships with customers, and fear that digital tools such as mobile apps or chatbots may diminish their value and have a negative impact on the customer experience. In some cases, effective digital transformation will require bringing in new talent that has different experiences and exposure outside of the organization.</p>
<p>Likewise, the norm in many financial service providers, is that management tends to be focused on the short term and in reaching quarterly targets, and key performance indicators (KPIs) are not designed to encourage risk and innovation for incumbents in such a heavily regulated industry. But digital transformation requires innovation — or <em>reimagining</em> how to respond quickly to market challenges and opportunities. And this requires KPIs, protocols, and a collective learning mindset that supports a culture of experimentation.</p>
<p>Institutions that adopt a culture of experimentation are invested in learning, rather than expecting a product to turn a profit from day one. DBS Bank for example, <a href="https://bankingfrontiers.com/dbs-bank-innovation-is-part-of-the-culture/">runs over 1,000 experiments every year</a> —they strive to understand the needs of their customer, rapidly come up with ideas to solve their most pressing problems, and then take them back to the customer to test those ideas. While many of these experiments fail, it is the iterated version of those failures that leads to success. We find that many institutions will try something once, and it will fail, and the organization will never take the opportunity to learn from the failure and get past the initial iteration. Realizing the transformative power of experimentation is a commitment and over time, experiments yield thousands of small and not-so-small changes that can collectively result in huge benefits.</p>


<h5>TO BUILD THIS CULTURE OF EXPERIMENTATION, THERE ARE SEVERAL STEPS FSPS SHOULD TAKE</h5>
<h2>Focus on alignment before getting started</h2>
<p>Many FSPs have a perceived need to get new products out the door quickly to demonstrate progress on digital transformation initiatives. However, it can be counterproductive to shortchange the time and effort required to build alignment and a shared understanding of the roles and responsibilities expected of each team member in a new way of working together. Setting norms, from the Board down to each level of the organization, is the first step in defining the rules of engagement when creating and implementing digital transformation initiatives. In practice, key activities for digital transformation initiatives often fall on already over-burdened shoulders, which underscores how essential it is to ensure the incentives are right and that everyone has a shared understanding of the organizational priorities and their role in the strategy execution.</p>
<p>Sub-K’s CEO, Sasidhar Thumuluri, approached the challenge by first aligning with all teams on organizational goals and priorities. He held several strategy-setting workshops with relevant teams to identify gaps within the organizational design and process flows and to identify where concrete adjustments needed to be made. One opportunity area identified was a need to streamline hand-offs between the product and technology teams, which would be increasingly important to support the technological developments in the pipeline. Based on the workshop outcomes, the product and technology teams are working together to ensure hand-offs and configurations between the two teams are seamless.</p>
<p>Sasidhar also appointed subcommittees composed of senior-level staff to determine which activities best supported the organization’s priorities. Over time, this has made the organization much more amenable to running experiments. Their attitude has changed from “we can’t” to “we have challenges, let’s address them.” They have recently started evaluating use cases to implement conversational artificial intelligence and are running surveys to better understand the features and functionalities that their customers would find useful for their new customer-facing mobile application.</p>
<h2>A culture of experimentation requires a test-and-learn approach — and a safe space to fail</h2>
<p><img class="aligncenter wp-image-24077" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_10-Culture-of-experimentation.png" alt="Culture of experimentation in digital transformation" width="1000" height="500" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_10-Culture-of-experimentation.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_10-Culture-of-experimentation-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_10-Culture-of-experimentation-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_10-Culture-of-experimentation-1024x512.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" /></p>
<p>With Accion MfB in Lagos, Nigeria, we began the digital transformation process with the awareness that the organization was in very early stages of thinking about digitization. Leadership was excited and motivated to digitize, and they assumed that the organization could just hire a few staff members with key digital capabilities to develop a new digital unit, and that would be enough to move the organization forward. However, we quickly learned that we did not have the buy-in or support from other departments that would be required for the digital team to be effective. The HR, IT, marketing, and risk teams simply hadn’t bought in to the mission of the digital unit, and the KPIs they were asked to meet remained aligned with business as usual rather than the bank’s new digital ambitions. This created a disincentive to take any risks aligned with the digital teams’ ambitions.</p>
<p>Even though the organization’s board and CEO were pushing digital transformation, this trickle-down approach was not sufficient to drive a culture where the shared services of the bank were able to support the needs of a team using a test-and-learn approach. For example, the operational teams had certain risk and compliance measures they had to adhere to and were skeptical of large-scale digital changes where the outcomes had not yet been proven.</p>
<h3>To address these challenges, the organization embedded the desired changes within the day-to-day operations of staff at every level by taking the following actions:</h3>
<ol>
<li><strong>Encouraging management to take risks. </strong>One of the key challenges was to get the management to feel comfortable with learning by doing. They were worried about the impact of failed projects on the profitability numbers of the bank. The board approved an innovation budget and noted that any losses would not be counted against the bank’s profitability or performance-related pay. At the same time, the board held the management team accountable to demonstrate progress against their goals within an agreed timeframe.</li>
<li><strong>Prioritizing a Chief Digital Officer (CDO) with the necessary people skills to drive digital adoption within the bank.</strong> The bank’s new CDO encouraged his team to take risks and learn from failure. It was more important to have someone who could set a vision and evangelize digital transformation than someone with deep technical and digital skills.</li>
<li><strong>Developing digital KPIs and embedding them into the entire organization’s DNA. </strong>For example, the Human Resources team took on KPIs such as speed of recruitment of talent with digital skills, which were aligned around the needed competencies of recruits. The commercial team and branch managers were also given the mandate to contribute 15 to 20 percent of their time to digital support. This helped all teams understand their role in supporting initiatives sponsored by the digital unit.</li>
<li><strong>Implementing several interdepartmental service level agreements (SLAs).</strong> For example, they ensured that audit and compliance will conduct timely assessments of digitally enabled products, marketing would respond to the needs of the new products being produced, risk team would support the needs of digital product innovation. This has been particularly important to ensure that departments develop budgets and plans that support experimentation requirements.</li>
<li><strong>Creating a safe space to fail and encourage experimentation in a sandbox-like environment.</strong> They ringfenced potential risks by creating limits in terms of the maximum number of customers and the total amount to lend during the pilot to quantify the upfront costs needed for the experiment to achieve its learning objectives. The key was to provide a digital unit with autonomy and decision-making power and to frame the new digital loan as a low-risk experiment, rather than a fully fledged product launch. By doing this, the team was able to take a more flexible approach within the bank’s risk management framework for new product launches, to build up enough lending history for the digital loan pilot to validate the alternative scoring model.</li>
</ol>
<h2>Ultimately, digital transformation requires comfort with radical experimentation</h2>
<p>A vital ingredient of any digital transformation strategy is experimentation. To be able to develop new offerings in a digital world, FSPs need the flexibility to experiment safely and effectively. This means that teams need the freedom to fail, all while ensuring that any inevitable failures occur in a secure environment. Leadership teams can create a safe environment for promoting innovation by mastering six skills: be approachable, compassionate, composed, manage conflict, direct others, and listen. Leadership teams that embody these characteristics open surprising doors that create differentiated offerings and innovative solutions to better serve financially excluded populations.</p>
<div id="attachment_24078" style="width: 339px" class="wp-caption alignleft"><img aria-describedby="caption-attachment-24078" class=" wp-image-24078" src="https://content.accion.org/wp-content/uploads/2021/04/civico-phone.png" alt="CÍVICO’s digital loan application provides MSMEs with just in time credit and flexible conditions so MSME’s can continue growing their businesses." width="329" height="558" srcset="https://content.accion.org/wp-content/uploads/2021/04/civico-phone.png 984w, https://content.accion.org/wp-content/uploads/2021/04/civico-phone-177x300.png 177w, https://content.accion.org/wp-content/uploads/2021/04/civico-phone-768x1303.png 768w, https://content.accion.org/wp-content/uploads/2021/04/civico-phone-604x1024.png 604w" sizes="(max-width: 329px) 100vw, 329px" /><p id="caption-attachment-24078" class="wp-caption-text"><em>CÍVICO’s digital loan application provides MSMEs with just in time credit and flexible conditions so MSME’s can continue growing their businesses.</em></p></div>
<p>CÍVICO is a digital ecosystem that has geolocated hundreds of thousands of small merchants and corner stores across Latin America to make it easier for citizens to find what they need in their local environment. CÍVICO is not a traditional financial service provider, but many of the merchants in their network expressed a need for financial services to help them to grow their businesses. Seeing the opportunity to better serve their customers and grow their business, CÍVICO set out to develop an end-to-end digital loan product for underserved businesses to help communities thrive. Because CÍVICO did not have the financial services infrastructure in place, they were initially solely considering partnering with external vendors to develop a digital lending platform. However, due to uncertainty caused by the COVID-19 pandemic, many of the partnerships they had been considering failed to materialize due to perceived elevated risks in lending.</p>
<p>Rather than continue to wait for the perfect partner to come along, especially when they knew that their users needed capital immediately to sustain their businesses, CÍVICO made the bold decision to start lending directly. They launched a low-fidelity product, lending very small amounts and limiting their total investment to just $15,000 USD so that they could conduct tests and learn quickly. This low-fidelity product has enabled CÍVICO to make several adjustments to their processes and product. For example, the team found that they needed to develop a filtering process to determine the specific needs of the MSMEs in their network. They deployed a survey that evolved into a merchant assessment tool. When they cross-referenced these profiles with CÍVICO’s existing data, it helped them to better understand the entrepreneur’s behaviors, their biggest pain points in recovering from the pandemic, and the state of their financial health. With this data, CÍVICO was more easily able to target the merchants most in need of credit and recommend specific educational modules, available on the CÍVICO platform, that would be most useful for the business. This is also helping them identify how to better use alternative data for credit scoring. After six months of running the pilot, they have been able to reach 1000 customers, and they are constantly incorporating learnings into their processes. CÍVICO has also identified several partners with which to scale the digital loan offering and is working toward building a multi-partner flexible product. By launching the pilot early with a small group of customers, they were able to finetune which customers to target and reduce risks for themselves and their partner lending institutions.</p>


Have a clear data strategy

<blockquote class="pullquote--right"><p>Any digital customer experience requires quality and curated data that is readily consumable as close to real-time<br />
as possible.</p></blockquote>
<p>Data capabilities play an essential role in an organization’s digital transformation. Data can inform optimization strategies that increase efficiency and revenue. Data itself can also be monetized creating entirely new business models where data assets become products. Especially today, when FSPs must make unprecedented and rapid decisions, adjust business strategies, segment customers to understand portfolio risks, rethink credit models, and enable remote engagement with customers and staff, data capabilities go hand-in-hand with digital.</p>
<p>For the unbanked and underbanked and the financial providers that serve them, the explosion of available data, data-analytics services, and a growing digital ecosystem <a href="https://www.centerforfinancialinclusion.org/data-for-inclusive-finance-delivering-on-the-promise-for-consumers" target="_blank" rel="noopener">creates unprecedented potential</a>. The possibilities to unlock inclusion, <a href="https://www.centerforfinancialinclusion.org/data-for-inclusive-finance-delivering-on-the-promise-for-consumers" target="_blank" rel="noopener">greater financial health</a>, and opportunity for the underserved are extraordinary, from prospecting and credit scoring for thin-file consumers to well-timed nudges for saving,  to intelligent chatbots, to personalized recommendations, to remote client onboarding, to access to online platforms. Any digital customer experience requires quality and curated data that is readily consumable as close to real-time as possible.</p>
<p><img class="aligncenter wp-image-24081" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_11-Using-data.png" alt="Using data to drive financial inclusion (examples)" width="1000" height="500" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_11-Using-data.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_11-Using-data-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_11-Using-data-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_11-Using-data-1024x512.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" /></p>
<p>Despite the proliferation of data, the challenges of obtaining and converting raw information into actionable insights are immense. Many organizations become overwhelmed with the possible use cases for data and lose alignment and focus when it comes to creating a data strategy. Some institutions end up creating a parallel siloed data strategy rather than an integrated strategy which acts as a key enabler to their core strategic initiatives. However, microfinance organizations can take several key steps to harness the power of data in their digital transformation. These steps amount to a plan for how to align and prioritize data and analytics activities with key digital transformation priorities, goals, and objectives.</p>
<h2>Derive value first from the data you have</h2>
<p>In the early stages of developing a digital loan product, Accion MfB explored potential data-sharing partnerships with several entities, which would enable them to build a robust scoring model that would leverage alternative data. However, it was challenging to assess the value-add from potential third-party data providers and agree on how best to structure a commercial partnership. This challenge prompted the bank to take a long hard look at their own data. The organization has an arsenal of over 10 years of lending data that has been under-utilized, and the team realized that they could do a lot more with their own data if they got creative and looked at it in a different way. For example, they were able to use what they already know about customers’ willingness to pay and capacity to pay to design the pilot digital loan product. They leveraged historical data collected from existing bank customers and used this to create a benchmark profile against which to compare incoming data from new customers. As the use of their own internal data involved fewer operational and commercial complications, it helped the bank launch a viable pilot quickly even as it continues to explore other collaborations.</p>
<h2>Be practical with how to get from insights to action</h2>
<p>Similarly, BancoSol in Bolivia has been in operation for over 30 years and today serves 1 million clients, making it one of the nation’s largest banks. Mindful that they have a lot of untapped data under their noses, BancoSol wanted to leverage this data to uncover insights that could help to address four key challenges for the bank: drive digital adoption and improve usage, increase cross-product usage, increase savings balances, and maintain customer relationships. Accion and Mastercard supported BancoSol by convening a 36-hour “datathon” during which 40 Mastercard volunteer data scientists collaborated to tackle these key challenges.</p>
<h3>Three key recommendations came from this exercise:</h3>
<ol>
<li><strong>Start by understanding your typical digital customer. </strong>Analyzing customer demographic data and banking patterns can help identify and nudge those customers who are most likely to go digital. In BancoSol’s case, the datathon revealed that its typical digital app customer was more likely to be female and more likely to be younger compared to the average BancoSol client. By understanding the typical digital customer, BancoSol can prioritize those who may be most-inclined toward digital adoption.</li>
<li><strong>Equip loan officers with insights to match customers with products that meet their needs. </strong>The datathon analysis revealed that app users made nearly twice as many deposits as other users — linking digital adoption with increased use. As <a href="https://www.centerforfinancialinclusion.org/data-for-inclusive-finance-delivering-on-the-promise-for-consumers" target="_blank" rel="noopener">research has shown</a>, greater use of financial products, whether that’s insurance, savings, or credit, makes small businesses more resilient to shocks like COVID-19 and also ensures the bank’s own sustainability. Equipped with these kinds of insights, loan officers can better communicate key benefits of going digital and identify when unexpected hurdles might be steering potential users away, like privacy or information security concerns or bad online experiences elsewhere. With insights from users, BancoSol was able to develop clear messaging for loan officers about privacy and security, and continually test and streamline the app experience for customers so it matched expectations.</li>
<li><strong>Retain customers by being proactive, not reactive. </strong>The datathon offered insights on customer retention. When a customer stopped saving or communicating with the bank, for example, his or her risk for a loan default rose. Based on those factors, the data analysts created a risk propensity score, which the bank can use to intervene before a customer begins to disengage. The datathon also revealed that a digital connection can improve retention in the absence of an in-person connection, critical in an era of social distancing. Customers who use digital channels maintain consistent relationships with the bank and have more consistent differentiators between high and low retention risk.</li>
</ol>
<p>Based on the experience of the datathon and seeing the value that could come from the data already in their arsenal, BancoSol has hired a full-time data analyst to join the team and plans to add on additional data experts over time. They know that having dedicated resources skilled in data analytics embedded within the product innovation team will help jumpstart a virtuous cycle of data-driven design.</p>


