Priya Punatar

Amy Stewart

<p>After conducting user research, interviewers document observations, facts, quotes, and impressions shared by customers. As the information grows, key themes, patterns, and relationships start to emerge. We learned that people often feel stressed and alone in managing their finances and financial challenges, and that <a href="https://www.accion.org/five-reasons-small-merchants-arent-using-financial-services-in-chile" target="_blank" rel="noopener noreferrer">microentrepreneurs tend to keep track of their finances mentally</a>. These insights highlight the drivers of customer behavior and were used to guide the product concepts.</p>
<p>With Caja Popular Cerano, we conducted a co-creation session with potential users, empowering them as active participants in the design process. Typically, co-creation works the best when you have a very narrow problem you are trying to solve. In this instance we worked with small groups of youth to explore how financial service providers could build better trust relationships with young customers. Through co-creation sessions, participants discussed how trust emerges from healthy relationships, and developed a marketing campaign with the hashtag #FinancialLoveExists.</p>
<h3>Test products with customers in the field to see how they really react</h3>
<p>Speaking with customers will only get you so far in developing a sustainable product. Institutions should quickly move to translate insights into prototypes, giving form to product ideas so that they can move out of the office and into the reality of customers’ lives. Initial prototypes should be “quick and dirty,” allowing teams to explore and get feedback on many options before investing in detailed design and development. Prototyping is an opportunity to gather customer feedback and to assess their behavior. Beyond asking for reactions, likes, and dislikes, we also ask customers to share how, when, and where they would use the prototyped product.</p>
<p>As opposed to early prototypes, which are usually drawn or presented on paper, later-stage ‘usability’ prototypes are close to final fidelity and allow customers to interact with and explore the product flows. Ideally, these prototypes are hosted on the final technology platform and can be tested in a user’s environment. Interviewers simply provide the customer with the prototype and see how they interact – this helps the team get a sense of whether the product is intuitive, how long it takes to complete certain tasks, and what additional features might be required.</p>
<p>For example, microentrepreneurs reviewing the Organizame mobile application told us that when inputting the price of their products into the application, it would be useful to have the option to choose whether that particular product is sold with VAT (value added tax) or not. The development team is now working to build out this option.</p>


Brief

<em>Photo caption: By keeping desirability, feasibility, and viability in mind in product innovation, Accion worked with institutions across Latin America to develop scalable and sustainable products, including a financial health portal with </em><a href="https://www.accion.org/fintech-founders-have-a-formula-for-building-financial-health" target="_blank" rel="noopener noreferrer"><em>Destácame</em></a><em> in Chile. </em>

The financial services landscape is crowded with a wide array of offerings, but vulnerable and low-income people across the globe still struggle to find products that are designed to meet their needs. This gap has been amplified though the economic fallout from COVID-19, which has disproportionately affected those without the access, resources, or network to weather the storm. Now more than ever, low-income populations need customized and responsive financial products and services to recover from the crisis and restart in the new normal.

To address this gap, in recent years many financial service providers have turned to human-centered design (HCD) methodologies to better understand their clients’ wants, needs and aspirations, hoping to update their product offering and drive usage. While many organizations have this goal, very few have been able to deliver on it. Many human-centered products are based on thoughtfully designed and innovative ideas, but ultimately do not end up gaining traction with customers or are disbanded when institutional priorities shift. Sometimes institutions focus on customer needs but overlook real operational and business constraints. Others design from the board room, without taking into account the customer’s life and the complexities around financial decision making and end up solving for the wrong problem. To be sustainable, innovative digital products must balance the customer’s needs with organizational capacity and should be built upon a solid business case to ensure that the product is supported in the long term.

Accion, <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion" target="_blank" rel="noopener noreferrer">in partnership with MetLife Foundation</a>, is committed to delivering high quality, affordable solutions for the billions of individuals who are still underserved by the financial sector. We do this by working alongside financial institutions to design, build, launch and optimize innovative products, services, and experiences for low-income customers that are desirable (wanted by and useful for clients), feasible (achievable given the institution’s operations, technology and resources), and viable (make business sense)—so that the products make it from concept to commerce.

<img class="wp-image-22353 alignleft" src="https://content.accion.org/wp-content/uploads/2020/09/accionGraphics_Aug26_Key-Tenets.png" alt="Key tenets of innovation: feasibility, desirability, and viability" width="436" height="314" />

This paper outlines how financial institutions can develop innovative and sustainable financial solutions. It draws on our recent experiences working with financial services providers and fintechs in <a href="https://www.accion.org/achieving-financial-health-in-mexico-and-chile">Chile and Mexico</a> over the last two years to design and launch behaviorally-informed products that build customers’ financial capabilities and ultimately improve their financial health. While the products were not specifically designed to respond to the impacts of COVID-19, they aim to build resiliency to financial shocks and enable users to pursue opportunities over time.

This paper will cover how we leverage human-centered design and a strong focus on behavior to create more desirable products, how we evaluate institutional capacity to ensure feasibility, and how we get the business model and KPIs right to ensure the product is viable and justifiable for the business for the long term—even during economic shocks. For customers, this approach translates to more intuitive financial products and services that are aligned with their behaviors and help build their financial health. For financial service providers, this approach leads to innovative products that are sustainable, use internal resources efficiently, and achieve business goals.

<em>Using this approach in Chile, we developed a business management application with </em><a href="https://www.accion.org/this-new-app-is-helping-small-business-owners-build-financial-health-and-resilience" target="_blank" rel="noopener noreferrer"><em>Organizame and Banigualdad</em></a><em>, a financial health portal with </em><a href="https://www.accion.org/fintech-founders-have-a-formula-for-building-financial-health" target="_blank" rel="noopener noreferrer"><em>Destácame</em></a><em>, and a crowd-funding platform for microentrepreneurs with </em><a href="https://redcapital.cl/" target="_blank" rel="noopener noreferrer"><em>RedCapital</em></a><em>. In Mexico, we developed a savings product for youth with </em><a href="https://www.accion.org/young-people-in-mexico-need-finance-that-fits-their-lives" target="_blank" rel="noopener noreferrer"><em>Caja Popular Cerano</em></a><em>, and a supply chain finance product with </em><a href="https://www.ahorrosbienestar.com/" target="_blank" rel="noopener noreferrer"><em>Caja Bienestar</em></a><em>. </em>
<h2>Desirability — are we solving customer problems?</h2>
To combat the persistent issue of dormant accounts, financial service providers must design <strong><em>desirable</em></strong> products that people will want to use, that are intuitive, and that will generate value. Desirable products solve customer problems, and to identify the right problem, institutions need to go to the customer. HCD methodologies stress talking to and observing potential customers to gain perspective and empathy for their lives. We’ve found it just as important to analyze how customers make decisions — both consciously and subconsciously — and how they behave, using qualitative and quantitative data.
<h2>How can we ensure products are desirable?</h2>
<h3>Conduct client-centric user research that seeks to understand customer behavior</h3>
We begin every design process by conducting user research to understand what customers want and <em>why</em> they act the way they do. Interviewers are trained to take note of physical and emotional reactions, feelings, and expressions as well as customer surroundings, observing their daily lives and understanding their broader context.

While social distancing measures make in-person interviews difficult, we found that this can also be done remotely.  In Mexico, the team conducted remote video interviews with youth customers, and found that they were still able to capture non-verbal cues and build trust. Questions explore underlying attitudes that inform client decision-making. We listen closely to understand when participant behavior may have been affected by emotion, stress, or biases. This process helps us to ensure that we are building products that accommodate client realities, will align with how customers actually behave, and will make their lives easier.

To succeed, innovative financial products must be desirable, feasible, and viable

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Article

In this time of uncertainty, it is more critical than ever to support small businesses and microentrepreneurs as they strive to exist within this new, socially distanced reality. In Chile, where COVID-19 infections have <a href="https://www.npr.org/sections/goatsandsoda/2020/07/02/885207834/covid-19-exploits-cracks-in-chilean-society" target="_blank" rel="noopener noreferrer">recently soared</a>, nearly <a href="https://oecdecoscope.blog/2020/06/29/reaching-out-to-informal-workers-in-latin-america-lessons-from-covid-19/" target="_blank" rel="noopener noreferrer">30 percent of the population works in the informal sector</a>, with no access to social protection and little savings to draw from if their businesses are closed. These challenges underscore the importance of financial health.

In <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion" target="_blank" rel="noopener noreferrer">partnership with Metlife Foundation,</a> Accion has supported the fintech <a href="https://redcapital.cl/" target="_blank" rel="noopener noreferrer">RedCapital</a> to develop financial health resources for microentrepreneurs over the last two years. Founded in 2014, RedCapital is the first crowdfunding platform with a sole focus on small and medium enterprises (SMEs) in Chile. On this platform, individual investors lend money to SMEs. Accion's support has enabled RedCapital to offer services through their platform to benefit microenterprises too. Serving this new segment meant that RedCapital needed to revisit their end-to-end customer experience — product, processes, credit scoring, etc.

More than 40 percent of RedCapital's client base within the microentrepreneur segment is under 35, with businesses that have been in operation for only a few years. As these young business owners strive to create stability, their financial health is critical. In interviews with Red Capital customers, we learned that many microentrepreneurs are unsure about their monthly revenues. Many told us that they know how much they make in income but do not keep an accurate record of their costs. They said that they would like to have more control over their finances, but they need help.

<img class="wp-image-22090 aligncenter" src="https://content.accion.org/wp-content/uploads/2020/08/redcapital.png" alt="" width="750" height="363" />

Manuela Iribarren, an entrepreneur and client of RedCapital, has faced many challenges in managing her pickle business, <a href="https://bymaria.cl/" target="_blank" rel="noopener noreferrer"><em>By Maria</em></a>, which opened in 2012. When she and her brother had the idea to start a pickle company, she had never made a spreadsheet, let alone run her own company. Learning business and financial management skills helped her organize her business's finances for both busy and slow seasons.

We carefully adapted RedCapital's platform from the original to meet microentrepreneurs' needs and goals. To ensure that these microbusinesses were able to maximize their use of both the platform and any credit products they might take up, RedCapital sought to build their customers' financial capabilities in four distinct areas: (1) help them to organize their finances, (2) control costs, (3) plan for their future, and (4) manage debt.

For each of these four categories, the Accion and RedCapital team developed relevant, actionable, and easy-to-digest advice for busy microentrepreneurs, structured as a series of blogs. The blogs were published weekly on the RedCapital website as part of a comprehensive customer engagement campaign. In a blog titled "Managing your Debt," clients learn to calculate how much of their earnings they should save to pay off their debt. They also learn to identify whether they can reasonably manage to take on credit based on their income level.

[caption id="attachment_22085" align="aligncenter" width="750"]<img class="wp-image-22085" src="https://content.accion.org/wp-content/uploads/2020/08/redcapital2.png" alt="" width="750" height="714" /> <em>Blogs accessible to RedCapital customers: "Manage your Debt," "Plan Your Future," "Control your Costs," "Organize your Finances" (top left to bottom right)</em>[/caption]

To ensure that microentrepreneurs take action after reading the blogs, each post contains a gamified, simple activity that demonstrates the financial capability explained in the post. These <em>calls to action</em> use <a href="https://www.ideas42.org/dfsplaybook/" target="_blank" rel="noopener noreferrer">behavioral design principles</a> to encourage customers to engage with the concepts and, over time, build their financial health. For example, in one of the activities, users are asked to develop a concrete plan for managing their current debt. As they complete these activities, users unlock membership benefits, such as higher loan amounts. To assess the impact of the blogs and corresponding exercises, the team used various indicators to measure the perception of financial well-being for those who engaged with the content, compared to a control group. Data gathered through this study showed that RedCapital clients who completed the calls to action said that they felt better able to manage their businesses and debt.

[caption id="attachment_22086" align="aligncenter" width="750"]<img class="wp-image-22086" src="https://content.accion.org/wp-content/uploads/2020/08/redcapital3.png" alt="" width="750" height="231" /> <em>Calls to action available in the "Manage your Debt" blog: Calculate the percentage of Debt, Credit Financing, Credit Rules (from left to right)</em>[/caption]

RedCapital piloted this newly designed lending product for microentrepreneurs in October 2019. To date, 715 microentrepreneurs have registered their business on RedCapital's redesigned portal. This product's initial results signify an interest in personalized digital financial resources that let microentrepreneurs learn about financial health and access appropriate credit, which can help them weather crises and plan better for the future.