<h2>Prioritize data management and governance</h2>
<p>To derive value from existing data, microfinance institutions need to invest in structuring their data appropriately and be deliberate in the governance and management of their datasets to ensure their usefulness and adherence to data responsibility principles. Data governance establishes policies and procedures around data and must involve key business stakeholders. Data management comprises the set of activities and logistics involved to enact those policies and procedures with regards to how data is compiled and used for decision-making. FSPs should be proactive in adhering to global best-in-class customer data protection and privacy regulations, even if they are not (yet) required in their country.</p>
<p>Many institutions know they possess valuable data, but it is stored in various places and in multiple formats. They often ignore complicated archives and only manage the limited data that they are required to — or that is easily accessible. Many are preoccupied by fulfilling regulatory reporting requirements or consumed by responding to urgent ad hoc data requests, leaving little time and bandwidth to step back and organize their data. They acknowledge the importance of, but defer investing in, proper data management solutions to a later date, yet as data accumulates, this becomes harder. Annapurna Finance Limited wanted to address this challenge and has recently invested heavily in data management solutions that will improve data reporting, data migration, and data storage for new digital platforms and products from day one, such as the loan origination system, which will expedite credit scoring and origination of new digital lending and other products.</p>
<p>Nearly every financial institution struggles with maintaining accurate customer contact information, a simple yet critical example of data management. For microfinance institutions with high-touch models, having a current phone number on file can seem low priority, since the loan officer regularly visits customers in person. However, when lockdowns were first implemented due to the COVID-19 pandemic, the ability for loan officers to communicate directly with their group lending customers became almost impossible without up-to-date contact information. Annapurna needed to communicate critical loan information, including payment dates, updates on moratoriums, and even introduce new loan offers via SMS, as many of their clients only have access to feature phones.</p>
<blockquote class="pullquote--left"><p>Many institutions know they possess valuable data, but it is stored in various places and in multiple formats.</p></blockquote>
<p>However, they found that their database of phone numbers was outdated, with many numbers  no longer working or belonging to a new individual. Annapurna introduced a standard process to ensure that at every customer touch point — whether during a field visit from a loan officer or a customer visit to a branch — bank staff would confirm the customer’s phone number to ensure a high-quality database. In parallel, they implemented a new communication system, which required them to integrate their SMS messaging system with their loan origination system. These two initiatives helped to standardize communications with customers, create greater engagement, and ensure a more transparent flow of information</p>


Future-proof your transformation

<p>While an institution’s technology infrastructure can be a springboard to leap forward, it can also be an obstacle. Today’s social distancing measures have made technology maturity even more crucial, as technology determines whether the institution can quickly deliver the critical digital functionality its staff and customers need. Underlying all of this is a need to build more flexible core IT and data management systems, which have traditionally been a weakness for MFIs. The ability to evolve and adapt business models, dependent on agile and adaptable IT systems, is increasingly a <a href="https://www.cgap.org/blog/after-storm-how-microfinance-can-adapt-and-thrive" target="_blank" rel="noopener">defining factor in the digital age</a>.</p>
<p>A key to digital transformation, and what makes it so difficult, is balancing both the necessary planning required to transform the organization and the agility needed to innovate quickly. In a <a href="https://hbr.org/2016/10/make-your-strategy-more-agile" target="_blank" rel="noopener">Harvard Business Review article titled “Make your strategy more agile</a>,” Tim Leberecht highlights the union of vision and improvisation:</p>
<blockquote class="blockquote"><p>“Vision incorporates the long-term, if not permanent, purpose and principles of an organization, which serves as the north star for all its actions. Improvisation suggests a fundamental openness and flexibility at the tactical level — the willingness to explore, experiment, and iterate.”</p></blockquote>
<p>Perhaps nowhere do the conflicts inherent in these two opposing concepts come more starkly into contrast than in the technology stack and IT functions of an organization undertaking digital transformation. The fact is, technology decisions made today will impact what’s possible tomorrow, so organizations need to design for the future while understanding the constraints they face today due to legacy systems. Following these key design principles can help your organization balance conflicting priorities and opposing forces to build its future state architecture.</p>


<h2>Balance vision and improvisation</h2>
<p>Balancing infrastructure planning (or vision) with agility (improvisation) often requires a phased approach, with work around solutions enabling products to get to market quickly, while parallel tracking more long-term strategic investments in future-proofing your technology infrastructure. BancoSol was able to effectively take such a parallel approach. At the onset of their digital transformation journey, senior leadership articulated a vision and an implementation plan for the technology stack and analytics platform capabilities which would be required to execute the bank’s digital strategy for the next five years and beyond. The organization committed to ambitious digital adoption targets to set a north star toward which the team should set its sights. Yet, the team also recognized that it was equally important to start somewhere, to commit to improvising an agile approach to innovation rather than wait for the entire technology infrastructure to be deployed before beginning development of their first digital minimum viable product (MVP). Instead, the MVP was designed to function within the existing technology systems with the minimum modifications necessary in terms of API connections, etc., while planning to rollout additional functionality in line with the broader technology roadmap.</p>
<p>Balancing vision and improvisation also requires careful consideration of what to build in house versus what to outsource. As technology evolves, that question becomes increasingly complex. It may be easier to outsource key functions, but institutions need to be careful about protecting their core value-add to the market and not concentrating risk by relying too heavily on one vendor. Sub-K’s digital marketplace, <a href="https://www.accion.org/banking-goes-digital-to-reach-rural-entrepreneurs" target="_blank" rel="noopener">SARTHI</a>, was initially planned for in-house development, as they felt their IT team had the needed capabilities. However, after some deliberation, they realized that it would not be worth the time or effort to develop all of the capabilities needed internally, especially solutions that have already been commoditized in India. The organization decided to partner with several vendors to get access to their existing solutions, with necessary customizations. Sub-K knew that their core value-add was their unique methodology and agility to add new products and partners to the platform, so they needed to work with a technology partner to build a platform that enabled this flexibility.</p>
<p>Finally, a strong and coherent technology team is critical to delivering on the vision. The challenge confronting this team during a digital transformation is: how do we balance new digital initiatives with the tasks of business as usual? And how should we determine what to focus on?  Digital transformation requires that IT departments are clear on the organization’s transformation priorities and can effectively prioritize incoming projects. Sub-K, for example, has established a “change control board” tasked with assessing the business value of each request to prioritize the change requests. This board governs the process for required sign-offs and cross-checks with all affected product owners when a change is requested to the IT work stack. This helps IT manage delivery by prioritizing feasibility and strategic importance of various initiatives and continually reevaluating the current backlog.</p>
<p>Likewise, our partner Bina Artha Ventura in Indonesia had three standalone initiatives they wanted to pursue at the outset of their digital transformation journey: ecommerce, digital identity, and digital lending. In an effort to combine all three into a logical technical architecture, they made the strategic decision to prioritize development of an overarching customer engagement platform, which would support and ultimately be able to deliver their other key initiatives.</p>
<p><img class="aligncenter wp-image-24082" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_12-Prioritization-process.png" alt="Digital transformation: Prioritization process" width="1000" height="550" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_12-Prioritization-process.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_12-Prioritization-process-300x165.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_12-Prioritization-process-768x422.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_12-Prioritization-process-1024x563.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" /></p>
<h2>Think strategically about APIs to modernize legacy systems</h2>
<p>The movement toward open-banking, or the system of allowing access and control of consumer banking and financial accounts through third-party applications, has generated a need for FSPs to be able to consume and produce data for third parties to reap the benefits that partnerships can provide. APIs play an important role in ensuring that a company can access, interact, and engage with a third party’s data and functions. They can also be an effective tool to modernize legacy systems in a way that is low-cost, efficient, and does not require a complete (and expensive) upheaval of the existing core system.</p>
<p>At Accion Microfinance Bank, for example, the team needed to find the right partner to support their ambitions to create a digital loan product. After finding the right partner, the organization quickly realized that to deliver the digital loan capability, it would need to build APIs to connect with the partner’s systems. To evaluate the feasibility of this, the team conducted an API inventory — or an evaluation of how various systems should connect and where vulnerabilities may lie.</p>
<h3>Though this process, they examined:</h3>
<ul>
<li>the various integration points required for the organization’s systems to be able to communicate with various partners or vendors to meet the requirements of the digital lending product,</li>
<li>whether these integration points already existed,</li>
<li>whether they had the capabilities needed to manage the data, and</li>
<li>handoffs that may be required between the technology and operations teams.</li>
</ul>
<p>This inventory helped them to understand the steps they would need to take to develop the capabilities required to manage the data exchanged through the new APIs.</p>
<h2>As you go digital, ensure you are resilient</h2>
<p><img class="aligncenter wp-image-24094" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_13-Digital-resiliency.png" alt="Digital transformation resiliency" width="1000" height="500" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_13-Digital-resiliency.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_13-Digital-resiliency-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_13-Digital-resiliency-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_13-Digital-resiliency-1024x512.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" />Digital transformation requires great reliance on the external and internal technological environment. The external environment includes the availability of mobile connectivity in the region, the ability to connect with others over the internet, and the technological readiness of potential partners. The internal environment includes the systems such as the core banking system, data warehouses, document management systems, and office automation systems. As an FSP begins to digitize, through greater process automation or through new business models, the more vulnerable their systems may be to system failures or cyber-attacks, and the more resilient its internal environment needs to be to avoid these challenges.</p>
<div id="attachment_19099" style="width: 501px" class="wp-caption alignleft"><img aria-describedby="caption-attachment-19099" class=" wp-image-19099" src="https://content.accion.org/wp-content/uploads/2019/07/Accion_Clients_0002-1-e1619557888950.jpg" alt="Accion Microfinance Bank loan officer uses a tablet to serve client Ezeh at his workshop" width="491" height="433" srcset="https://content.accion.org/wp-content/uploads/2019/07/Accion_Clients_0002-1-e1619557888950.jpg 1450w, https://content.accion.org/wp-content/uploads/2019/07/Accion_Clients_0002-1-e1619557888950-300x265.jpg 300w, https://content.accion.org/wp-content/uploads/2019/07/Accion_Clients_0002-1-e1619557888950-768x677.jpg 768w, https://content.accion.org/wp-content/uploads/2019/07/Accion_Clients_0002-1-e1619557888950-1024x903.jpg 1024w" sizes="(max-width: 491px) 100vw, 491px" /><p id="caption-attachment-19099" class="wp-caption-text"><em>Ezeh, a client of Accion Microfinance Bank in Lagos, Nigeria</em></p></div>
<p>To build resiliency, it is important to have well thought out and structured disaster recovery plans with remote disaster recovery sites set up with the appropriate failover and switch back parameters in place. These can include both on-premises (in physical server rooms) and on-cloud architecture. Cloud technologies, particularly, can improve technology resilience through greater regional autonomy (not dependent on other regions to run), data backups, and automated insights for decision-making.</p>
<p>However, regulators often perceive cloud infrastructure for financial services to be risky in terms of its suitability to safeguard customer’s personal and financial information. Financial regulators have a more comfortable view of carefully designed cloud-based architecture held within the country&#8217;s borders. Given the low cost of using cloud architecture and the benefits they offer, institutions can and should explore their use.</p>
<p>Finally, as FSPs digitize, cybersecurity is critical to ensure that the organization can reach its digital vision and the technology stack continues to be future proof. Cyber threats and attacks have increased since the start of the pandemic, particularly ransomware and COVID-themed phishing attacks, and organizations in the midst of digital transformation are very vulnerable. Effective mitigation against cyber risks requires developing layers of governance, accountability, policies, and procedures, all while creating and adhering to new norms of data protection and guidelines.</p>
<p>We worked with Accion AMfB, Sub-K, BancoSol, and Annapurna to recommend the necessary systems for greater resilience. This included suggestions for finetuning their disaster recovery plans, assessing cyber-risk solutions, regular testing, and the cultural changes needed for staff and partners to proactively address cyber risks and ensure business resilience and continuity planning.</p>


Form partnerships to achieve scale

<p>Partnerships are key to success in digital transformation. They can enable new ways to leverage data, evaluate risk, reach new customers, develop new products and services, and strengthen customer touch points. FSPs need to carefully consider when, how, and with whom to partner. The right partners will help accelerate your transformation agenda, bringing in agility and expertise that are beyond the core competencies of the FSP. As FSPs grow and evolve digitally, they are better able to integrate with formal players in the financial services ecosystem, such as payment providers and credit bureaus.</p>
<p>Partnerships are critical to expanding the reach and uptake of financial products among underserved people by supporting the development of a 360-degree digital financial ecosystem. We know that providing customers with digital financial products is only useful in so far that the financial ecosystem in which the customer operates has digital capabilities across the value chain, including merchants being able to accept digital payments, customers willing to pay digitally, and suppliers to small merchants accepting digital payments for inventory. Lacking any of these crucial elements can generate a bottleneck within digital financial transactions that will slow the adoption of digital financial services. To address this, many partnerships are emerging between FSPs and other enabling actors to drive this ecosystem. For example, FSP partnerships with mobile network operators (MNOs) are focused on enhancing mobile payments and increasing the usability of payment-related technologies — and have transformed how people complete financial transactions in many markets. As the density of digital services available within an ecosystem grows, so too will the digital comfort of end-customers.</p>
<div class="mceTemp"></div>
<p><img class="alignnone size-full wp-image-24124" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_14-Digitizing-the-ecosystem-5-3.png" alt="Digitizing the ecosystem to support the MSME" width="2000" height="1300" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_14-Digitizing-the-ecosystem-5-3.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_14-Digitizing-the-ecosystem-5-3-300x195.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_14-Digitizing-the-ecosystem-5-3-768x499.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_14-Digitizing-the-ecosystem-5-3-1024x666.png 1024w" sizes="(max-width: 2000px) 100vw, 2000px" /></p>
<p>Some FSPs, however, tend to view partnerships through the narrow lens of a vendor relationship, rather than seeking to create something that is greater than the sum of its parts. The sticking point for many partnerships is a question of who owns the customer relationship and their data and a lack of a clear business case that aligns the goals of all parties. However, there are many ways to address these issues and build partnerships that work.</p>


<h2>Establish win-win partnerships</h2>
<div id="attachment_17004" style="width: 423px" class="wp-caption alignleft"><img aria-describedby="caption-attachment-17004" class=" wp-image-17004" src="https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_BancoSol_Day3_0049-e1619577127308.jpg" alt="Our partners, including the team at BancoSol, are" width="413" height="328" srcset="https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_BancoSol_Day3_0049-e1619577127308.jpg 1190w, https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_BancoSol_Day3_0049-e1619577127308-300x238.jpg 300w, https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_BancoSol_Day3_0049-e1619577127308-768x609.jpg 768w, https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_BancoSol_Day3_0049-e1619577127308-1024x812.jpg 1024w" sizes="(max-width: 413px) 100vw, 413px" /><p id="caption-attachment-17004" class="wp-caption-text"><em>Our partners, including the team at BancoSol, are </em><em>developing innovative products to help small businesses to succeed.</em></p></div>
<p>BancoSol, as one of the leading financial institutions in Bolivia, has a first-class IT team. They were able to develop their latest customer mobile banking app completely in house, and high uptake of the product established them as a pioneer in the market. However, when they planned to upgrade to a 3.0 version, they wanted to find a partner that could help them get to market within 100 days. Partnering with fintech startup<a href="https://flourishsavings.com/"> Flourish</a> allowed them to layer the gamification functionality enabled by Flourish’s platform on top of the bank’s digital assets, as a tactic to drive engagement — in this case, increased savings deposits — within the revamped customer app. The partnership was successful because it went beyond a mere vendor-bank relationship, with both entities collaborating on how to reach shared goals. Flourish was able to bring its knowledge of behavioral science together with BancoSol’s strong understanding of their customer to develop a captivating customer engagement strategy. The partnership was win-win for both entities: Flourish was able to enter the Bolivian market and BancoSol was able to get to market faster.</p>
<p>Partnerships can serve as a mutually beneficial go-to-market accelerator. For example, a good partnership can benefit both an FSP looking to scale their digital offerings and an ecommerce platform looking to grow their customer base. That’s why Accion MfB teamed up with African ecommerce giant <a href="https://www.jumia.com.ng/">Jumia</a> to help onboard their MSME customers onto the Jumia platform to boost sales through ecommerce and increase MSMEs’ comfort and trust in using digitally enabled tools to run their businesses. Jumia customers benefit through access to Accion MfB’s credit offering. Through this partnership, Jumia will be able to grow its customer base, and Accion MfB will be able to leverage ecommerce sales data to underwrite digital working capital loans.</p>
<h2>Expand your definition of partner</h2>
<p>When most people think of partnerships, the first thought that comes to mind is an alliance between two independent entities. However, CÍVICO’s founders are not ones to let traditional concepts define the realm of what’s possible, having invented a crowdsourcing model for citizens to map their own cities by posting missions and offering points and rewards to those who complete tasks, such as confirming the products or services offered at a specific location. In this way, they were able to build out the most comprehensive picture of local small businesses and other civic services available in cities like Bogotá, Colombia, and gain a better understanding of what financial services those small businesses might need.</p>
<div id="attachment_24099" style="width: 544px" class="wp-caption alignright"><img aria-describedby="caption-attachment-24099" class="wp-image-24099" src="https://content.accion.org/wp-content/uploads/2021/04/civico-screenshot.png" alt="The screen shot above is from CÍVICO’s website and describes how everyday citizens can collaborate with CÍVICO to map small businesses in their city, by taking the following steps: Step 1: “Tour the neighborhoods in your city,” Step 2: “Send us information from each place you are able to share,” Step 3: “We will provide you with points that you can later exchange for customer vouchers.” On this page, citizens can upload information about a business or look for other missions to complete. " width="534" height="427" srcset="https://content.accion.org/wp-content/uploads/2021/04/civico-screenshot.png 1160w, https://content.accion.org/wp-content/uploads/2021/04/civico-screenshot-300x240.png 300w, https://content.accion.org/wp-content/uploads/2021/04/civico-screenshot-768x615.png 768w, https://content.accion.org/wp-content/uploads/2021/04/civico-screenshot-1024x820.png 1024w" sizes="(max-width: 534px) 100vw, 534px" /><p id="caption-attachment-24099" class="wp-caption-text"><em>The screen shot above is from CÍVICO’s website and describes how everyday citizens can collaborate with CÍVICO to map small businesses in their city, by taking the following steps: Step 1: “Tour the neighborhoods in your city,” Step 2: “Send us information from each place you are able to share,” Step 3: “We will provide you with points that you can later exchange for customer vouchers.” On this page, citizens can upload information about a business or look for other missions to complete.</em></p></div>
<p>But for CÍVICO’s new digital lending product to be viable, the company needed to find a cost-effective way to mitigate risk by verifying the business location of their online applicants. Rather than deploying CÍVICO staff to visit every potential customer — as a loan officer would do in the traditional microfinance model, and which would be expensive and time consuming for the start-up — CÍVICO turned again to their crowd-sourcing platform. They created new missions where individual citizens were asked to verify the location of the business by taking a picture of it and collect information related to perceived sales activity.</p>
<p>In the few cases where the business could not be verified in this way, CÍVICO would then deploy other more resource-intensive channels to verify the customer, either by phone or by conducting the visit themselves. This crowdsourcing-by-default design enabled an OPEX light business model by leaning on the existing relationships the company had created through their gamified crowdsourcing platform.</p>