For RedCapital, it's all in the name. <em>Red</em> means <em>network</em> in Spanish, thus signaling that when individuals choose to engage with RedCapital, they become more than a client, but a member of a network. In reaction to this campaign, one client shared, "Everything that is education and help is welcome — it helps me not to make the financial mistakes that I [have made in the past]." As Accion continues to support RedCapital in the rollout of this adapted platform, we will also be further assisting the microentrepreneur community, as they navigate challenges imposed during these uncertain times.

This product is a part of our <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion" target="_blank" rel="noopener noreferrer">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations project</a>, supported by MetLife Foundation.

<em>Megan Skaggs also contributed to this article.</em>

How we built a network for microentrepreneurs in Chile

Daw Amar Myint owns a small restaurant serving up traditional Myanmar cuisine in the Mingaladon Township of Yangon. When the pandemic hit, she was forced to close her doors. Without customers coming in, she couldn't provide for her family, including her son, who lost his job because of the pandemic. Before the pandemic hit, Daw Amar's restaurant was always busiest at lunchtime, so she decided to keep her kitchen open and start delivering lunch boxes to her customers who couldn't come eat at the restaurant in person. She turned to social media to market her new delivery service and began selling on Facebook. As her online sales picked up, her income has rebounded — she was even able to give a job to her son. She’s now receiving monthly pre-orders, allowing her to estimate her future income and minimize waste when she orders ingredients.
<h2>Providing small businesses with financial support during the pandemic</h2>
Microentrepreneurs like Daw Amar can build stronger businesses, better manage their expenses, and earn reliable incomes to care for their families when they can access financial services like group and individual loans. Accion portfolio company <a href="https://www.dawn.com.mm/" target="_blank" rel="noopener noreferrer">DAWN Microfinance</a> provides these services for low-income microbusinesses in Myanmar, and now they are helping these businesses make it through the pandemic and its economic effects. The dramatic spread of COVID-19 has disrupted lives, livelihoods, communities, and businesses in Myanmar. In response, DAWN quickly mobilized a COVID-19 response team to limit the disruption to clients’ businesses and to adapt their own business.

Micro and small business owners already face many struggles in Myanmar — <a href="https://www.worldbank.org/en/country/myanmar/publication/poverty-report-myanmar-living-conditions-survey-2017" target="_blank" rel="noopener noreferrer">where 1 in 4 people live in poverty</a>, and most people still don't have the financial services they need to manage their daily lives and grow their businesses. These entrepreneurs are experiencing additional challenges during the pandemic, like shortages of imported raw materials, declines in sales and revenue, forced closures of brick and mortar businesses, and the inability to cover day-to-day expenses. DAWN has implemented several changes to help their clients, including:
<ol>
 	<li><strong>Providing alternative repayment options:</strong> DAWN is encouraging clients to transfer repayments digitally through collaborations with banks and mobile money agents. For clients who aren’t comfortable making digital repayments through these third parties, especially group lending clients who normally make cash payments at collection points, staff are continuing field visits while following social distancing measures. Clients also have the option to visit DAWN’s branch locations where staff is practicing social distancing. DAWN is also reimbursing the transport cost to their customers who choose to visit in-person.</li>
 	<li><strong>Offering new products to help clients adapt:</strong> DAWN created a new “Emergency Top-Up Loan” product to support clients’ businesses that have been impacted negatively by coronavirus. This loan is being disbursed in parallel with the client’s existing loan.</li>
 	<li><strong>Rescheduling repayments and providing prepaid loans:</strong> DAWN is proactively contacting customers to reassess their repayment capacity and determine rescheduling options. In some cases, customers can request a prepaid loan and deduct a certain amount from it to offset the remaining balance of their existing loan.</li>
 	<li><strong>Setting up help desks in response to COVID-19:</strong> DAWN’s customer service representatives at their head office and branches are available to help clients in any way that they can.</li>
</ol>
<h2>Meeting customers’ evolving needs</h2>
DAWN’s new efforts allow them to help the people and businesses that are struggling most right now, and to support entrepreneurs that have found new opportunities to grow their businesses and serve their communities despite the circumstances. U Kaung Htike Kyaw, a DAWN customer located in Yangon, runs a small business that produces personal care products, including a wide range of soaps and hand sanitizers. When the pandemic arrived, he expanded his offerings and began producing different types and sizes of hand sanitizers to fill a need in the market. He was able to expand his market even further by selling his products online. By adjusting his business operations to suit his customers’ new and evolving needs, he’s keeping his business running and continuing to earn an income.

[caption id="attachment_22008" align="aligncenter" width="800"]<img class="wp-image-22008" src="https://content.accion.org/wp-content/uploads/2020/08/Kaung-Htike-Kyaw_1-Swenyein-Swenyein-1.jpg" alt="" width="800" height="450" /> <em>U Kaung Htike Kyaw expanded his personal care business’s line of hand sanitizers during the pandemic.</em>[/caption]

We’ve seen how <a href="https://www.accion.org/the-future-of-finance-in-myanmar-is-digital" target="_blank" rel="noopener noreferrer">digital financial tools can open up opportunities for people in Myanmar</a>. Most adults in Myanmar have a cell phone and the vast majority of those phones are smartphones, giving a significant portion of the population access to the internet. The opportunity of digitization has never been more critical for entrepreneurs than it is now. Beyond creating new ways to access financial services, digitization allows small business owners like U Kaung to continue selling online so they can withstand this downturn. By finding ways to continue serving customers during the pandemic, DAWN is giving entrepreneurs the support they need to adapt to challenging times and build new capabilities that will help them continue to thrive in the future.

Digital tools open opportunities for struggling business owners

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

For Carolina Cano Huanca, making clothes has always been a family affair. “I started because of my brother,” she says, “He was working in Argentina making clothes, and when he came back, he had the idea to start a workshop. He bought some machines, and then I got interested.” Eventually, she expanded her sewing skills and began designing her own garments and products. “I first bought a sewing machine, and I would make clothes for others, but I realized that did not fulfill me. I wanted to make my own creation. I wanted to make it myself, the whole thing."