Conclusion and next steps

<p>The global pandemic has taken an especially devastating toll on low-income people and small businesses. These vulnerable populations need access to financial tools that can help them rebuild their livelihoods and gain access to the increasingly digital economy, and they need financial services that are convenient, easy to use, and affordable. Digitizing swiftly and effectively is vital for FSPs to meet their customer’s evolving needs responsibly and at scale.</p>
<blockquote class="pullquote--right"><p>Much remains to be done, both by our partners and the industry at large.</p></blockquote>
<p>Our global partnership with Mastercard has laid a solid foundation toward our goal of helping millions of people and small businesses fully participate in and benefit from the digital economy. While digital transformation is a continual and never-ending process, our partners have already accomplished so much. Beyond the digital products and services our partners are launching, what we hope sticks is the transformation process itself: the willingness and ability of everyone — through the culture of innovation and learning they create — to continue on the journey so that they can be responsive to the needs of their customers and meet challenges and opportunities as they arise.</p>
<p>The digital transformation of FSPs can also encourage more people to embrace the use of digital tools and spur the digital transformation of MSMEs. Individuals that are able and comfortable transacting digitally can connect more easily online and participate more fully in an inclusive digital economy. To date, 1.3 million microbusinesses are actively using digital products on a monthly basis as a result of this program. One notable example is 26-year-old Rosina Das, who with the help of Annapurna’s digital emergency loan, was able to reopen her small grocery shop in her village of Odisha, India. Similarly, millions of other MSMEs around the world can benefit from digital financial services to build resilience and seize opportunities.</p>
<p>Yet much remains to be done, both by our partners and the industry at large. Donors should play the important role of catalyzing the digital transformation of microbusinesses through strategic investments in microfinance organizations. Governments and regulators can take steps to reduce the demand for cash through carefully crafted regulations that incentivize digital transactions.  Finally, development finance institutions and multilateral institutions should further embrace digital transformation through technical support that is backed with investment funding.</p>
<p>We hope the learnings, insights, and strategies we share here inspire others to collectively contribute to the building of an inclusive digital economy. We are also hopeful that these examples of how our partners are addressing key challenges, while celebrating milestones achieved along the way, can inform the approaches of other institutions as they evolve and grow in our increasingly digital world.</p>
<p>Now that many of our partners have launched digital products and have others in the pipeline, our focus going forward is on driving uptake and usage, so that low-income individuals and merchants can reap the benefits of digital financial services. To enable greater prosperity and resilience for millions of underserved across the globe, we will support our partners to identify, prioritize, and execute on the key activities that will support and accelerate the digital transformation of the end customer. Ultimately, these efforts have the power to help vulnerable people rebuild from a devastating crisis and create an economy with opportunity for all.</p>
<hr />
<p><a href="https://bit.ly/3adofG3" target="_blank" rel="noopener"><img class="wp-image-24105 alignleft" src="https://content.accion.org/wp-content/uploads/2021/04/Mastercard-e1619578679836.png" alt="Mastercard Center for Inclusive Growth logo" width="274" height="92" srcset="https://content.accion.org/wp-content/uploads/2021/04/Mastercard-e1619578679836.png 1000w, https://content.accion.org/wp-content/uploads/2021/04/Mastercard-e1619578679836-300x101.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Mastercard-e1619578679836-768x257.png 768w" sizes="(max-width: 274px) 100vw, 274px" /></a></p>
<p>&nbsp;</p>
<p><a href="https://www.accion.org/mastercard-and-accion-partnering-for-inclusive-growth" target="_blank" rel="noopener"><em>This paper is supported by the Mastercard Center for Inclusive Growth.</em></a></p>
<p>&nbsp;</p>
<p><em>Contributions from digital transformation experts Vishal Ajmera, Debdoot Banerjee, Iain Brougham, Laura Glenny, Maria Camila Gomez, Mona Kapoor, Gift Mahubo, Balaji Parthasarathi, Prateek Shrivastava, Amy Stewart, Raliat Sunmonu, Victoria White, and Jose Wolff.</em></p>


Report

<a href="https://www.accion.org/how-to-empower-small-businesses-to-go-digital-and-rebuild/" target="_blank" rel="noopener noreferrer">Read the foreword for this report, co-authored by Accion and the Mastercard Center for Inclusive Growth, here.</a>
<h1>Executive summary</h1>
As the recovery from COVID-19 begins, financial inclusion has never been more urgent. Low-income people around the world have lost their jobs or businesses, and the World Bank projects that the pandemic will push <a href="https://www.worldbank.org/en/publication/global-economic-prospects" target="_blank" rel="noopener noreferrer">100 million people into extreme poverty</a>. Vulnerable populations direly need financial tools like savings, credit, and insurance to rebuild their livelihoods and build resilience to the challenges of today and those to come. Financial institutions have a critical role to play in supporting the most vulnerable and equipping them with the tools they need to enter the digital economy.

The pandemic and social distancing have dramatically increased the urgency for innovative and relevant digital solutions to meet the new and evolving needs of vulnerable populations. For many people visiting their local bank branch was unsafe or not feasible during lockdowns, and as economies begin to open, many people have begun to expect the convenience, speed, and affordability digital transactions can bring. To effectively support their clients and reach new populations in an increasingly digital environment, financial service providers (FSPs) need to digitally transform. Many microfinance institutions are built on low-tech, high-touch models designed decades ago to reach millions of low-income clients. Now, these FSPs must find digital ways to reach and interact with their customers efficiently and at scale, use their client data for more efficient credit management and product design, and build more flexible core systems that support adaptability. This requires FSPs to coordinate across every aspect of their business to achieve a fully digitally enabled business model.
<blockquote class="blockquote">FSPs must find digital ways to reach and interact with their customers efficiently and at scale, use their client data for more efficient credit management and product design, and build more flexible core systems that support adaptability.</blockquote>
&nbsp;

Through our work with FSPs and their clients, we uncovered six key strategies that financial inclusion-focused institutions need to keep in mind as they progress down the path of digital transformation:

The digital transformation guide: Six strategies to scale financial inclusion

mastercard-3

Mastercard

Article

The way we work is going through one of the most profound evolutions in decades, but it’s not the changes themselves that impress me most, it’s the speed at which they are happening. In 2020, companies reacted and adapted to the challenges of COVID-19 up to <a href="https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-covid-19-has-pushed-companies-over-the-technology-tipping-point-and-transformed-business-forever" target="_blank" rel="noopener noreferrer">20 times faster than they would have in a pre-pandemic world</a>. Years of innovation are happening at once. In Brazil, <a href="https://a16z.com/2021/04/13/latin-america-fintech/" target="_blank" rel="noopener noreferrer">where the share of e-commerce in retail grew from 7 percent to 12 percent</a> (more than it grew in the previous 10 years!), the need for MSMEs to digitize their businesses is vital. From restaurants switching to delivery platforms to small entrepreneurs selling their products through Mercado Libre to tech startups doing cross-border operations, companies are embracing the new reality.

Just as the traditional financial sector was trying to catch up with fintechs, COVID-19 arrived and accelerated digital transformation at a rate we had not seen before. Unable to respond as fast as they needed to, banks lagged once again, and a new breed of financial service providers became necessary. Dinie was born out of this moment and has become one of the first Brazilian embedded MSME lenders. Partnering with platforms of all sizes — ranging from small e-commerce sites to prominent players like <a href="https://dlocal.com/press-release/dlocal-partners-with-dinie-for-paylater-to-brazilian-smes/" target="_blank" rel="noopener noreferrer">Dlocal, the latest Latin American company to go public</a>, or the <a href="https://www.dinie.com/ifood" target="_blank" rel="noopener noreferrer">leading delivery platform iFood</a> —Dinie seamlessly provides lending products to help companies meet their short-term capital needs in the same digital environments where they already do business.

Like our recently added portfolio companies <a href="https://www.accion.org/a-fintech-cultivates-tech-talent-in-latin-america" target="_blank" rel="noopener noreferrer">Henry</a>, which provides financing through an Income Sharing Agreement (“ISA”) scheme to its students, and <a href="https://www.accion.org/lami-technologies-closes-1-8-million-seed-funding-to-accelerate-growth-of-digital-insurance-in-africa" target="_blank" rel="noopener noreferrer">Lami</a>, which offers bespoke insurance through businesses customers know and trust, Dinie’s approach is emblematic of how embedded finance is a more scalable, secure, and cost-effective way of lending. In one of the most active startup markets in the world, Dinie is:
<h2>Helping reduce the affordable financing gap for MSMEs</h2>
Despite Brazil’s position as a regional hub of fintech innovation, in-market financial services providers have yet to effectively serve MSMEs with the short-term, affordable products they need. Dinie’s flexible, revolving credit lines allow customers to get the capital they need on-demand without having to complete a new loan application every time they experience cashflow challenges. These MSMEs can use extra working capital in numerous ways to help them grow, including marketing, expense payments, and inventory purchasing. Additionally, by partnering with platforms to offer credit, Dinie can locate the MSMEs on the platforms they are already active on and provide products in a contextualized way.
<h2>Leveraging data to efficiently underwrite and collect loans</h2>
By embedding within partner platforms, Dinie can leverage MSMEs’ data throughout its entire process, from underwriting to repayments. With these insights into its MSME clients’ cashflows and repayment behaviors, Dinie can monitor and adjust credit lines as needed to avoid customers becoming over-indebted. Over time, this data will allow Dinie to evolve and expand its product suite, give partner platforms insights into how to serve their end customers better, and ultimately drive loyalty.
<h2>Proving that embedded finance is a better way of lending</h2>
Dinie’s embedded finance solution and B2B2C acquisition strategy give the company several advantages over direct lenders. For underwriting, Dinie uses MSME customer data from its platform partners to pre-approve clients and assign limits. Once MSMEs accept their pre-approved credit — offered to them within the platform interface — Dinie collects external data via its API to complete customer KYC and onboarding. Regarding collections, Dinie sits directly in the payment flow between the platforms and their customers and automatically deducts repayments from MSME cashflows. These innovations, which the company developed over the last year, are resulting in a more scalable and responsible way of lending.
<h2>Empowering startups to thrive while helping their clients</h2>
For platforms in their early stages, helping their MSME customers with credit both provides a new revenue source and boosts their core business. <a href="https://scifivc.substack.com/p/embedded-lending" target="_blank" rel="noopener noreferrer">Lending could be the ultimate economy of scale for companies with high startup costs, initially negative unit economics, and massive scale requirements to reach profitability.</a> But developing an in-house lending business requires unique capabilities, access to capital, and years of data to build robust underwriting models. Embedded lenders like Dinie split the infrastructure costs across multiple partners, driving down unit costs with scale and providing access to these unique capabilities from day one.

<a href="/dinie-brazils-pioneer-api-first-embedded-lending-fintech-raises-usd-3-8-million-seed-round" target="_blank" rel="noopener noreferrer">Accion Venture Lab is proud to join Dinie</a> in its mission to help Brazilian MSMEs not only to survive, but to thrive during this challenging and pivotal moment in history. As impact investors, we work hard to promote financial inclusion. We’re excited to support a company that serves its clients in their own environment, understanding their needs and developing unique products to fulfill them.

Embedded finance meets small business lending in Latin America

As the pandemic continues to move businesses online, making digital tools more <a href="https://www.accion.org/growing-disparities-threaten-an-inclusive-recovery">vital</a> for the survival of families and small businesses, some might overlook the importance of the thousand-year-old agricultural sector in building an inclusive and effective economic recovery. Farming and agriculture have long played major roles in reducing poverty and creating economic opportunities, and new technologies are revolutionizing the industry, empowering farmers and agribusinesses to build their financial resilience.

<a href="https://www.worldbank.org/en/topic/agriculture/overview">Two thirds</a> of the world’s working poor make a living through agriculture, and smallholder farmers produce around <a href="https://www.sciencedirect.com/science/article/abs/pii/S0305750X2100067X?via%3Dihub">a third</a> of the world's food. But <a href="https://globalfindex.worldbank.org/">235 million</a> farmers, including 115 million women, are unbanked and receive payments in cash, keeping them invisible to financial institutions. And despite the valuable income, food, and economic stability that farmers provide, they face more challenges today than ever.

The pandemic created many <a href="https://www.globalcitizen.org/en/content/ifad-food-security-during-covid-19/">obstacles</a> for farmers and agribusinesses, including disrupted supply chains and difficulties storing excess crops, causing them to spoil. Stifled economies and social unrest have further destabilized the already fragmented agricultural value chain.

Climate change poses many <a href="https://www.ucsusa.org/resources/climate-change-and-agriculture">threats to farmers</a> and those who depend on them, including increasing rates of floods, droughts, monsoons, and hurricanes, which disrupt supply chains, destroy crops, and destabilize farmers’ way of life. New <a href="https://www.centerforfinancialinclusion.org/climate-change-is-exacerbating-covid-19-recovery-for-msmes-in-nigeria">data</a> from the Center for Financial Inclusion illuminate the impact of climate change on small businesses: a quarter of entrepreneurs in Nigeria experienced a climate shock in the last five years—and those who did took longer to recover from the effects of COVID-19.

Women make up <a href="http://www.fao.org/gender/background/en/">nearly half</a> of farmers but often face discrimination that limits their ability to earn a living and provide for their families. For example, <a href="https://foodtank.com/news/2021/06/research-in-malawi-shows-how-access-impacts-female-farmers/">a recent study</a> in Malawi found that social norms and customs constrained female farmers to areas with less fertile soil, leading to lower crop yields.
<h2><strong>Advancements in agritech can build an inclusive recovery</strong></h2>
The agricultural sector will play a central role in our global recovery from the pandemic, and advancements in agritech can help farmers and other related businesses boost their profits, start participating in the digital economy, and build their financial resilience against future challenges, especially those brought by <a href="https://www.accion.org/opening-opportunities-for-smallholder-farmers-in-a-changing-climate">climate change.</a>

Innovative fintech companies are helping farmers around the world—many of them <a href="https://www.accion.org/for-rose-in-kenya-crop-insurance-is-a-game-changer">women</a>—access digital and financial tools that traditional institutions have been unable or unwilling to provide. Accion Venture Lab portfolio company <a href="https://www.pula-advisors.com/">Pula</a> has provided more than 4.5 million traditionally excluded farmers in Africa and Asia with agricultural insurance and data-driven insights to help them sustainably increase crop yields. <a href="https://www.apolloagriculture.com/">Apollo Agriculture</a>, based in Kenya, also takes <a href="https://www.accion.org/tech-gives-farmers-in-east-africa-a-boost">a tech-based approached</a> to help farmers maximize their profits through mobile money accounts, financing, optimized advice, farming products, and insurance.

Agritech innovation is also strengthening the agricultural value chain, benefitting everyone from small farmers to local distributors. In Latin America, Accion Venture Lab has invested in <a href="https://terramagna.com.br/">TerraMagna</a>, a Brazilian company that <a href="https://www.accion.org/how-one-company-uses-tech-to-support-brazilian-farmers">leverages satellite imaging</a> to lower the cost of underwriting and help more farmers access credit. Small farms are often located in remote areas where traditional banks can’t reach, so they seek credit from local agri-retailers that sell seeds and fertilizer. TerraMagna uses their tech-based approach to assess collateral with more precision, lowering agri-retailers’ credit risk and enabling them to provide lower-cost loans.

Similarly, Accion Venture Lab portfolio company <a href="https://agrim.app/">AGRIM</a> provides <a href="https://www.accion.org/agri-inputs-b2b-marketplace-agrim-emerges-from-stealth-mode-with-2m-in-seed-funding-from-omnivore-india-quotient-and-accion-venture-lab">an e-commerce platform</a> for agri-retailers in India. India’s agri-retailers provide more than 120 million smallholder farmers with essential supplies and informal credit. AGRIM connects these retailers directly to manufacturers, allowing access to a wider range of products that can be delivered to their doorsteps at transparent prices. AGRIM also aims to embed affordable lending products for their clients by leveraging unique data from the platform. Since its founding in April 2020, more than 1,000 manufacturers and 100,000 retailers have joined AGRIM’s platform.

Established microfinance institutions are also leveraging new technologies to respond to the effects of the pandemic. Supported by our global partnership with Mastercard, our partner Annapurna Finance in India <a href="https://www.accion.org/women-entrepreneurs-get-back-to-business-in-india">developed</a> an SMS-based emergency loan product to help rural microentrepreneurs like Papina Das adapt and rebuild. Within three days of applying, Papina received a loan of just 20,000 INR, or $274 USD, which she used to rehire her assistant and restart her dairy farm—and now her sales have nearly fully recovered.
<h2><strong>Supporting the most effective innovations</strong></h2>
We must continue to <a href="https://www.inclusivefintech50.com/">support and elevate innovators</a> who are finding new ways to answer the financial needs of underserved farmers and agribusinesses. The potential of innovation is limitless, and underserved small businesses of all kinds need digital and financial tools to recover and grow. Working together, investors, policymakers, and development finance institutions should foster advancements in fintech that are helping farmers, agribusinesses, and other underserved entrepreneurs open economic opportunities in their communities.

With support from fintech, farmers can grow an inclusive global recovery

Mom-and-pop stores are pillars of neighborhoods in lower-to-middle income communities. These family-owned retail shops — called <em>warungs</em> in Indonesia, <em>sari-sari</em> stores in the Philippines, or <em>kirana</em> shops in India — serve as the place where people gather, catch up with friends, and purchase daily essentials like food, mobile phone reloads, sachets of shampoo and soap, and even cigarettes by the stick. Often called “the community pantry,” these small shops play a crucial role in meeting the everyday needs of their neighbors.

Despite the important role they play in their communities, these small businesses can rarely access any form of formal financial support. Even as online payments and other digital financial services gain traction, these small businesses have remained largely unchanged, cash-based, lacking formal record-keeping, and therefore left out of the financial system. Without access to financial products, especially the credit needed to purchase inventory, these small merchants are constrained by the cash they have on hand and can’t properly grow their business or meet increasing demand from their customers.

With this in mind, we are excited to <a href="/fairbanc-secures-funding-from-adb-ventures-accion-venture-lab-east-ventures-and-sampoerna-to-scale-indonesians-micro-merchants-access-to-embedded-credit-products" target="_blank" rel="noopener noreferrer">announce our investment in Fairbanc</a>. Fairbanc is a tech platform in Indonesia that enables inventory financing for small retail shops with a buy now, pay later product that is integrated in the ordering apps of large FMCGs (fast-moving consumer goods) and other retail partners. Fairbanc uses partnerships, technology, and integration with retailers to increase the access to financing for small merchants in Indonesia, 70 percent of which are owned and managed by women.

Here is why we are excited to welcome <a href="https://fairbanc.app/" target="_blank" rel="noopener noreferrer">Fairbanc</a> to the Accion Venture Lab portfolio:
<h3>Seamless user experience for small mom-and-pop shops increases adoption and usage</h3>
As we have worked with more and more small businesses, we have come to understand the importance of providing these microentrepreneurs with a solution that is as seamless an experience as possible. We are excited by Fairbanc’s approach, as the team has been very thoughtful about their design to make sure their pay-later solution is as frictionless as possible for small mom-and-pop shops. There is no need to download an application, buy a device, or complete complicated loan application forms. As most microentrepreneurs aren’t tech savvy and don’t possess sophisticated devices, Fairbanc’s approach is critical in increasing usage and adoption, creating a more impactful solution for this underserved population.
<h3>Closed-loop inventory financing helps businesses grow</h3>
For these small shops, cash continues to be king, especially when it comes to procurement. Unable to access credit from formal sources, inventory is typically purchased through cash at hand (sometimes, they resort to informal lenders) which is a major barrier to buying more goods. Through its pay later solution, Fairbanc removes this constraint and allows the mom-and-pop stores to buy more stock, which they can pay for after they have sold to their customers. The increase in inventory leads to growth in sales, which then starts a positive reinforcing loop through an increased credit line and more purchases. In addition, Fairbanc’s provides closed-loop financing, which means that no cash is exchanged. Instead, the credit provided is used only to purchase inventory, ensuring that the financing they receive is always productive and reinvested into their business.
<h3>Integration with corporate partners creates efficiency</h3>
We have recently seen several successful B2B2C models (or B2B2B in Fairbanc’s case) that acquire end-customers through corporate partnerships. While these initial B2B relationships can have longer sales cycles, they can acquire end customers at scale and efficiently. In Fairbanc’s case, the company works with Unilever, Danone, and other FMCG partners to reach and connect with the small merchants that sell their merchandise. These FMCGs allow access to their merchants because they understand the value proposition – integrating Fairbanc’s the pay-later solution increases inventory purchases of merchants, which in turn leads to top line growth. This win-win collaboration between Fairbanc and their corporate partners allows the company to acquire merchants efficiently and serve the microentrepreneurs in a scalable way. Partnerships are always key when serving the underbanked and underserved, and we can see how Fairbanc has made it a major focus of their business.
<h3>Data-driven approach leads to smart lending decisions</h3>
The integration with FMCGs also gives Fairbanc access to a wealth of historical data on the merchants. By utilizing AI and machine learning, Fairbanc analyzes the data and determines which merchants would benefit from credit – shops that are seeing increased demand but lack the ability to purchase more inventory to meet it. Fairbanc also relies on data analysis to offer a dynamic credit line that is updated each week based on merchants’ weekly performance. This data-driven approach ensures that the credit provided is utilized well and that those shops that are experiencing increases in sales and demand have the opportunity to continue to grow their business with a larger line.
<h3>The pandemic proved how critical this product is for small merchants</h3>
Most of Fairbanc’s pilots took place during the pandemic when small merchants desperately needed credit to keep their stores stocked and businesses operating. Across the different pilots of their product, and especially in the rural areas, Fairbanc saw a substantial increase in usage during the pandemic, indicating the additional funding needs of merchants during this time. The additional credit helped merchants keep doors open and even grow their businesses. It is clear from this experience that Fairbanc’s product is highly relevant, especially now as we continue to support small businesses and help entrepreneurs to remain resilient during this challenging time.

Fairbanc marks our fourth investment in Southeast Asia, alongside <a href="/making-education-accessible-through-fintech" target="_blank" rel="noopener noreferrer">specialized education lender Pintek</a> in Indonesia and <a href="/innovation-msme-finance-philippines" target="_blank" rel="noopener noreferrer">digital B2B SME lender First Circle</a> and <a href="https://advance.ph/" target="_blank" rel="noopener noreferrer">earned-wage-access (EWA) platform Advance</a> in the Philippines. We continue to be excited about supporting innovative and impactful founders and startups that bring greater financial inclusion to the region. We believe that Fairbanc’s platform can have a tremendous positive impact, and we are excited to support the team as they reach more small retailers across Indonesia.

An embedded finance platform helps mom-and-pop shops grow in Indonesia

<em>This article is the first of a six-part series on scaling financial inclusion to accompany our <a href="/the-digital-transformation-guide-six-strategies-to-scale-financial-inclusion">digital transformation guide</a>.</em>

During India’s first strict COVID-19 lockdown, <a href="/women-entrepreneurs-get-back-to-business-in-india">Papina Das, a dairy business owner in Odisha</a>, faced plummeting sales and an unstable income when people in her village avoided visiting the local market and stopped buying her cows’ milk. In the face of unpredictable challenges, digital financial tools can help micro, small, and medium enterprises (MSMEs) owners like Papina build resilience by giving them access to credit, payments, insurance, and business management advice. However, low-income individuals and small business owners don’t always have the digital skills, attitudes, and behaviors they need to use such tools. While some people are comfortable using technology in their daily lives, many lack access to smartphones or stable internet connections, and others simply do not trust or feel comfortable using unfamiliar digital financial services. With customers spanning many different levels of digital awareness, how do financial service providers effectively bridge the <a href="https://stats.oecd.org/glossary/detail.asp?ID=4719" target="_blank" rel="noopener noreferrer">digital divide</a> to support their clients and reach the most vulnerable?

<a href="/institutional_partnerships/mastercard-center-for-inclusive-growth" target="_blank" rel="noopener noreferrer">In partnership with the Mastercard Center for Inclusive Growth</a>, Accion recently published a guide to help financial providers (FSPs) navigate the complexities of <a href="https://www.accion.org/the-digital-transformation-guide-six-strategies-to-scale-financial-inclusion">digital transformation</a>. We uncovered three key strategies to combat the digital divide that prevents FSPs from reaching clients in need of financial services.
<h3>1. Communicate how digital products help customers improve their businesses</h3>
<blockquote class="pullquote--right">“Our digital transformation goes hand-in-hand with our clients’ digital transformation.” - Verónica Gavilanes, General Manager, Microfinance, Banco Pichincha in Ecuador</blockquote>
For small business customers accustomed to using cash, the value proposition of switching to digital payments can be difficult to understand — particularly when customers perceive cash to be free and more secure. Communicating the benefits of digital products by using clear messages that resonate with small merchants can help them overcome their initial hesitation.

<a href="/helping-small-businesses-build-resilience-in-ecuador" target="_blank" rel="noopener noreferrer">Banco Pichincha</a> is the largest financial institution in Ecuador. As the bank undergoes a complete, large-scale digital transformation, they recently launched <a href="https://www.pichincha.com/portal/canales-de-atencion/deuna" target="_blank" rel="noopener noreferrer">Billetera deUna!</a>, a mobile wallet that supports secure, real-time payments for their customers. While the application has been downloaded more than 118,000 times, this is concentrated among high-income segments, with much lower uptake at the base of the pyramid.

<a href="https://datatopics.worldbank.org/g20fidata/country/ecuador" target="_blank" rel="noopener noreferrer">Nearly eight in 10 Ecuadorians have mobile phones</a>, but only <a href="https://globalfindex.worldbank.org/sites/globalfindex/files/countrybook/Ecuador.pdf" target="_blank" rel="noopener noreferrer">32 percent of those with phones are currently using them to make digital payments</a>. Cash still accounts for about <a href="https://blogs.worldbank.org/jobs/why-digital-payments-are-key-entrepreneurs-success" target="_blank" rel="noopener noreferrer">40 percent of payments</a>, with cash being particularly prevalent in rural communities. Using insights into their customers’ adoption barriers, Banco Pichincha has redesigned the user experience for underserved microbusinesses with a clear and compelling value proposition. In parallel, the bank is using Accion’s edtech platform, <a href="/clients/ovante" target="_blank" rel="noopener noreferrer">Ovante</a>, to help their microfinance customers gain the digital literacy and skills they need to use the platform.
<h3>2. Design for both sides of the digital divide</h3>
FSPs that serve low-income people and businesses face the challenging reality that some of their customers do not yet have access to digital devices and will continue to depend on high-touch services offered through the traditional microfinance model. At the same time, they have client segments that prefer the accessibility, convenience, and speed that digital financial services can provide.

<img class="aligncenter size-full wp-image-24060" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_3-Digital-divide.png" alt="The digital divide" width="2000" height="1000" />

India’s <a href="/expanding-the-benefits-of-a-growing-digital-economy-in-indonesia-and-india" target="_blank" rel="noopener noreferrer">Annapurna Finance Limited</a> serves 1.9 million group lending customers who would otherwise lack access to high-quality, affordable financial services. When pandemic-induced lockdowns effectively ended group meetings, members found themselves without much-needed finance at a time when economic vulnerability skyrocketed.

While only 10 percent of Annapurna’s group lending customers currently own a smartphone, a greater percentage has access to less advanced feature phones. To address the digital divide, Accion worked with Annapurna to create an SMS-based, digitally accessible emergency loan product that incorporates both tech and touch. For example, interested customers can provide details directly to their loan officer for their application and receive an emergency loan limit if qualified. Once deployed, a customer can access the funds at any time without interacting with a person by sending a simple SMS to a dedicated phone number, which then disburses the money to the customer’s loan account.

We designed the solution to easily upgrade to a smartphone version so that customers can grow with the platform as they gain digital skills. For the more digitally savvy segment of Annapurna’s MSME clients, we are supporting the bank in developing an end-to-end digital loan that allows clients to apply without needing to speak directly to a loan officer and make all repayments remotely.
<h3>3. Balance tech and touch strategies</h3>
Human interaction continues to be critical in delivering financial services to the poor as personal interactions <a href="/the-tech-touch-balance" target="_blank" rel="noopener noreferrer">build trust, establish relationships, and engage customers</a>. For customers with low digital maturity, FSPs should think strategically about hybrid models that leverage digital to automate manual processes while still maintaining the human touch that customers value.
<blockquote class="pullquote--right">“Our approach is to first understand our customers, understand the segment that we want to serve, understand how digitally mature they are, and then reach out to them [in a way that is uniquely suited to the circumstances].” - Taiwo Joda, Managing Director and CEO, Accion Microfinance Bank in Nigeria</blockquote>
<a href="https://www.accionmfb.com/" target="_blank" rel="noopener noreferrer">Accion Microfinance Bank</a> (Accion MfB), one of Nigeria’s most successful microfinance institutions, aims to make digital their new norm and encourages digital behaviors in their client base. As part of this goal, they made the end-to-end application process for their new digital loan accessible only through a mobile app or web portal. But Accion MfB knew that not all their customers are ready for a fully digital process, so they designed the product to allow customers to initiate the digital loan application process through several different channels. Using USSD mobile codes, customers can submit a request for digital assistance, which prompts the call center to reach out to the client and understand their characteristics and comfort level with digital applications. The call center agent may then direct applicants to one of the self-service channels to complete an application online or may refer applicants to a branch where a staff member can assist with a loan application.

Finally, after noticing discrepancies between customers who were initially denied online but later approved after visiting a physical branch, Accion MfB also made several changes to the digital loan application to more closely resemble how an account officer would ask questions. They also integrated more customer support, examples, and tips.