Equipped with a newfound passion for design and her own sewing machine, Carolina decided to open a garment business in her hometown of La Paz, Bolivia. She's worked side-by-side with her husband Rómulo Ferrel Rodríguez since they got married ten years ago. They use the income from their business to provide for their family and build a future for their four young children. Carolina wants to “give them stability, make them study everything they want, and to be able to help them do anything they would like to do. Out of everything, that is what motivates me the most.”
<h3>Filling a need for their community during the pandemic</h3>
[caption id="attachment_21901" align="alignnone" width="750"]<img class="wp-image-21901" src="https://content.accion.org/wp-content/uploads/2020/07/bancosol2.jpg" alt="" width="750" height="500" /> <em>Entrepreneur Carolina Cano Huanca began producing PPE during the pandemic</em>[/caption]

Today, Carolina and Rómulo are facing very difficult circumstances: keeping their small business afloat while the COVID-19 pandemic disrupts life in Bolivia. Before the pandemic, the bulk of their income came from contracts with schools, businesses, and sports teams. Once schools closed and sports seasons were called off, all of their orders were suddenly canceled — even though they had already purchased the raw materials to fill them. “We could not do anything,” explains Carolina, “At first it was very hard because we thought that this was going to last less time. But with this being prolonged, my husband and I talked about having to do something, we had to adapt to this situation because we did not have any other option."
<blockquote>“We had to adapt to this situation because we did not have any other option.”</blockquote>
So, they pivoted their business to fill the growing need for personal protective equipment (PPE) in their community by producing biosecurity suits. Biosecurity suits are worn on top of clothing to protect people from viruses and other biohazards. During the COVID-19 pandemic, PPE has become a necessity for many people who must return to work despite the continuing spread of the virus in Bolivia. Carolina and Rómulo decided to produce these protective suits and put their own spin on a new design. Instead of the typical one-piece style, they’ve created a more comfortable two-piece design made of lightweight, waterproof material. Though their income is not what it was before the pandemic, they’ve kept their prices low so that the suits are accessible to those that need them. “That is a way in which I want to contribute. We are offering lower prices so that [people] can take care of themselves,” says Carolina.
<h3>“BancoSol helped us grow as a family, as a microenterprise.”</h3>
Right from the start, Carolina and Rómulo realized how difficult it was to start a business with their own money and knew they needed help to grow their business. By working with BancoSol, <a href="/bolivias-small-businesses-need-innovative-products-to-help-them-grow">a commercial bank serving small and micro businesses in Bolivia</a>, they’ve been able to purchase the machinery and raw materials they need to grow. “The most positive change that BancoSol has made for us was to trust us as clients. The trust BancoSol gave us, I believe that is the fundamental support that every microentrepreneur needs,” says Rómulo, “BancoSol helped us grow as a family, as a microenterprise.” With continued trust and support from BancoSol, they can continue working during the pandemic.
<blockquote>“The trust BancoSol gave us, I believe that is the fundamental support that every microentrepreneur needs.”</blockquote>
Since the pandemic has unfolded, BancoSol has been working to assist their small business clients. Together with Accion, they developed data-driven customer segments to better understand their clients’ business needs during this time. They’re incorporating these findings into a new mobile saving application that leverages gamification to enhance user engagement. By evaluating entrepreneurs’ mindsets, use of administrative tools, potential for growth, and technological savviness, they can group customers with similar needs and provide targeted solutions to help entrepreneurs reinvest in their businesses. We're currently working with BancoSol as part of our ongoing efforts with the <a href="/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses">Mastercard Center for Inclusive Growth</a> to drive the digital transformation of millions of microbusinesses and the financial institutions that serve them.
<h3>Fighting to move forward</h3>
<img class=" wp-image-21900 alignleft" src="https://content.accion.org/wp-content/uploads/2020/07/bancosol3.jpg" alt="" width="297" height="446" />This pandemic has threatened the livelihoods of entrepreneurs everywhere, especially those small and microentrepreneurs that were already vulnerable to challenges. But Rómulo has found a silver lining: “As a family, it has affected us economically, but the good thing about this pandemic is that as a family, we have been able to unite much more; with my wife, my children — we have been able to interact more. For every bad thing in our family, we are able to bring out the good, that the family has gotten closer.”

As an entrepreneur, he and Carolina have overcome past challenges and grown from them. Rómulo is optimistic about the spirit of Bolivians during this crisis, saying, “There are entrepreneurs, fighters, who adapt to change rapidly. Just how it has happened in this pandemic. There are people who have turned 180 degrees to move forward, to continue the fight. I think that what characterizes Bolivians is the fight to keep going, to keep growing.” He and Carolina are doing just that.

“The fight to keep going”: A family business changes course

Ibu Oom Rohmayato owns a rice milling business with her family in Majalaya, Bandung in West Java, Indonesia. She dreamed of expanding her family’s business and needed access to working capital to purchase additional unhusked rice to mill, so <a href="https://www.accion.org/expanding-the-benefits-of-a-growing-digital-economy-in-indonesia-and-india" target="_blank" rel="noopener noreferrer">she turned to group lending to grow her business</a>. She joined a group in her community and together they applied for a working capital loan from <a href="https://bina-artha.com/" target="_blank" rel="noopener noreferrer">Bina Artha Ventura (BAV)</a>, a financial service provider in Indonesia and partner of Accion.

Group lending creates opportunities for women in rural areas like Ibu Oom who otherwise would not have access to financial services. <a href="https://static1.squarespace.com/static/5db8891e058ab7204b4e9088/t/5dea83f380f97670d487de8e/1575650294671/MIX+Market_Global+Outreach+%26+Financial+Benchmark+Report_2017-2018.pdf" target="_blank" rel="noopener noreferrer">80 percent of group lending participants are women, and 65 percent live in rural areas</a> where traditional banks don’t have a presence. By forming groups of people in the same communities that can guarantee each other, group lending uses social collateral to serve those without any credit history. Since group lending first began, it has relied heavily on frequent in-person interactions. Loan officers build relationships with their customers from the initial application to biweekly cash disbursement and repayment collection, and members participate in group meetings and often mentor each other. But as the COVID-19 pandemic has necessitated social distancing and quarantines, we must rethink the group lending process and how if it might function digitally.
<h2>The case for human-centered design in group lending</h2>
Digitization has become an important <a href="/the-digital-transformation-of-microenterprises-a-path-forward-in-a-post-covid-19-world" target="_blank" rel="noopener noreferrer">path forward for financial service providers</a> and businesses during the pandemic. Many group lending providers have the ability to digitize their application processes and implement cashless transactions, but that might not be the best solution for their group lending customers. As providers consider digitizing their products, they must ask themselves if digitization will benefit the group lending customer, or if will it create more problems for them. While current circumstances discourage in-person gatherings, the solution to adapt group lending is not technology alone — we must pursue a human-centered design approach.