To bring useful financial tools to underserved MSMEs in a way that promotes trust and comfort, financial providers need to tailor their digital approach to their customers’ varying levels of digital skill and access. FSPs should be deliberate and thoughtful about how they reach clients on both sides of the digital divide: leaning into digital channels, while continuing to leverage physical networks like branches, loan officers, and groups. Meeting clients where they are will promote greater digital adoption and <a href="/the-digital-transformation-guide-six-strategies-to-scale-financial-inclusion" target="_blank" rel="noopener noreferrer">ultimately fuels the digital transformation of low-income individuals and small businesses.</a>

<em>Malavika Krishnan contributed to this article. </em>

Three ways to bridge disparities and close digital gaps for MSMEs

Among the many different impacts of the COVID-19 crisis, there has been an undeniable spike in the amount of digital transformation occurring across almost every industry as organizations adapt their businesses to a more digital world. In one year, companies of all regions and sizes have accelerated the digitalization of their internal operations and customer interactions to levels they expected to reach in three or four years. The <a href="https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-covid-19-has-pushed-companies-over-the-technology-tipping-point-and-transformed-business-forever" target="_blank" rel="noopener noreferrer">share of digitally enabled products offered in their portfolios has also accelerated by up to seven years</a>. The speed with which companies reacted to COVID-19-related changes is even more impressive as many businesses moved to adapt to these changes 20 times more quickly than they had thought possible before the pandemic. The backbone responsible for these astonishing transformations is the same worldwide: the companies’ tech teams.
<h2>Hiring tech talent has never been easy, and it’s about to get harder</h2>
From full-stack developers to data scientists to security specialists, recruiting high-quality tech teams has always been a major challenge for organizations. Qualified candidates can be difficult to find, expensive to hire, and accustomed to working remotely, creating a perfect combination for a competitive hiring environment among employers. And now, the race to recruit tech workers is only get fiercer.

Despite the increase in global unemployment in the last year — <a href="https://www.ilo.org/wcmsp5/groups/public/@dgreports/@dcomm/documents/briefingnote/wcms_767028.pdf" target="_blank" rel="noopener noreferrer">nine percent of working hours were lost compared to 2019, equaling more than 250 million jobs</a> — the demand for digital skills continues to grow. The total number of technology-oriented jobs may increase <a href="https://news.microsoft.com/apac/2020/12/15/re-envisioning-the-workforce-skilling-today-to-thrive-tomorrow/" target="_blank" rel="noopener noreferrer">nearly five-fold by 2025, rising from 41 million in 2020 to 190 million in 2025</a>.

Under these circumstances, emerging markets will face an even bigger hiring challenge, as they must compete with tech giants like the US and Europe for scarce talent. Geographical boundaries continue to be torn down as remote work allows big tech companies to hire foreign talent. Unable to match their capacity to pay high salaries, companies in regions like Latin America — especially small and medium-sized companies — will need to find creative ways to source and retain IT workers.
<h2>Brazil is in the middle of a perfect storm</h2>
On top of the acceleration of digital transformation and the global competition for tech talent, Brazil has another problem as the local startup scene gains momentum. Though this is a positive trend, it is a challenge that threatens to make the gap between supply and demand for talent even larger. The local startup ecosystem has been growing at impressive rates in recent years, and the funding from venture capital firms to local tech startups has reached all-time highs. <a href="https://www.forbes.com/sites/angelicamarideoliveira/2021/04/03/brazil-tech-round-up-unicorn-hotmart-closes-new-round-vc-activity-in-brazil-digital-government-online-stalking/?sh=c0f5b113df4c" target="_blank" rel="noopener noreferrer">In Q1 2021 alone, almost $2 billion was invested into the sector</a>, more than half of what was invested during all of 2020. For small startups trying to source IT workers, this means that they must fight their way through international players, large corporations, and well-funded local tech companies.

This sudden increase in demand didn’t take long to shake the market. <a href="https://blog.revelo.com.br/salarios-da-area-de-tecnologia/" target="_blank" rel="noopener noreferrer">In 2020, the average salaries for the IT sector went up around 30 percent</a>, with developers being the most sought-after workers, accounting for almost 70 percent of the open positions. With <a href="https://cio.com.br/carreira/qual-e-o-perfil-dos-desenvolvedores-no-brasil-e-quanto-ganham-em-media/" target="_blank" rel="noopener noreferrer">more than 75 percent of companies looking for senior and semi-senior developers</a>, two big questions arise: How does the country attract more Brazilians to become junior developers? How can they quickly enable those workers to become senior developers? The answers won’t come from traditional education models. It is expected that an additional 420,000 IT professionals will be needed by 2024. However, <a href="https://economia.uol.com.br/reportagens-especiais/mercado-de-trabalho-busca-desenvolvedores-ti/#page5" target="_blank" rel="noopener noreferrer">the current education system is only graduating 46,000 students per year</a>.
<h2>Seeking creative solutions for hiring</h2>
Tech companies have different approaches to hiring talent: they leverage head-hunters, rely on in-house scouting teams, reach out to their networks, and partner with entrepreneurship hubs. No matter how many strategies these companies may have to recruit new employees, their efforts will be useless unless more developers are trained every year. With a traditional education sector that has not been able yet to evolve and meet the needs of the market, new models have appeared to try to solve the shortage of tech talent. From online course platforms like Udemy or Codeacademy to coding academies like Digital House to intense coding bootcamps like Brazilian Trybe or <a href="/a-fintech-cultivates-tech-talent-in-latin-america" target="_blank" rel="noopener noreferrer">Accion Venture Lab’s portfolio company Henry</a>, many startups are working towards the same goal: training better developers in a more efficient way.

As employers realize that some of these emerging models are not only providing fast education but also equipping their graduates with the latest tech tools, improving their much-needed soft skills, and putting them to the test under a true work environment, we might see the talent gap start to close while digital transformation continues to move full steam ahead. Ultimately, these solutions will help more people find employment while helping more businesses succeed in a more digital world.
<h2>Join us for our next webinar</h2>
This blog is part of a <a href="/now-is-the-time-for-fintech-entrepreneurs-in-brazil" target="_blank" rel="noopener noreferrer">series of articles</a> and webinars Accion Venture Lab has launched with the support of FedEx to help Brazilian SMEs overcome some of the challenges they are facing during the COVID-19 crisis. In our upcoming webinar on July 14, startups will share how they source and retain the best tech talent in Brazil and discuss with other players in the industry how they are helping to solve the need for developers with innovative education models.

Hiring tech talent is becoming an odyssey in Brazil

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Guangwen Liu started his sportwear business with one shop and a dream to expand his business to a chain of retail stores in Inner Mongolia. By partnering with <a href="http://grassfin.com/" target="_blank" rel="noopener noreferrer">Grassland Finance Limited</a>, a financial service provider focused on micro and small businesses across China, he grew his business from eight stores to 43 in ten years. But his business success hit a major obstacle when the coronavirus outbreak escalated and lockdowns went into place, forcing his storefronts to close and cashflow to plummet. When his sales dried up, Guangwen needed to find a way to pay for his rent, staff, and loan repayments.

Without any foot traffic in his stores, Guangwen had to explore new sales and marketing channels to continue getting his products in front of consumers. With encouragement from Grassland and inspiration from the rising trend of using streaming to sell products, he quickly decided to hire an online streamer and employees began livestreaming product demonstrations from inside the stores to engage with customers remotely. Across China, livestreaming has gained huge popularity, thanks to new platforms like Taobao, TikTok, Kuaishou, and Huoshan. Guangwen’s business gradually build a firm footing on livestreaming platforms. Many businesses have joined their customers online and began using these popular livestreaming platforms to showcase their products and answer customer questions in real time. Even farmers are using livestreaming to promote and sell agriproducts in China, especially flowers and fruits, during the pandemic.
<h3>Grassland evolves to support small business clients</h3>
Many of Grassland’s small business clients have quickly adapted their businesses to solve for coronavirus-related challenges, from livestreaming products like Guangwen to opening online stores on e-commerce platforms. To help these clients succeed, Grassland itself also needed to adapt in order to support these small businesses in new ways. They began offering increased business advisory services to help their clients generate sales and rebuild their cashflow during China’s lockdown and reopening.

[caption id="attachment_21880" align="alignleft" width="355"]<img class=" wp-image-21880" src="https://content.accion.org/wp-content/uploads/2020/07/grassland2.jpg" alt="" width="355" height="514" /> <em>Limin Liu’s shops sell specialty foods and snacks in an airport in Inner Mongolia.</em>[/caption]

Grassland client Limin Liu owns several specialty food stores located at airports in Inner Mongolia. When airport traffic stopped at the beginning of the year, he was forced to close his stores and all staff stayed home for safety. With no ability to sell goods in airports without any travelers, Limin found himself with a sudden need to pursue multiple sales channels. For the first time, he is selling online. Grassland helped Limin transition to digital sales by connecting his business with local e-commerce platforms. As air travel slowly resumed in China, the Grassland team advised the business to attract customers back into stores by offering free masks with each purchase and services to assist senior travelers with filling out the new required health check forms. Store traffic improved with these new services.

While Grassland supports microentrepreneurs like Limin on an individual basis, they’re also considering the impact of the pandemic on broader client segments. Grassland conducted an analysis with the support of Accion to identify the best ways to serve their clients across different industries during this difficult time. As a result, they’ve implemented other measures to help their clients, like offering flexible loan repayment terms and restructuring, applying to waive COVID-19-induced delinquency from client’s credit record, and increasing digitalization of their products. Entrepreneurs are finding new ways to survive in our new normal, but they need support from their financial providers to succeed.

Entrepreneurs get creative to rebuild their businesses in China

Accion’s partners have always used innovative approaches to bring financial inclusion to underserved people and businesses in emerging economies. The coronavirus pandemic has put their spirit of innovation to the test as they must find new ways to continue serving clients while protecting their wellbeing and that of their employees.

We’re sharing examples of adaption from our partners around the globe that we hope will be helpful for all organizations to keep in mind when considering client and staff safety and business continuity during a time of constant changes.
<h3>1. Ensure staff has the equipment and education to do their jobs safely.</h3>
Our partner <a href="https://www.accion.org/this-company-is-making-healthcare-more-accessible-in-emerging-markets" target="_blank" rel="noopener noreferrer">Field Intelligence</a> is a startup operating in Nigeria and Kenya that uses data-driven supply chain management software and highly efficient distribution service to help pharmacies operate more efficiently. Their pharmacy clients remained open throughout the pandemic to provide necessary services in their communities. As a preemptive measure, Field Intelligence completed a handwashing and safety campaign to encourage 150 pharmacies to use safe practices that prevent the spread of the virus. They also supplied and trained all of their delivery staff on proper personal protective equipment usage. By tapping into their existing network, they were able to quickly provide training to their staff. These steps were critical for keeping essential workers safe over the past few months. As many countries begin to reopen and ease restrictions, businesses should prioritize safety above all else and provide the training and equipment that staff and clients need.
<h3>2. Enable staff to provide customer support remotely.</h3>
<a href="http://apolloagriculture.com" target="_blank" rel="noopener noreferrer">Apollo Agriculture</a>, another startup in Kenya, partners with small-scale farmers to help them access everything they need to maximize their profitability, from financing and insurance to farming products and optimized advice. These <a href="https://www.accion.org/this-agricultural-fintech-empowers-the-farmers-who-feed-the-world" target="_blank" rel="noopener noreferrer">farmers are facing great challenges</a> during the pandemic and Apollo empowers them to be productive and sustainable. To continue providing customer support to farmers, Apollo faced a major challenge: transitioning their call center of over 150 people to remote work. Most of their call center agents did not previously have internet or a computer in their home. Despite these challenges, Apollo successfully transitioned the entire team to remote operation and equipped all staff with reliable internet in a matter of days — all during their busiest time of year and the COVID-19 crisis. As remote work may continue for some time, staff need to be fully equipped to work remotely to make these solutions sustainable in the long-term.
<h3>3. Innovate to meet customer's needs digitally.</h3>
In Bolivia, <a href="https://www.accion.org/transforming-finance-low-income-people-bolivia" target="_blank" rel="noopener noreferrer">BancoSol</a> — a regulated commercial bank dedicated to serving micro and small entrepreneurs — knew that their customers needed urgent services to stay afloat during the pandemic and that digital tools would be crucial for reaching them. BancoSol launched a pilot of a remote lending program and is also working on revamping their existing mobile application to serve more clients digitally. Additionally, tellers are encouraging clients to sign up for online banking services and begin using them to minimize face-to-face contact and continue to be able to manage their businesses and connect with customer service representatives. So far, results from BancoSol’s initiative have been encouraging — in the first ten days of their efforts, online transactions increased by five percent, and transactions have continued to rise since then.
<h3>4. Make a plan to keep your team safe and productive in the long-term.</h3>
As China has reopened its economy and more people have returned to work, conversations with our partner <a href="https://www.accion.org/giving-customers-a-reason-to-trust-digital-finance-in-china" target="_blank" rel="noopener noreferrer">Grassland Finance Limited</a> have given us a glimpse into what many of our other partners may experience in the coming weeks and months. Grassland shared with us that their staff is:
<ul>
 	<li>Practicing social distancing in the office. Staff continue to work in shifts and will do so until the situation improves.</li>
 	<li>Wearing protective masks and regularly monitoring for symptoms to ensure those coming into the office are healthy.</li>
 	<li>Avoiding in-person team activities and unnecessary travel.</li>
</ul>
For Grassland and other partners, the need to increase digital capacity to adapt to immediate challenges and to move into a new normal is a key theme. Seah Hooi Koon, Grassland’s COO, shared, “The disaster also showed again the importance of building up the digital capability of both our company and of our clients, and this will be key in our strategy going forward.”

Digital capability, adaptability, and a spirit of innovation will continue to guide companies forward as the situation evolves around the globe. At Accion, we will continue to stay in close contact with our partners to learn from them as they adapt and to provide resources to help them increase digital capabilities, keep staff safe, and continue to serve their clients.

Four examples show how businesses can stay safe and effective right now

As the global coronavirus pandemic threatens the livelihoods of millions around the world, our mission to give people the financial tools they need is more urgent than ever. The populations we serve are particularly vulnerable right now, without access to affordable healthcare, savings, or loans to stay solvent in a crisis. As the whole world faces this challenge, we have an opportunity to learn from each other and improve how we offer inclusive financial services to those who need them. We’re committed to sharing the knowledge we have to help our global community remain resilient.

While we aggregate and <a href="https://www.accion.org/responding-to-the-pandemic-guidance-for-financial-service-providers">share resources</a> across the globe, we’ve been working closely with two of our partners in China, <a href="http://grassfin.com/#/" target="_blank" rel="noopener noreferrer">Grassland Finance Limited</a> and <a href="https://www.cdfinance.com.cn/en/index" target="_blank" rel="noopener noreferrer">CD Finance</a>, and learning from their experience. Before the coronavirus pandemic spread across the globe, it hit China, devastating some areas and creating challenges for small businesses everywhere. After a two-month nationwide lockdown to contain the virus, businesses have reopened across China. Though China is very unique in many aspects, as other nations are facing this same contagion, we can learn from China’s experience.

We recently hosted a webinar for our partners with Ms. Hooi Koon Seah, COO of Grassland Finance Limited, and Mr. Dongwen Liu, CEO of CD Finance, and they shared their top lessons learned from navigating this crisis:
<h2>Protect the wellbeing of staff and clients</h2>
Above all else, prioritize the safety of employees and clients. By taking the virus seriously and taking immediate action, organizations can protect both their business and their clients. Institutions must comply with all official quarantine requirements and health protocols to protect employees and customers. Grassland and CD Finance adjusted their budgets as needed to increase the number of protective masks and cleaning supplies available to staff in regions that were hit harder by the virus. “Most of all, we want our staff to know that they belong and that the company holds their wellbeing as the highest priority,” said Ms. Seah.
<h2>Communication is critical</h2>
While in-person contact is restricted, maintaining a close connection with employees through other communication channels ensures that they feel secure and supported. Good communication channels should be in place for both employees and clients to stay connected while working remotely. In China, the top digital communication platforms were already widely adopted and became critical for both employees and clients to stay in touch. Our partners in China found that using these existing platforms helped them stay connected to clients. Mr. Liu notes, “It’s really important for our clients to recover their business in the coming days. What we can do is to have a close connection with them and ask what kind of support we can give to them and help them to recover their abilities gradually.”
<h2>Develop and execute emergency plans immediately</h2>
Companies need to identify possible worst-case situations and determine how they will respond. Now is the time for the financial services industry to take this crisis seriously and make every effort to support their staff and clients. The crisis moves fast, and its effects are far-reaching. By being prepared in advance and unafraid to act quickly and boldly, financial service providers can help their customers stay afloat through an unprecedented challenge.
<h2>Evaluate risk by sector and develop segment-specific response plans</h2>
Due to dramatically reduced cash flow during and after the lockdown, overdue loan payments increased greatly. Grassland learned in an impact assessment conducted with support from Accion that the crisis hit certain sectors harder than others and required a differentiated strategy for each. Depending on the sector and market, Grassland Finance prolonged the payment period, granted additional loans, or deferred loan repayments.