The core of design thinking is a focus on the end-user by building deep empathy and understanding of their lives while designing products and solutions. If we know our users, we will always build according to their needs and desires and can cultivate trust. As a part of <a href="/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses" target="_blank" rel="noopener noreferrer">our partnership with Mastercard to drive the digital transformation</a> of underserved micro and small businesses, BAV is in the process of launching a mobile phone-based model so they can continue to serve customers like Ibu Oom during the pandemic and into a more digital future. Christian Banno, Chief Business Officer of CASEA and board member of BAV, describes BAV’s approach to designing digital products for their customers, “When you try to digitalize the process for the clients — when you try to make clients adopt digital means — things become more complicated because we need to make sure that the client is at the center of the change. We need to make sure that the change is not only benefiting the microfinance institution, but that it is benefitting and enriching the life of the client.”
<h2>Can group lending operate in a digital world?</h2>
Group lending can only succeed when there is trust between customers and financial institutions, and that trust is built through many physical meetings and interactions with the customer. Forming these relationships digitally may become easier in the future as more and more customers use digital tools in other aspects of their lives. But an element of human touch will still be needed for group lending — especially for those clients in rural areas who have minimal exposure to digital transactions.

<a href="https://www.dvarakgfs.com/" target="_blank" rel="noopener noreferrer">Dvara KGFS</a> serves groups and individual customers who run small businesses in rural India through a network of branches in remote areas. They’ve invested in building mobile phone-based solutions to serve their customers, including a digital payment platform for customers to manage their money remotely while the pandemic prevents people from visiting branches. They plan to add more features to their digital platform to enhance the services that people receive and to make branches more relevant by converting them into cash checkout points using the Aadhaar Enabled Payment System (AEPS) and facilitating online utility payments using the Bharat Bill Payments System (BBPS). Joby CO, Chief Executive of Dvara KGFS, says, “Going forward … I don’t see that the branches will go away, but I see the branches can really become more relevant as customers can access a lot more services digitally through the branches using the branch internet.”

For group lending participants to feel comfortable with new tools, they must be designed with the end-customer first, using a human-centered approach. Providers must pursue a hybrid approach for clients where <a href="/in-a-no-touch-world-tech-cant-leave-low-income-people-behind" target="_blank" rel="noopener noreferrer">human touch complements their new technology</a>. “We need to maintain physical touch because we don’t want to exclude them. We are here to include people, we’re not here to exclude people,” says Christian. To learn more about how we might reimagine group lending, <a href="/reimagining-group-lending-for-a-digital-world">listen to our recent conversation with Christian and Joby here</a>.

Can group lending work in a socially distant world?

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Responding to COVID-19

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VentureKast: Rebuild

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The real impact of financial inclusion

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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>

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Federico  Gomez Romero

Despite the challenging circumstances, this may be the best time for your fintech startup to accelerate growth in Brazil

Brazil has been hit especially hard by the COVID-19 pandemic, and the crisis is changing every aspect of society. Now that the most obvious and immediate effects have set in, we are beginning to see what the mid- and long-term consequences will be in the country.

I strongly believe that fintech will be one of the sectors that will emerge from this crisis both reinvigorated and transformed. As a fintech entrepreneur, you have the chance to rebuild a better Brazil.
<h2>Transforming uncertainty into new opportunity</h2>
It’s not a surprise that the macro landscape looks grim right now. The economy is <a href="https://blogs.imf.org/2020/06/26/outlook-for-latin-america-and-the-caribbean-an-intensifying-pandemic/" target="_blank" rel="noopener noreferrer">expected to contract around 9 percent</a> this year, and although analysts predict a positive rebound next year, the main players in the financial sector are still in shock. As a consequence of increased payment deferrals for loans, the current level of non-performing loans is unknown and financial institutions are navigating in the dark. The CEO of Itau referred to their strategy around managing these loans as <a href="https://www.fool.com/earnings/call-transcripts/2020/05/06/itau-unibanco-holding-sa-adr-itub-q1-2020-earnings.aspx" target="_blank" rel="noopener noreferrer">"more an art than science.”</a> I cannot find a better phrase to describe the current situation of the traditional financial sector. Amid all of this uncertainty, it is clear that fintech players will be better positioned to recover from the economic downturn if they can use alternative data sources to access updated financial information.

Those tech companies who already have access to real-time data will have an added advantage due to <a href="https://www.businessinsider.com/brazil-moves-forward-with-open-banking-2020-5#:~:text=The%20Central%20Bank%20of%20Brazil%20has%20released%20open%20banking%20regulation,the%20customer%20agrees%2C%20per%20Finextra." target="_blank" rel="noopener noreferrer">an open banking regulation released by The Central Bank of Brazil</a>, which will be fully implemented next year. In addition to the data they already have, fintechs will benefit from accessing additional information from their clients that allows them to provide a better, more personalized service. At the same time, the opportunities for fintechs to partner with banks will increase as banks seek to connect to third party providers and enrich their businesses.

But negatively hit sectors aren’t the only place where tech startups can find opportunities to offer financial services to the underserved. For example, agriculture is <a href="https://www.world-grain.com/articles/13958-record-soybean-shipments-forecast-for-brazil" target="_blank" rel="noopener noreferrer">posting record results</a>, and some industries within the gig economy, like last-mile delivery, are also growing more than ever before. There is a huge potential to layer digital financial services in these and other thriving sectors.
<h2>Data is king</h2>
Fintech companies are in an advantageous position when they have rich and timely data needed to make the right business decisions. And those data-driven companies that build strong relationships with customers by solving problems that aren’t financial — before embedding fintech solutions — are in an even better position. In the past, <a href="https://www.forbes.com/sites/vikasraj/2019/11/20/platform-fintechs-are-cominghow-should-startups-respond/#742436bb2b0f" target="_blank" rel="noopener noreferrer">we have explored how super-platform tech companies are doing this</a>, and now this approach is expanding across multiple sectors. For example:
<ul>
 	<li><a href="https://terramagna.com.br/" target="_blank" rel="noopener noreferrer">Terra Magna</a> has spent years building a huge database of farming regions and crop performance using high-tech satellite images. With a unique knowledge of the business, it is now starting to provide responsible financing to farmers.</li>
 	<li><a href="https://www.loopa.digital/" target="_blank" rel="noopener noreferrer">Loopa</a> is a startup that provides a free platform to MSMEs for credit card reconciliation, allowing them to have a better understanding of their business and solve cashflow inefficiencies. That type of relationship with customers is the one that provides infinite possibilities to add financial services.</li>
 	<li>Finally, <a href="https://www.smartmei.com.br/" target="_blank" rel="noopener noreferrer">SmartMEI</a>, one of our portfolio companies, is building solutions for the future of work. They understand the needs of a workforce that is changing every day and have built targeted financial products for an evolving workplace. The company started by providing simplified accounting services and has grown to offer a full suite of products.</li>
</ul>
<h2>But who is investing right now?</h2>
At the onset of the pandemic, capital immediately dried up for entrepreneurs. Many investors had to concentrate their efforts on helping their portfolio companies stay afloat, and others were too wary of the situation to keep investing. As Nigel Morris, partner of QED Capital, recently said in an episode of <a href="https://www.accion.org/a-great-company-going-into-covid-is-invariably-a-great-company-coming-out" target="_blank" rel="noopener noreferrer">VentureKast</a>, “We are going to see fewer tourists involved in VC in the fintech space.” The ones that will keep betting on the sector — and that have already restarted actively investing — are the true fintech specialists.

So, the big question is: who should you pitch your startup to in Brazil? Many great investors come to mind. This complete <a href="https://www.contxto.com/en/brazil/venture-capital-brazil-2020/" target="_blank" rel="noopener noreferrer">cheat sheet recently published in Contxto</a> lists some of the most active equity investors divided by industry and stage.
<h2>Don’t miss the chance to grow your startup, with some caution</h2>
The pandemic, despite all its negative connotations, is creating a temporary blue ocean for many fintechs. Now may be an excellent moment to fundraise and accelerate growth, but you should consider a few things before doing so:
<ol>
 	<li><strong>Don’t be afraid to be selective.</strong> Choose your customers wisely and make good use of your data collection and analysis capabilities.</li>
 	<li><strong>Mind your unit economics.</strong> This is a moment to grow, but definitely not at all costs. Bear in mind that this is a time ruled by uncertainty. The less you burn, the more runway to have to survive through the storm. VCs are certainly looking at this before investing.</li>
 	<li><strong>Valuations are coming down.</strong> Early-stage valuations in Brazil reached astronomical levels in recent years, and now it’s not uncommon to see up to 30 percent cuts. Believe it or not, this could be a good thing for your startup as you can align incentives with your investors and reduce the risk of a down round in later stages.</li>
 	<li><strong>Banks will catch up.</strong> This blue ocean won’t last forever, and open banking will facilitate access to information for all players. Start preparing for what will come after COVID-19, whether or not you work directly with banks.</li>
</ol>
<h2><strong>Accion Venture Lab is here to help the ecosystem grow</strong></h2>
Accion Venture Lab’s mission is to support innovative companies that help the financially underserved. We are always working to grow the fintech ecosystem — even outside our portfolio. This the first in a series of blog posts and webinars we will be hosting in the coming months, made possible by support from FedEx, to help the Brazilian fintech ecosystem thrive through the COVID-19 crisis. We invite you to follow along and <a href="mailto:accionventurelab@accion.org">reach out</a> if there is any way we can support you.

Now is the time for fintechs to accelerate growth in Brazil

Understanding customers’ needs, while critical, is only half the battle in the push for financial inclusion

Over the past decade, human-centered design methodologies have made their way from Silicon Valley to the financial inclusion sector. These methodologies, which are based on deep customer understanding, blue sky ideation, and rapid prototyping, have been touted as the silver bullet to address ongoing access and usage problems at the base of the pyramid, particularly with regard to digital financial services. <a href="https://www.cgap.org/sites/default/files/CGAP_Insights_into_Action_final.pdf" target="_blank" rel="noopener noreferrer">Initial results were promising</a>: in collaboration with leading design firms, institutions were able to develop innovative product concepts and prototypes grounded in the realities of customers’ lives.

However, these products haven’t always been as successful as expected. Many products do not ultimately gain traction with customers, and others are discontinued as institutional priorities shift. Some institutions have focused on customer needs but overlooked real operational and business constraints. Others miss the complexities surrounding customer behavior and financial decision making and inadvertently solve the wrong problem.

The need for digital, customized and responsive financial products and services is greater than ever. The economic fallout from COVID-19 has disproportionately affected those without the access, resources, or network to weather the storm. Innovative financial products can help people to recover from the crisis and restart in the new normal.

<img class="wp-image-22353 alignright" src="https://content.accion.org/wp-content/uploads/2020/09/accionGraphics_Aug26_Key-Tenets.png" alt="Key tenets of innovation: feasibility, desirability, and viability" width="461" height="332" />Innovative digital products must balance customers’ needs with organizational capacity and should be built upon a solid business case to ensure that the product is sustainable in the long term. This trifecta of desirability, feasibility, and viability seems intuitive but is not easy to implement — institutions must navigate competing priorities, limited resources, and tradeoffs between each area. <a href="https://www.accion.org/to-succeed-innovative-financial-products-must-be-desirable-feasible-and-viable/" target="_blank" rel="noopener noreferrer">Our latest white paper</a> explores the interplay between desirability, feasibility, and viability, and shares lessons learned from our recent experiences <a href="https://www.accion.org/achieving-financial-health-in-mexico-and-chile" target="_blank" rel="noopener noreferrer">working with five financial services providers and fintechs in Chile and Mexico.</a> With the <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion" target="_blank" rel="noopener noreferrer">support of MetLife Foundation</a>, we are working with these institutions to design and launch behaviorally informed products that build customers’ financial capabilities and ultimately improve their financial health.