The agricultural sector faced unique challenges during the lockdown, which occurred during the planting season. Farmers faced challenges in securing the agricultural inputs they needed, like fertilizers. CD Finance was able to disburse $5 million USD in loans for farmers to buy fertilizers through a partnership with an agricultural inputs company.
<h2>Focus on building digital capacity</h2>
As this crisis unfolded, China had several factors working in its favor for business to continue. Digital payment and e-commerce platforms like WeChat Pay and Alipay are widely adopted, reducing the need for cash. With good infrastructure in place, including electricity, telecommunications networks, and internet access, many employees were already equipped to work remotely.

During the national lockdown, loan officers were unable to visit clients, and clients were unable to visit banks. Mobile communications and digital payment options were critical. Educating customers about digital payment platforms reduces dependence on cash. CD Finance relied on their existing digital platform to manage payments. Based on previous loan history and credit assessments, they were able to make quick determinations on whether or not to offer credit and loan extensions through this digital channel.

Every market will face unique difficulties and China has some aspects that enable it to act faster and more effectively than other countries. Yet, these insights can help as financial service providers guide their clients through this hard time. As we continue to face daunting challenges, know that there will be a time for recovery. “Although the disaster remains a serious challenge for both financial institutions and small businesses, we should stay remain optimistic. We believe that things are slowly getting better in China, and it will be in the rest of the world as well. This can be an opportunity where we show our worth and commitment to our mission,” says Ms. Seah. We know that Accion’s mission is more urgent than ever, and we will continue to share as many resources as we can to help underserved populations to endure the pandemic.

<a href="https://www.accion.org/responding-to-the-pandemic-guidance-for-financial-service-providers"><em>View</em><em> Accion's recommendations for financial service providers on protecting customers, employees, and business operations during the COVID-19 pandemic.</em></a>

&nbsp;

Five crucial insights from China for facing the pandemic

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 10<sup>th</sup> 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.

<em>Arisha Salman and <a href="https://www.accion.org/bio/yiran-lu">Yiran Lu</a> also contributed to this article.</em>

Giving customers a reason to trust digital finance in China

<span style="font-weight: 400;">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 </span><a href="http://lidya.co/"><span style="font-weight: 400;">Lidya</span></a><span style="font-weight: 400;">. The trip was organized by the Mastercard Foundation</span><a href="https://www.financedigitalafrica.org/blog/2018/07/eight-things-we-learned-in-china-driving-fintech-fortune/"> <span style="font-weight: 400;">Partnership for Finance in a Digital Africa</span><span style="font-weight: 400;"> (FiDA)</span></a><span style="font-weight: 400;">  to learn about the ecosystem in China and bring insights and inspiration to our workplaces. </span>

<span style="font-weight: 400;">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. </span>
<h2><b>From big data to bigger data</b></h2>
<span style="font-weight: 400;">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. </span><b> </b>
<h2><b>Payments as the underbelly of a rich dataset</b></h2>
<span style="font-weight: 400;">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 </span><a href="https://www.techinasia.com/fake-qr-code-scams-china"><span style="font-weight: 400;">minimal fraud</span></a><span style="font-weight: 400;">. 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. </span>
<h2><b>Collaboration for advancement</b></h2>
<span style="font-weight: 400;">One thing that Tunde and I both found surprising was the </span><a href="https://www.financedigitalafrica.org/blog/2018/08/you-cant-clap-with-one-hand-how-collaboration-drives-chinas-fintech-success/"><span style="font-weight: 400;">high level of collaboration in the Chinese fintech sector</span></a><span style="font-weight: 400;">. 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. </span>

<span style="font-weight: 400;">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.</span>

<em>This article was written with support from Tunde Kehinde, co-founder of Accion Venture Lab portfolio company Lidya. It is also published on the <span style="font-weight: 400;"><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></span><span style="font-weight: 400;"><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>.</span></em>

What can Nigeria learn from China’s digital economy?

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Victoria White

We leverage our technical expertise and global experience in digital solutions to help families build better lives and businesses succeed.

Over 1.7 billion individuals around the world are unbanked, with more than 3 billion people either poorly served or left out entirely by the financial sector. At Accion, we believe technology has the power to change that. Nearly 70 percent of unbanked adults own a mobile phone, giving rise to a new generation of digital financial services and an immense opportunity to drive financial inclusion forward.

Financial service providers (FSPs), marketplace platforms, fast-moving consumer goods companies (FMCGs), and other actors in the ecosystem that serve micro, small, and medium enterprises (MSMEs), face numerous strategic and operational challenges today. While digital technology continues to disrupt the financial sector and the world more broadly, as most interactions between MSMEs and their ecosystem partners are still manual, paper-based, and inefficient. With deep technical expertise and innovative approaches, <a href="/how-we-work/advise/accion-global-advisory-solutions" target="_blank" rel="noopener noreferrer">Accion Global Advisory Solutions</a> helps these players overcome the issues they face in driving change and accelerating the creation of enabling digital ecosystems.

With decades of on-the-ground experience combined with insights into new technologies, our global team delivers strategic and technical advisory support through integrated products and offerings, all toward a north star — creating economic opportunities and a financially inclusive world for MSMEs and low-income households. By addressing the most pressing issues facing financial inclusion, we help mission-driven organizations achieve scale, impact, and returns.

Strengthened by our key partnerships with <a href="/institutional_partnerships/mastercard" target="_blank" rel="noopener noreferrer">Mastercard Center for Inclusive Growth</a>, <a href="/institutional_partnerships/metlife-foundation" target="_blank" rel="noopener noreferrer">MetLife Foundation</a>, and <a href="/institutional_partnerships/fedex" target="_blank" rel="noopener noreferrer">FedEx</a>, to name a few, our work enables families and microbusinesses around the globe to reach their economic potential by expanding access to appropriate financial service options. This approach includes digital tools to manage their financial goals better and digitize business transactions. We firmly believe in giving people the financial tools they need to improve their lives and build resilience at a time when many are facing larger challenges than ever before.
<h3>So how do we make a difference?</h3>
Accion’s <a href="/how-we-work/advise/accion-global-advisory-solutions" target="_blank" rel="noopener noreferrer">advisory team</a> works closely with FSPs, marketplace platforms, FMCGs, and other ecosystem partners that are uniquely positioned to provide appropriate financial products to low-income individuals and underserved microbusinesses at scale, helping them improve their financial health and resilience.

<img class="aligncenter wp-image-24602 size-full" src="https://content.accion.org/wp-content/uploads/2021/07/accion-global-advisory-solutions-services.png" alt="Accion Global Advisory Solutions services" width="468" height="170" />

Our advisory team applies customer-centric, data-driven, and tech-enabled solutions that help these institutions expand their engagement with MSMEs around the world and maximize their impact. We offer an evolving set of core products that integrate our broad expertise, including:
<ul>
 	<li><strong>Digital lending</strong>: We leverage our capabilities in payments, digital transformation, human-centered design, customer engagement, and data and analytics to deliver <a href="/series/demystifying-digital-lending-series" target="_blank" rel="noopener noreferrer">digital lending</a> solutions to more underserved clients in faster, more cost-efficient, and engaging ways.</li>
 	<li><strong>Digital payments</strong>: When small business owners can send and receive digital payments, they can run their businesses more efficiently. We connect MSMEs and FSPs to digital payments, decreasing both parties’ operational costs and offering greater convenience and flexibility for underserved customers. We facilitate win-win partnerships to integrate ecosystems, provide strategy and implementation support, and use customer insights to inform <a href="/topics/payments" target="_blank" rel="noopener noreferrer">digital payment</a> product design.</li>
 	<li><strong>Digital transformation</strong>: For merchants to easily access financial and other value-add services digitally, Accion recognizes that the entire ecosystem requires digital capabilities, third-party integrations, and customer-facing apps. Accion takes a holistic view of <a href="/topics/digital-transformation" target="_blank" rel="noopener noreferrer">digital transformation.</a> We design and implement digital strategies that help institutions realize their long-term ambitions while also connecting microentrepreneurs to the digital economy so that they can become more resilient. We have developed diagnostics to evaluate the digital skills of small merchants, and tools that help both FSPs and MSMEs build their digital capabilities.</li>
 	<li><strong>Supply chain finance</strong>: We offer a comprehensive <a href="/series/supply-chain-finance" target="_blank" rel="noopener noreferrer">supply chain finance</a> solution that optimizes working capital, reduces risk, and increases revenues. This solution enables FSPs and other supply chain actors to extend more services to existing and new merchants and achieve greater scale through close collaboration.</li>
 	<li><strong>Risk strategy and scorecards</strong>: Accion has developed in-house expertise in collecting, structuring, and analyzing data to realize the benefits of digitization. To help FSPs <a href="/topics/risk-and-credit-analysis" target="_blank" rel="noopener noreferrer">manage risk and leverage data efficiently</a>, we work to reduce credit risk through risk management frameworks, credit decision tools, propensity modeling, and underwriting techniques.</li>
 	<li><strong>Accion Design</strong>: Accion works with financial sector partners to create customer-centric products and services using <a href="/topics/human-centered-design" target="_blank" rel="noopener noreferrer">human-centered design</a>, behavioral science, and data science. This approach helps us build easy and intuitive products for customers to use when accessing services digitally and fuels innovation and transformation across organizations.</li>
 	<li><strong>Ovante</strong>: Created by Accion, <a href="https://ovante.org/" target="_blank" rel="noopener noreferrer">Ovante</a> is a digital learning platform that strengthens microentrepreneurs’ managerial, financial, business, and digital capabilities by incentivizing financially healthy behavior changes. This edtech tool enables MSMEs to build the skills they need to thrive in a competitive and digital world.</li>
</ul>
<a href="/how-we-work/advise/accion-global-advisory-solutions" target="_blank" rel="noopener noreferrer">Accion Global Advisory Solutions</a> helps established institutions serving MSMEs address their strategic and operational challenges head-on through our international expertise in strategy and business model development, ecosystem partnering strategy and implementation, platform and process architecture, and data-driven product design.

Over our 60-year history, Accion has made a tangible impact. We have:
<ul>
 	<li>Partnered with and served over 170 institutions in 55 countries around the world.</li>
 	<li>Empowered more than 10 million people to access credit through our partners, 70 percent of them being women.</li>
 	<li>Helped nearly 9 million people save money through our partner institutions.</li>
 	<li>Enabled over 715,000 micro, small, and medium enterprises to digitize their business operations.</li>
 	<li>Enrolled nearly 500,000 people in our financial education courses to date.</li>
</ul>
Accion Global Advisory Solutions has helped organizations like Destácame, a Chile-based personal financial management platform, <a href="/finding-a-path-to-financial-health-in-chile-one-step-at-a-time" target="_blank" rel="noopener noreferrer">redesign their website to build their users’ financial health</a> by developing simple diagnostics, customized user journeys, and digestible tips. Since January 2020, the platform has attracted over 1 million visitors. In India, Accion Global Advisory Solutions is helping Annapurna Finance Limited develop a digital strategy that will enable the bank to serve its 1.7 million clients more effectively. As part of this strategy, we worked with Annapurna Finance Limited to launch a new <a href="/women-entrepreneurs-get-back-to-business-in-india" target="_blank" rel="noopener noreferrer">digital emergency loan</a> to assist group lending customers as they recover from the pandemic.

Together with our partners, we’re building a digitally integrated ecosystem that delivers high-quality, affordable financial tools and services to MSMEs around the world so we can create an inclusive world with economic opportunity for all.

<em>Please </em><a href="https://www.accion.org/advisory-contact"><em>reach out</em></a><em> to see how we can work together towards a more financially inclusive world.</em>

<em><a href="https://www.linkedin.com/in/malavika-krishnan/" target="_blank" rel="noopener noreferrer">Malavika Krishnan</a> contributed to this article.</em>

How Accion Global Advisory Solutions makes a financially inclusive world a reality

Ashley Lewis

Lami Technologies creates a seamless way for companies to launch customized insurance offerings that bring insurance to more people across Africa

As we’ve seen around the world, and especially across the African continent, most low-income people don’t have a financial safety net when emergencies and challenges arise. Only 3 percent of Africans outside of South Africa have access to insurance, compared to 8 percent of those in developed markets and 6 percent globally. People with access to insurance products are typically higher-income consumers. <a href="https://www.lami.world/" target="_blank" rel="noopener noreferrer">Lami Technologies</a>, an <a href="/lami-technologies-closes-1-8-million-seed-funding-to-accelerate-growth-of-digital-insurance-in-africa" target="_blank" rel="noopener noreferrer">Accion Venture Lab investee</a>, works to broaden access to affordable and relevant insurance in Africa so that more people can build financial security.

Through Lami’s tech platform, business-to-consumer (B2C) businesses like banks and e-commerce companies can develop and sell insurance to their customers. This approach allows low-income consumers to purchase insurance specific to their needs from businesses they already know and trust. The Lami team and their partners aim to put their customers’ needs first by upholding a customer-centric approach to product design and serving end clients with insurance offerings that are relevant to their lives.

After its founding in 2018 by Jihan Abass, Lami launched a B2C offering that proves that their back-end can support the distribution of insurance for larger partners and reach even more people. Today, they work with several insurers, reinsurers, and partners in Kenya and are exploring international markets such as Nigeria, Egypt, and Uganda. Lami’s model is well-positioned for international expansion and furthering their goal of providing coverage for more Africans across the region. We’re excited to invest in Lami because they:
<h3>Reach low-income Africans with affordable, relevant insurance</h3>
Because of the low adoption rate of insurance across Africa, many people are financially underprepared for life’s emergencies and unaware of the importance and relevance of insurance. Lami offers an innovative solution for these customers by expanding their options for affordable insurance, thus providing more protection that may not have been offered in the past. There is ample space for an innovator like Lami to grow by reaching the large population of uninsured people in Africa and introducing more products into the market.

Lami has the potential to significantly expand the selection of insurance products available to end customers. They have found interesting ways to embed insurance into their customers’ daily lives by meeting people where they are, from making online purchases to taking public transportation. Lami provides an alternative pathway for consumers to purchase affordable, convenient insurance by allowing them to buy customized products from banks, telecommunications companies, and other businesses that partner with Lami. These partners, Lami’s B2B clients, can draw on their understanding of their customer base to create products tailored to the needs of specific segments. Core to their model is their effort to offer the right insurance products to customers at the right moment via the most appropriate channel and partner. The fact that the insurance products are sold by brands that consumers already know builds trust and awareness in the market at large, which helps overcome major barriers to uptake.
<h3>Leverage technology to quickly and efficiently offer embedded insurance</h3>
Lami streamlines each step of the insurance process for their partner businesses, from user management to claims payout. Their technology compresses the timeline to launch an insurance product from 18 months to one month and reduces the development costs for a B2B client to deploy an insurance product by 80 percent. In doing so, Lami opens the door for a broad array of new providers to offer contextualized insurance for traditionally underserved clients. Through its infrastructure model, Lami can help accelerate insurance penetration in Kenya and other African markets.

Corporate clients such as banks, telcos, e-commerce platforms, and logistics companies work with Lami to design digital insurance products tailored to the needs of their customers and employees. Products are white-labeled and sold with the client brand and through the client’s website or app, using Lami’s APIs, while Lami runs all the back-end processes. We envision that with an offering like this, more corporate clients will be excited to build financial services offerings into the services and products they provide for their customers. With access to Lami’s technology, partners, and know-how, they can better serve their customers.
<h3>Utilize unique data to provide affordable insurance that meets people’s needs</h3>
Lami sits between B2B corporate clients and underwriting partners (i.e., insurance companies), allowing Lami to request, capture, and interpret unique data that can help them better design, price, and distribute insurance offerings. During the onboarding process, Lami works closely with its B2B partners to ensure they are gathering the right kind of data from that client’s platform to provide and ultimately design insurance offerings for consumers and businesses. From there, Lami liaises with underwriters to design products. From an impact perspective, we believe that Lami will be in a position to “widen the funnel” to include traditionally underserved consumers who will now gain access to these products while allowing partners and underwriters to distribute competitively priced products.