A few key takeaways from the paper:
<ul>
 	<li><strong>There are many ways to learn from your customers</strong>: In-depth field interviews are an important channel for understanding people’ lives, but they can be time-consuming and aren’t always feasible — particularly during a pandemic. Customer data is a rich and often underutilized resource to identify trends and user pain points. We start our customer understanding with data analysis to build hypotheses that we can later test and refine through user research, in-person where possible, or remote.</li>
 	<li><strong>The most valuable feedback will come post</strong><strong>-product</strong> <strong>launch</strong>: No research or data analysis is as valuable as customer engagement with an actual product. Even prototyping has its limits: customers may sit and look at an application for an hour with an interviewer, but in reality, they may only have five minutes to use the product during their daily lives and experience constant interruptions, connectivity challenges, and competing demands for their time. Financial institutions should seek to go to market quickly with a minimum viable product, build in robust feedback loops, and plan for ongoing improvements.</li>
 	<li><strong>Consider innovation you can sustain: </strong>In the quest for innovation, institutions often feel they must ‘go big’ and develop completely new, groundbreaking solutions. But these products often don’t make it past pilot because the gaps required for long term success are too large. Innovative products often require new skills, updated technology, or new partnerships. A more feasible product can still be innovative without requiring a full-blown overhaul of the institution. It is critical to assess operational and technological capabilities from the start, understand the implications of proposed product design, and actively plan to address gaps. Incremental innovation can be just as powerful to drive customer usage and growth.</li>
 	<li><strong>Build a business case from the beginning: </strong>In the product design process, some design efforts prefer to focus on the idea before considering business case implications. While helpful to think out the box, we’ve found this can be dangerous. Without a business case, product ideas may never get the buy-in to move to pilot; or worse, they may lead the institution to invest time and money in products that don’t make business sense. It is not enough to create a product that customers love — it must drive growth, reduce costs, or generate revenue. We always start with a preliminary business case at the concept stage and then flesh out a detailed projection of user growth, revenue, break-even analysis, and assumptions.</li>
</ul>
Innovative ideas will not help customers reach their goals or recover from the pandemic if they cannot be implemented and scaled. In the long run, products that truly drive financial inclusion are those that balance desirability, feasibility, and viability. For customers, this approach translates to more intuitive financial products and services that are aligned with their behaviors and help build their financial health. For financial service providers, this approach leads to innovative products that are sustainable, use internal resources efficiently, and achieve business goals. Learn more about how we created sustainable and innovative products in Mexico and Chile by reading our paper, <a href="https://www.accion.org/to-succeed-innovative-financial-products-must-be-desirable-feasible-and-viable/" target="_blank" rel="noopener noreferrer">To succeed, innovative financial products must be desirable, feasible, and viable.</a>

Built to last: How to turn innovative ideas into scalable products

How an early-stage startup can approach brainstorming, testing, and prioritizing new product opportunities.

Toolkits and Guides

Launching a new product is a feat that can occupy a large share of time, energy, and resources — and for an early-stage company, it's a very consequential decision to make. It’s imperative to take an objective, thoughtful approach when considering new products to build and launch. A well-executed plan can help a product gain traction, attract lifelong customers, and help you instill confidence in your team and approach.

We’ve built our new resource, <a href="https://content.accion.org/wp-content/uploads/2020/09/0820_New-Product-Approach_vF2.pdf" target="_blank" rel="noopener noreferrer">A Startup’s Guide to New Product Developmen</a>t, to assist you along your journey. This guide will touch on:
<ul>
 	<li>Understanding your core customer and their needs</li>
 	<li>Brainstorming potential products across your core customer segments</li>
 	<li>Defining and estimating the impact of potential new products</li>
 	<li>Determining the effort required to get there</li>
 	<li>And, ultimately, choosing and prioritizing your product roadmap moving forward</li>
</ul>
Be on the lookout for an extended guide that covers the full process, from post-product decision to launch, coming in the next few months.

A startup’s guide to new product development

Mona Kapoor

Digital platforms advance financial inclusion in India by closing the financial service gap for rural populations

Chandra Kanthayadav was first inspired to open her business during the Festival of Rakhi one year in her hometown of Raipur, India. The popular Hindu festival is a celebration of the love between siblings and close friends, symbolized by people tying special woven bracelets called rakhis on their loved ones’ wrists. She saw how other shops in her community had great success during the festival, so she decided to open her own stall to sell rakhis and other items. Chandra quickly sold out of her inventory during that first festival and in the next festival after that.

Recognizing an opportunity to build a permanent business, Chandra opened a storefront adjacent to her family home and began searching for a way to stock her store with everyday household goods and seasonal items. At first, she borrowed from her family, friends, and other informal sources to pay for her inventory, but the higher interest rates and inconsistent availability of these informal loans prevented her from reaching her goals. Chandra found a better solution when she learned she could get funding through a more formal channel.
<h2>The power of financial services for women in India</h2>
Microcredit, small loans for low-income entrepreneurs, gives women in rural India access to the financing needed to strengthen their businesses and earn their own income. Chandra first took a group loan from Sub-K with women in her community that she’s known for over 17 years. Sub-K, a partner of Accion, is a financial provider focused on reaching underserved populations in India, especially focusing on women entrepreneurs in rural areas. Chandra has continued to work with Sub-K to purchase her inventory, eventually quadrupling her store inventory (stock) value from 5,000 rupees to 20,000 rupees. Next, she plans to expand her store to make room for increased inventory.