We are excited about Lami’s future and look forward to supporting the company as they grow and expand, helping close the gaps between insured and uninsured people across Africa.

Tech opens the door for low-income Africans to get the insurance they need

Federico  Gomez Romero

Dinie partners with online platforms already used by small businesses to seamlessly provide affordable lending products to Brazilian MSMEs

R5’s innovative approach to offering affordable financial services helps more Colombians gain financial security

While the entrepreneurship and fintech scene has grown in Colombia in recent years, most adults there still don’t have a bank account. The lack of affordable, high-quality financial services has left many Colombians — especially those working in the informal sector — without a safety net for challenging times or a way to strengthen their financial health and seize new opportunities. The COVID-19 pandemic further exposed the vulnerabilities of Colombia’s financially underserved. Many people have lost their livelihoods and during lockdowns and economic struggles, and don’t have the financial services they need to stay resilient through challenging times.

[caption id="attachment_24561" align="alignleft" width="400"]<img class="wp-image-24561" src="https://content.accion.org/wp-content/uploads/2021/07/r5-client-nicolas-colombia.png" alt="Nicolas, a client of R5 in Colombia" width="400" height="348" /> <em>Nicolas Cairasco Parra, a civil engineer in Bogotá, relies on R5’s financial services to build financial stability in an uncertain time.</em>[/caption]

Twenty-five-year-old Nicolas Cairasco Parra was born and raised in Bogotá, Colombia. He’s a self-employed civil engineer who works as an independent contractor in both the public and private sectors in Bogotá. The COVID-19 pandemic disrupted nearly all industries in Colombia, and public infrastructure was no exception. “The pandemic has modified not all, but a significant part of my income. In the last year, my main challenge has been to generate an innovation in the services I was offering as a civil engineer,” said Nicolas. Before the pandemic, he made multiple in-person field visits while designing infrastructure projects, plus frequent one-on-one meetings with his clients throughout his contracts. “But clearly having to go virtual has brought a lot of challenges for continuing to offer civil engineering services virtually,” he says.

As an independent contractor, Nicolas doesn’t have the financial security that permanent employees enjoy. With some uncertainty in his career — and unexpected changes to his income because of the pandemic — Nicolas needed a solution to help build his financial health and gain some peace of mind. He started working with <a href="https://www.grupor5.com/" target="_blank" rel="noopener noreferrer">R5</a>, an Accion Venture Lab portfolio company, in December 2020. R5 aims to <a href="/fintech-makes-financial-stability-attainable-for-low-income-colombians" target="_blank" rel="noopener noreferrer">make financial stability attainable for lower-income Colombians</a> through innovative financial products and services offered through a digital platform.

Because traditional banks and financial providers often overlook low-income Colombians, R5 has focused on finding new ways to provide responsible funding and affordable financial products. Through asset-backed loans and online insurance products, they’re allowing people to leverage cars and motorcycles as collateral so they can extend affordable loans to customers who might otherwise turn to costly credit cards or informal lenders to make ends meet.

Nicolas had difficulty finding providers that would extend loan products to independent contractors like him, saying, “Financial institutions restrict many products [because] I work as an independent professional. Usually, financial institutions classify one as higher risk, but R5 had an alternative. Having this [product] in the middle of the pandemic was great,” says Nicolas. “The majority of companies offer a product where they make you a loan with a vehicle pledge, but the vehicle is consigned. The car is parked in a parking lot under their disposition and surveillance. The vehicle is locked. But with R5, it has been a very good experience because finally, my vehicle is at my entire disposal in Colombia.” R5 also offers vehicle insurance through a seamless digital process that uses a unique machine learning risk model to offer low-income clients better coverage at a lower price.

Nicolas hopes that accessible financial services can pave the way for other young Colombians to seize new opportunities, like starting their own businesses and finding employment. “I hope that this pandemic allows for innovation and finding new alternatives that will give room to new investments. For example, creating a business requires starting capital and there’s nothing better than being able to count on loans that have accessible rates. This also gives you security and inner peace, allowing you to perform better.” With their accessible and affordable loan and insurance products, R5 is helping build more Colombians get what they need to improve their financial health, secure safety nets, and build better futures.

A safety net helps Colombians through unstable times

Michael Schlein

Farmers and agribusinesses face major challenges today, but innovative fintech can help them build resilience.

Paolo Limcaoco

Why Accion Venture Lab invested in Fairbanc, a digital platform in Indonesia helping small merchants grow with a seamless inventory financing solution

Combatting the digital divide on multiple fronts is crucial to scaling financial inclusion

Laura Glenny

How to get started building the culture of innovation needed for digital transformation success

In 1889, George Eastman wanted to make photography accessible to everyone, which inspired him to invent rolled film and the first user-friendly camera called Kodak. He started the Eastman Kodak Company and created a culture that mirrored his own drive for creativity and innovation. In the early years, this emphasis on innovation led to risky ventures like investing in color film. Decades later, in 1977, an engineer came to the Kodak leadership team with another innovative idea — the digital camera. But the Kodak leadership team could not imagine a future where consumers preferred the immediate gratification of seeing a photo on a screen over having photos developed on paper and decided not to invest in the technology. As we now know, that was a mistake and digital cameras eventually took over the photography industry. While Kodak tried to reverse course by <a href="https://hbr.org/2002/05/disruptive-change-when-trying-harder-is-part-of-the-problem" target="_blank" rel="noopener noreferrer">spending billions in technology</a>, it never recovered its culture of innovation. As a result, Kodak filed for bankruptcy in 2012 and became a cautionary tale: it is not technology that makes an organization successful; <em>it is the ability of the organization to continuously transform itself</em>.

For over six decades, Accion has supported numerous financial service providers as they’ve transformed their organizations so that they can better meet the needs of the financially vulnerable people and businesses they serve. For organizations focused on improving the lives of low-income populations, adopting technology to digitally transform their business and services can feel risky. These digital transformations are complex and require investments in resources and time, a vision for the future, and behavior change.

To help organizations pinpoint the key areas of focus for driving successful and continuous transformation, Accion created an <a href="https://dtsurvey.accion.org/people-culture" target="_blank" rel="noopener noreferrer">assessment tool for financial service providers to evaluate their people and culture capabilities</a>. The diagnostic determines how prepared institutions are to undertake a digital transformation. It also offers practical steps for creating the work environment needed to succeed in a digital-first business landscape. The assessment focuses on the four areas that are crucial for any transformation:
<ul>
 	<li><strong>Values and culture.</strong> When there is a culture of trust, employees work collaboratively, keep each other accountable, focus on the customer, and take ownership of their work — all essential ingredients for a successful digital transformation. In this diagnostic, we evaluate the behaviors that support continuous learning, the value of openness, and experiential learning. We assess how employees’ actions align with their organization’s values and how the current environment supports innovation.</li>
 	<li><strong>Organizational design.</strong> An institution’s organization can determine its business model’s flexibility and if there is space to learn and grow. This diagnostic will assess how decisions are made within the organization and whether existing structures and teams are creating roadblocks or positioning the organization to pivot quickly.</li>
 	<li><strong>Talent.</strong> An organization’s workforce must have the right skill sets, behaviors, and mindsets to drive its evolution to the desired state. This diagnostic assesses how your organization is currently utilizing talent, cultivating an agile mindset, and providing opportunities for continuous learning and experimentation.</li>
 	<li><strong>Leadership.</strong> Leaders create the vision and set the tone for digital transformation within an organization. Good leadership should analyze data and take calculated risks, reward creativity in the face of an ever-changing market, and most importantly, obsess over the customer experience. In this diagnostic, we offer key recommendations for how your leadership can ensure the organization thrives through its digital transformation.</li>
</ul>
As Kodak’s leadership team learned, technology is solely an enabler for an adaptable business. The real keys to building a culture of innovation that will sustain disruption and constant change are an organization’s <em>people and culture</em>. To digitally transform, an organization must codify innovation into its DNA. For mission-driven organizations, a focused approach to creating an innovative culture is particularly crucial not only to create a sustainable business model, but also to ensure the businesses and people served are able to evolve and thrive through this digital era.

Take our <a href="https://dtsurvey.accion.org/people-culture" target="_blank" rel="noopener noreferrer">people and culture assessment</a>, also <a href="https://dtsurvey.accion.org/gente-cultura" target="_blank" rel="noopener noreferrer">available in Spanish</a>, to see where your organization is on its journey toward a culture of innovation.

<em>This assessment was developed as part of an <a href="https://www.accion.org/mastercard-and-accion-partnering-for-inclusive-growth" target="_blank" rel="noopener noreferrer">ambitious program with the Mastercard Center for Inclusive Growth</a> to help millions of underserved microbusinesses successfully operate in — and benefit from — the digital economy.</em>

Create the culture of innovation needed for digital transformation

Companies in Brazil are facing a tech hiring crunch as competition and demand for talent rises

Debdoot Banerjee

Elizabeth Winters

When Sadashiva had to close his food stall business during the pandemic, a digital loan provided relief

Twenty years ago, Sadashiva Das started cooking and selling panipuri, a popular street food made of fried flatbread and flavorful fillings. It took several years for him to build his reputation in the bustling market area of Khurda, located in the Odisha province of eastern India. As his panipuri business took off, Sadashiva was able to feed and provide for his family. The income he earned from his business also allowed him to send his son and daughter to college.

Like other street vendors across India, Sadashiva had to close his panipuri business — the only source of income for his family — when the COVID-19 pandemic began. Because coronavirus is highly contagious, he was unsure when he would be able to restart his business, if at all. Without the income from his food stall, the lack of cash became a major problem for him, and he recalled that he nearly slipped into a depression. He didn’t have enough savings to last for another few months, so he picked up a job as a daily wage worker to make ends meet.

After six very challenging months, Sadashiva learned that he could apply online for a loan to give his business some relief during this crisis. Although the online registration process is fairly easy, Sadashiva struggled because he doesn’t have much experience using technology. As a client of <a href="https://annapurnafinance.in/" target="_blank" rel="noopener noreferrer">Annapurna Finance Ltd.</a>, a microfinance institution and Accion partner in India, he received support through the loan process and Annapurna’s staff walked him through the online registration process.

Annapurna recognizes that technology can help their team to reach more clients, provide better customer support, improve the efficiency of their operations, and launch digital products that help microentrepreneurs stay in business. The pandemic has accelerated their focus on digitization. But many of their clients — especially those living in rural areas — need extra support to learn how to use digital tools. To build digital products that work for Annapurna’s clients, we surveyed Annapurna’s small business owner customers to understand <a href="https://www.accion.org/critical-lessons-from-a-survey-of-small-businesses-in-india" target="_blank" rel="noopener noreferrer">their experience and confidence using technology, how gender gaps affect digital access, the role of misinformation, and more</a>. Through <a href="https://www.accion.org/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses" target="_blank" rel="noopener noreferrer">Mastercard and Accion’s partnership</a>, we're working with Annapurna to develop new digital loan products for the micro, small, and medium enterprises they serve.

One month after he applied for the street vendor loan, Sadashiva received the disbursement he needed to restart his business. He reopened his panipuri stall while following the government’s pandemic safety measures, and his sales slowly returned. But while vaccines have rolled out and infections have dropped in countries like the United States, India is still facing devastating COVID-19 outbreaks. Skyrocketing cases have overloaded India’s health system and new lockdowns have left small business owners out of work again. Digital financial tools can help small business owners to weather this crisis, find a way to reopen their businesses safely, and help us to <a href="https://www.accion.org/growing-disparities-threaten-an-inclusive-recovery" target="_blank" rel="noopener noreferrer">create a more inclusive recovery for all</a>.

A digital loan helps a street vendor get back on his feet

Latest insights

All around the world, financial services enable people to open their own businesses, educate their children, and provide for their families, but they aren’t within reach for everyone — including <a href="https://globalfindex.worldbank.org/">980 million women</a> who don’t have a bank account or even the ability to send and receive money on their phones. The COVID-19 pandemic has <a href="https://www.centerforfinancialinclusion.org/the-case-for-a-gender-intelligent-approach-an-opportunity-for-inclusive-fintechs">exacerbated inequalities that women face</a> and exposed how the <a href="https://www.womensworldbanking.org/insights-and-impact/womens-economic-empowerment-doorway-to-economic-recovery/">gender gap in financial inclusion</a> continues to hold women back.

This year, the <a href="https://www.unwomen.org/en/news/stories/2020/11/announcer-international-womens-day-2021">UN Women theme for International Women’s Day</a> is “Women in leadership: Achieving an equal future in a COVID-19 world.” We’re highlighting women leaders working to open opportunity for women and men through inclusive finance in our <a href="https://www.accion.org/series/women-of-accion">annual International Women’s Day blog series</a>. You can learn about more inspiring women in <a href="https://www.accion.org/women-leaders-open-opportunity-through-inclusive-finance-part-one">our first</a> and <a href="/women-leaders-open-opportunity-through-inclusive-finance-part-two" target="_blank" rel="noopener noreferrer">second article</a> for this series.

Meet some of the women we’re inspired by:
<h3>Winnie Blatchford, Founding member of Accion</h3>
[caption id="attachment_23601" align="alignright" width="500"]<img class="wp-image-23601" src="https://content.accion.org/wp-content/uploads/2021/03/winnie-blatchford-accion-1.jpg" alt="Winnie Blatchford in Venezuela" width="500" height="335" /> <em>Winnie and her Accion colleagues ran a community center in Caracas, Venezuela, that offered classes in literacy, auto mechanics, sewing, and cooking.</em>[/caption]

When Winnie Blatchford (née Marich) was on the cusp of her graduation from UCLA in 1958, she read about volunteer opportunities in her community and around the world in her student paper. One of those opportunities struck a deep chord with her. It was a new, student-run volunteer group called Accion that aimed to improve U.S. relations in Latin America. Founded by Joseph Blatchford — who Winnie later married in 1967 — and other UCLA students, the group sought “<a href="/remembering-accions-founder-joe-blatchford-1934-2020" target="_blank" rel="noopener noreferrer">people with the audacity to think they can make a difference</a>.” They interviewed candidates and chose Winnie among the initial group of 30 volunteers who traveled to the <em>barrios</em>, or disadvantaged urban neighborhoods, in Caracas, Venezuela, where they had the novel idea to ask the people living there what they needed, and how Accion could help.

[caption id="attachment_23599" align="alignleft" width="450"]<img class="wp-image-23599" src="https://content.accion.org/wp-content/uploads/2021/03/winnie-blatchford-accion.jpg" alt="Winnie and Joe Blatchford with Bob Williams" width="450" height="353" /> <em>Winnie and Joe Blatchford in Venezuela.</em>[/caption]

Winnie became interested in Latin America and passionate about fighting poverty from a young age after she visited Peru, where her parents were living at the time, and saw firsthand some of the real challenges that families living in poverty faced every day. Her commitment to making the world a better place was borne from that experience and inspired her to go to that interview, get on a plane to Caracas, and become one of the first women of Accion. From installing sewage pipes, to paving streets, to teaching women to sew and make bread, the early Accion team worked side-by-side with their new Venezuelan friends determined to make a difference in the community. Winnie remembers so many talented women who were smart, capable, and true leaders in their communities. “I can't help but think of my two granddaughters when I think of the women and girls in the barrios of Caracas in the early 1960s, and how impressed they would be by all of the women I met all those years ago,” she says.

[caption id="attachment_23602" align="alignright" width="350"]<img class="wp-image-23602" src="https://content.accion.org/wp-content/uploads/2021/03/winnie-blatchford.jpg" alt="Winnie Blatchford with her granddaughter" width="350" height="467" /> <em>Winnie with her granddaughter Elliette in 2019</em>[/caption]

From the beginning, Winnie and Joe were steadfast in their vision to give those less fortunate the tools they need to improve their lives. Those tools have evolved over the past 60 years since Accion’s founding, but the mission of the first generation of Accion remains the core of our work. And <a href="/topics/women" target="_blank" rel="noopener noreferrer">connecting women to the tools they need to grow businesses, provide for their families, and improve their communities</a>, continues to be a crucial way that we drive impact.

Before Winnie left Caracas, she received the <em>Amiga de Venezuela</em> award from the First Lady of Venezuela for her contributions to community development. She treasures that recognition and hopes it inspires her granddaughters and other young women to get involved in doing good. "You don't have to put your feet in the barrios to make a difference. There are opportunities everywhere, and it’s our job to create them if we can’t find them.”

Women leaders open opportunity through inclusive finance, part three

The pandemic has taken a devastating toll on the world’s working poor. Typically they rely on daily cash transactions to earn money and buy food for their families. They lack a safe place to save money, or the means protect themselves from financial ruin brought by a sudden illness or natural disaster. The pandemic has spurred real fears of starvation that precede fears of sickness.

Accion’s mission is to change this reality by building a financially inclusive world. We are doing that by supporting and investing in financial service providers who are reaching underserved populations around the world.

The crisis has shone a spotlight on the importance of our work in building resilient communities. For example, Dr. David Akinpelu in Lagos, Nigeria, relied on <a href="https://www.accion.org/one-doctors-story-facing-a-health-and-economic-crisis-head-on-in-nigeria">financing from our partner Accion Microfinance Bank</a> to buy the medical equipment he needed to grow his private community hospital. The hospital is now providing care to patients with little ability to pay and educating people on preventing the spread of COVID-19.

If we do nothing, the financial engine supporting people like Dr. Akinpelu could <a href="https://www.accion.org/the-financial-engine-for-half-the-worlds-jobs-is-about-to-seize-up">seize up</a>. Meanwhile, three billion people still lack the tools they need to save, build a business, or purchase insurance to guard against emergencies. Without support for the financial service providers reaching out to these populations, existing disparities will only widen, and creating pathways out of poverty will grow more difficult.
<h2>Inclusive finance is key to recovery and resilience</h2>
The communities we serve certainly aren’t strangers to disruptive shocks, and our partners have shown a remarkable ability to meet their needs in challenging times. Following the devastating 2010 earthquake in Haiti, the poorest country in the Western Hemisphere, Accion’s partner <a href="https://www.sogebank.com/" target="_blank" rel="noopener noreferrer">Sogesol</a> helped <a href="https://www.accion.org/helping-small-businesses-farmers-resilient-haiti">more than 8,000 Haitians restore their homes and small businesses</a> through microcredit and distributed emergency grants to 2,000 of its most vulnerable clients.

In Uganda, which hosts almost <a href="https://data2.unhcr.org/en/country/uga" target="_blank" rel="noopener noreferrer">1.4 million refugees</a>, Accion partner <a href="https://www.ugafode.co.ug/" target="_blank" rel="noopener noreferrer">UGAFODE Microfinance Limited </a> launched a digital program in 2019 to serve people fleeing conflict or hardship. UGAFODE is also <a href="https://www.accion.org/its-a-group-effort-to-help-refugees-build-new-lives-in-uganda" target="_blank" rel="noopener noreferrer">the first financial institution in Uganda to open a branch inside a refugee settlement</a>.

Today, our partners are rapidly adapting to meet new needs arising from the pandemic. In India, <a href="https://www.accion.org/a-start-up-innovates-to-give-the-uninsured-a-safety-net">Toffee Insurance is introducing new products</a> to help underinsured people build financial resilience to the impact of COVID-19 and challenges that may arise in the future. <a href="https://toffeeinsurance.com/">Toffee</a> has successfully reached India’s uninsured by offering specific, simple policies covering risks that are most relevant to consumers, like dengue, malaria, bicycle damage, and theft.
<h2>What Accion is doing now</h2>
Accion’s work to build inclusive, resilient communities through access to quality financial services, including credit, savings, and insurance, is more critical than ever.

The global nature of the pandemic looms larger than any local crisis—emergencies can lead to financial ruin for low-income and underserved populations, while <a href="https://www.accion.org/the-financial-engine-for-half-the-worlds-jobs-is-about-to-seize-up">small businesses are especially vulnerable</a> to disruptions and shifts in supply and demand. The crisis also raises <a href="https://www.centerforfinancialinclusion.org/building-resilience-how-to-ensure-women-are-not-left-behind-as-a-result-of-covid-19" target="_blank" rel="noopener noreferrer">unique challenges for female entrepreneurs</a> and threatens to reverse gains made in including women in the global economy.

Accion has acted quickly to support our partners and the vulnerable communities they serve.

We’re assisting inclusive financial providers through advisory engagement and helping leaders around the world share lessons gained from evolving challenges. We’re aggregating <a href="https://www.accion.org/covid19">resources</a> and <a href="https://www.accion.org/five-crucial-insights-from-china-for-facing-the-pandemic">sharing insights</a> from China that can help partners in other countries prepare for the months ahead. And we are actively exploring how to connect our partners with emergency funding and are coordinating with them to work on both short- and long-term challenges related to COVID-19. We know there is much more to be done.
<h2>We need your support</h2>
In this unprecedented time, donors will play a more important role in sustaining Accion and our partners. Accion relies on philanthropic support to fuel everything that we do. Philanthropy from institutions and individuals allows us to be pioneering and create demonstration models that encourage further action. Because we’re a nonprofit, we can take risks that for-profit entities can’t, and cultivate new products, markets, and policies that benefit underserved people.

Donors are already stepping up in response to this crisis. Over 700 philanthropic organizations have signed <a href="https://www.fordfoundation.org/the-latest/news/top-foundations-pledge-flexible-funding-to-grantees-in-wake-of-covid-19-crisis/" target="_blank" rel="noopener noreferrer">a pledge</a> to commit more flexible funding in response to COVID-19. And just last week, our partner Mastercard announced <a href="https://mastercardcontentexchange.com/newsroom/press-releases/2020/april/mastercard-builds-on-covid-19-response-with-commitment-to-connect-1-billion-people-50-million-small-businesses-25-million-women-entrepreneurs-to-the-digital-economy-by-2025/" target="_blank" rel="noopener noreferrer">a pledge</a> to bring a total of 1 billion people and 50 million micro and small businesses into the digital economy by 2025, with a focus on women entrepreneurs.

We are grateful for our partners who have already shown support through additional funding commitments and offering increased flexibility for existing grants. This will enable us to work shoulder-to-shoulder with our financial service provider partners to make sure they can continue serving their customers – not only during the immediate response to the pandemic, but over the entire course of recovery. We must act quickly to secure even more funding and make sure it’s  directed toward developing countries, mobilized to reach <a href="https://www.centerforfinancialinclusion.org/can-financial-inclusion-moderate-impacts-to-coronavirus" target="_blank" rel="noopener noreferrer">those who need it most</a>.

This is a challenging moment. But together, we can give people the financial tools they need to manage through this crisis.

Your support can help continue building a financially inclusive world

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"><em>esusu</em></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"><em>Imu-Ahia</em></a>.

The roots of <em>Imu-Ahia</em> 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 <em>Imu-Ahia</em> 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><strong>Euros vs. dinars: Serbia’s dual-currency dynamic</strong></h2>
[caption id="attachment_18520" align="alignleft" width="500"]<img class="wp-image-18520" src="https://content.accion.org/wp-content/uploads/2019/05/ECA-pic-2-1-1024x767.jpg" alt="Novi Sad taxi" width="500" height="375" /> <em>Taxis in Novi Sad, Serbia, often quote cab fares in euros.</em>[/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><strong>1. Financial capability drives active use of financial products </strong></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"><em>Ahorro a la Mano</em></a><em>, </em>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><strong>2. Customer loyalty increases</strong></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/"><em>Bconomy</em></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><strong> 3. </strong><strong>Capable customers use more products</strong></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.<strong> </strong>
<h3><strong>4. Investing in financial capability is more effective — and less expensive </strong></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.

<em>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 </em><a href="https://www.centerforfinancialinclusion.org/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/"><em>Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations project</em></a><em>, supported by MetLife Foundation.</em>

Four reasons focusing on financial capability is good business

Building Women’s Financial Capability: A Path Toward Transformation

Weathering the Storm II: Tales of Survival from Microfinance Crises Past

The Stories Algorithms Tell: Bias and Financial Inclusion at the Data Margins

Crisis and Opportunity: Reimagining Inclusive Finance After the Pandemic

Regulatory Flexibility During the Pandemic: Emerging Lessons

Weathering the Storm II: A Case Study of Financiera FAMA

On the Economic Frontlines of COVID-19: Early Insights From MSMEs Grappling With the Crisis

The Case for a Gender-Intelligent Approach: An Opportunity for Inclusive Fintechs

Research from the Center for Financial Inclusion

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Dandan Wang

Grassland Finance Limited is guiding small business in the Chinese region of Inner Mongolia as they pivot their businesses to rebuild during the pandemic

Libby Morley

Our financial service provider and inclusive fintech partners from around the world share how they adjusted to disruptions from COVID-19

Accion’s partners in China, Grassland Finance Limited and CD Finance, share lessons learned for financial service providers

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

Insights on big data, mobile payments, and what China’s model means for financial inclusion in Nigeria

shannondwyer

<h3>Shannon Dwyer, Investment &amp; Portfolio Associate, Accion Venture Lab</h3>
<p><img class="alignright wp-image-23604" src="https://content.accion.org/wp-content/uploads/2021/03/shannon-dwyer-accion-venture-lab.jpg" alt="Shannon Dwyer, Accion Venture Lab" width="450" height="424" srcset="https://content.accion.org/wp-content/uploads/2021/03/shannon-dwyer-accion-venture-lab.jpg 2294w, https://content.accion.org/wp-content/uploads/2021/03/shannon-dwyer-accion-venture-lab-300x283.jpg 300w, https://content.accion.org/wp-content/uploads/2021/03/shannon-dwyer-accion-venture-lab-768x724.jpg 768w, https://content.accion.org/wp-content/uploads/2021/03/shannon-dwyer-accion-venture-lab-1024x965.jpg 1024w" sizes="(max-width: 450px) 100vw, 450px" />Shannon Dwyer first discovered the potential of inclusive fintech while working with microentrepreneurs in Cape Town, South Africa. “It became quickly apparent that while they had the hustle and dedication to start and grow their businesses, a lack of access to financial services constantly constrained their operations. Once I got that initial view into the limitations of the financial services industry, the other gaps on both the consumer and MSME sides became readily apparent. The direct link between access to financial tools and the overall livelihoods of these underserved populations made the potential impact of fintech services — and my related excitement around them — too big to ignore.”</p>
<p>Shannon now supports early-stage fintech startups that are reaching underserved populations in her role as <a href="https://www.accion.org/bio/shannon-dwyer">Investment &amp; Portfolio Associate</a> at Accion Venture Lab. On her work with fintech founders, she says, “I continue to be struck and inspired by the downstream impact that <a href="https://ssir.org/articles/entry/how_to_begin_considering_a_gender_lens_investing_strategy">investing in female founders</a> at the earliest stages can have. We know that female founders create more diverse and inclusive workforces, which lead to more inclusive product designs, which lead to more women accessing and utilizing financial tools and services. And when women have access to these tools and services, they often extend the benefits to others as well — by increasing their family’s savings capacity, by using a loan to pay for a child’s education, or by accessing capital to start a business. The potential of supporting this vastly underestimated segment of the founder population — women — is huge, both for the VC industry, but also for the end customers it ultimately touches.”</p>
<p>Inclusive fintech startups can also <a href="https://www.accion.org/fintech-startups-are-small-yet-mighty-partners-in-building-resilience-but-they-need-to-grow-to-succeed">give people the tools they need to build resilience</a> during challenging times like the COVID-19 crisis, which has disproportionately affected the lives of women.  Shannon stresses how the pandemic has exacerbated the inequalities that women face. “The one that feels the most visible to me is the disproportionate rate at which at-home and informal work falls on the shoulders of women. In the US, where I am based, this is clearly shown in the most recent unemployment reports, where women, especially women of color, are more likely to have become unemployed in the last 12 months and more likely to state &#8216;family responsibilities&#8217; as the primary reason. We need policymakers and employers to step up and provide support and flexibility so that people aren’t forced to choose between their family responsibilities and remaining in the workforce. From flexible working hours to more generous PTO to better childcare benefits, there is much more we can do to support working women.”</p>
<p>Shannon believes that the world will be better off with more women in leadership. “It’s important to remember that there are so many different areas and ways to make an impact, and that each is incredibly critical. It doesn’t matter if it’s at the community, national, or global level — we need more women in positions of power, pushing for change across the board.”</p>
<p>&nbsp;</p>


juliaarnold

<h3>Julia Arnold, Senior Research Director, Women&#8217;s Financial Inclusion</h3>
<p><img class="alignright wp-image-23598" src="https://content.accion.org/wp-content/uploads/2021/03/Julia-Arnold-Headshot.jpeg" alt="Julia Arnold, CFI" width="450" height="450" srcset="https://content.accion.org/wp-content/uploads/2021/03/Julia-Arnold-Headshot.jpeg 800w, https://content.accion.org/wp-content/uploads/2021/03/Julia-Arnold-Headshot-150x150.jpeg 150w, https://content.accion.org/wp-content/uploads/2021/03/Julia-Arnold-Headshot-300x300.jpeg 300w, https://content.accion.org/wp-content/uploads/2021/03/Julia-Arnold-Headshot-768x768.jpeg 768w" sizes="(max-width: 450px) 100vw, 450px" />Raised by a feminist mother, Julia Arnold knew from an early age that she wanted to work to improve the lives of women around the world. “I saw how powerful it could be to help women achieve what they want to achieve and found that was exactly what I wanted to do.” Julia was first introduced to the ways that microfinance can empower women while in high school when she listened to an NPR interview with Muhammad Yunus. From there, she decided to focus her studies and career on microfinance, and later inclusive finance for women. She now leads the <a href="https://www.centerforfinancialinclusion.org/bio/julia-arnold" target="_blank" rel="noopener">Center for Financial Inclusion</a>’s research on <a href="https://www.centerforfinancialinclusion.org/reimagining-inclusive-finance-with-women-in-mind" target="_blank" rel="noopener">women’s financial inclusion</a>.</p>
<p>In her research at CFI, Julia explores <a href="https://www.centerforfinancialinclusion.org/the-case-for-a-gender-intelligent-approach-an-opportunity-for-inclusive-fintechs" target="_blank" rel="noopener">how financial services can better serve women</a> and address the constraints that they still face. “Women are 50 percent of the world’s population, and they are never the first person on any policymakers’ mind when they think about ‘What do I do? For whom do I do it?’ If you can help make women’s lives easier, you’re going to make everybody’s lives easier.”</p>
<p>As global gains toward gender equality have <a href="https://www.centerforfinancialinclusion.org/care-work-during-crisis-pandemic-unravels-fragile-gains-in-gender-equality" target="_blank" rel="noopener">reversed during the pandemic</a>, Julia is thinking about how we can help women recover from this crisis. “What it will take is clear-eyed commitment at a global policy level and individual country policy level to better understand women’s needs, women’s roles in their community, the constraints on their time and their mobility — which have been exasperated by COVID-19 — and embedding direct solutions to those needs in government payments, in gender budgeting, in infrastructure development, in consumer protection laws, in debt forgiveness in some form for those under a certain threshold.”</p>
<p>Julia is passionate about building a more equitable world, noting that “those of us who have privilege and opportunity have a responsibility to make room for voices of those who aren’t in the room.” She encourages others to push for change in their own way: “Find a thing that you love and care about and figure out a way that’s most comfortable for you to move forward in that direction and don’t stop.”</p>


Part of Accion’s annual series highlighting women working in financial inclusion

Answering the needs of low-income, underserved people amid a global crisis requires a united effort by philanthropy, the private sector, and beyond.

Jacqueline Foelster

Research shows how small business owners hone their financial capability as they build job skills

<p>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.</p>
<h2><strong>Euros are for saving — dinars are for spending</strong></h2>
<p>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.</p>
<p>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.</p>
<p>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.</p>
<h2><strong>Next steps in our financial health project </strong></h2>
<p>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?</p>
<p>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!</p>
<p><em>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 </em><a href="https://www.centerforfinancialinclusion.org/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/"><em>Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations project</em></a><em>, supported by MetLife Foundation.</em></p>
<p><em>This post was originally published on <strong><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>.</strong></em></p>


Currency is one issue that will inform prototyping of a financial health digital tool for Serbia and other countries in Eastern Europe

Yanina Seltzer

Pablo Anton-Diaz

Expanding financial capability benefits financial service providers and customers

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