Sub-K celebrated their 10th anniversary in August this year. Over the past decade, they’ve helped millions of women like Chandra realize their entrepreneurial dreams, in turn instilling confidence, expanding financial literacy and stability, and improving household conditions for women and their families. As Chandra’s business continues to grow, she feels more respected in her community, and her success helps her provide for her children’s education. To reach more underserved micro, small, and medium enterprises (MSMEs) and individuals, Sub-K has launched a new digital financial tool called SARTHI.
<h2>Advancing financial inclusion through technology</h2>
[caption id="attachment_22266" align="alignright" width="146"]<img class="size-medium wp-image-22266" src="https://content.accion.org/wp-content/uploads/2020/09/Sub-K-SARTHI-platform-146x300.png" alt="" width="146" height="300" /> <em>Sub-K’s fintech platform called SARTHI, which stands for Seamless Advanced Resourceful Tech-driven Hybrid Interface.</em>[/caption]

Sub-K uses an extensive agent network to <a href="/finding-a-new-way-to-reach-the-last-mile-in-india" target="_blank" rel="noopener noreferrer">reach micro, small, and medium entrepreneurs in rural areas</a> who lack access to traditional banks. The company recently launched their new SARTHI fintech platform to complement this model and provide entrepreneurs with the tools they need to manage and grow their businesses. SARTHI will offer products like MSME credit, digital microloans, and health insurance that customers can access on their own mobile devices or with assistance from Sub-K’s staff and agents. SARTHI is integrated with multiple banks and third-party partners to provide customers with a wide variety of products and payment choices and quick application processing.

“This platform marks a major milestone in our digital transformation journey. We genuinely believe that the future is digital, and we are committed to bring a large segment of the excluded population into the mainstream by effectively leveraging the power of fintech,” says Sasidhar N. Thumuluri, Sub-K managing director and CEO. SARTHI was developed with advisory services provided by Accion through a <a href="/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses" target="_blank" rel="noopener noreferrer">global partnership between Accion and Mastercard</a>.

Small businesses like Chandra’s are the backbone of the Indian economy, and they need financial services to weather challenging times and succeed in the future. We are proud to support Sub-K in their efforts as they move to the next chapter of advancing financial inclusion. Victoria White, the managing director of Accion’s Global Advisory Solutions, says, “Sub-K’s proven commitment to reaching last-mile customers, their expansive reach through their agent network and bank partnerships, and their demonstrated embrace of digital technologies made them an ideal partner for our efforts with Mastercard to help microbusinesses benefit in a digital economy. The launch of this platform is an important milestone in that effort.” By investing in digital tools that help microentrepreneurs build better businesses and better lives, we can bridge the financial services gap in rural India and bring financial inclusion to more people.

Banking goes digital to reach rural entrepreneurs

Yanina Seltzer

<h3><strong>Using</strong><strong> data, behavior, and design to build clients’ financial health</strong></h3>
<p>Creating products that build underserved customers’ financial health requires that providers become more familiar with their customers’ financial goals and behaviors. This means that financial institutions need to move away from product-centric approaches to become customer-centric.</p>
<p>Providers can become customer-centric by combining these three areas:</p>
<ol>
<li><strong>Data:</strong> Examine available transactional, market, and business data to reveal user patterns and behavior and build solutions that leverage that knowledge,</li>
<li><strong>Behavioral Science:</strong> Use principles of behavioral science to better understand customer decision-making and overcome barriers to action, and</li>
<li><strong>Design Thinking:</strong> Employ design thinking to build empathy with customers, and understand the context of their lives, needs, preferences and habits.</li>
</ol>
<p>These three ways of developing products and services are independently valuable and can achieve even greater success when leveraged together.</p>
<h2>Data</h2>
<blockquote><p>Institutions need to store data responsibly and protect client information.</p></blockquote>
<p>Most providers have a wealth of internal and market <strong>data</strong> that they can leverage to better understand their customers. For example, transactional data can reveal how seasonal patterns and demographic characteristics relate to product use, repayment, churn, and retention. Providers can use this data to better target and schedule service promotions, reminders, and support interventions. For example, <a href="https://www.accion.org/after-immigrating-to-chile-she-built-a-new-life-for-herself" target="_blank" rel="noopener">Destácame</a> — a digital platform that financially empowers its users by raising their awareness of their financial data and improving their access to financial products — uses customer data to target product offers.</p>


<p>Using data to inform services and products can result in a variety of business benefits. A <a href="https://www.slideshare.net/CGAP/projecting-impact-of-nontraditional-data-and-advanced-analytics-on-delivery-costs" target="_blank" rel="noopener">Consultative Group to Assist the Poor (CGAP) study</a> found that using digital data to explore more scalable delivery methods could reduce the marginal costs of delivering a small loan by up to 30 percent. Accion noted in <a href="https://content.accion.org/wp-content/uploads/2018/09/Big_Data_Paper_R07_Spreads-6.pdf" target="_blank" rel="noopener">Unlocking the Promise of (Big) Data to Promote Financial Inclusion</a>, organizations with greater access to data are more likely to succeed. Investing in the use of data during initial product design can also help organizations save over time. <a href="https://www.youtube.com/watch?v=O94kYyzqvTc&amp;feature=youtu.be" target="_blank" rel="noopener">Design</a><a href="https://www.youtube.com/watch?v=O94kYyzqvTc&amp;feature=youtu.be" target="_blank" rel="noopener"> expert</a><a href="https://www.youtube.com/watch?v=O94kYyzqvTc&amp;feature=youtu.be" target="_blank" rel="noopener"> Susan Weinschenk</a> claimed that “fixing an error after development is up to 100 times as expensive as it would have been before development.”</p>
<p>Furthermore, data can also be used to predict future behavior. Amazon uses predictive analytics to restock inventory and <a href="https://hbr.org/2016/11/how-predictive-ai-will-change-shopping" target="_blank" rel="noopener">predict customer purchases</a>, which reduces costs and delivers value to customers. Similar approaches to data analytics are allowing financial service providers to predict when users might need credit or a repayment pause, or when they could benefit from a savings product. In these instances, offering the right product at the right time can help build customers’ financial health.</p>
<p>Moreover, data analytics can inform providers on what to consider in developing new products or features when targeting new customer segments. In Tanzania, <a href="https://www.accion.org/how-to-use-data-to-transform-financial-services" target="_blank" rel="noopener">an Accion partner wanted to refine an existing product that had not been performing well</a>. By analyzing its transactional data, our partner was able to re-segment its customer base and identify a large sub-segment that had not being adequately served by either the partner or their competitors. The provider then tailored the product specifically for this newly identified sub-segment. Providers must invest in information storage and mining capabilities in order to reap these benefits.</p>
<p>Another institution, <a href="https://www.accion.org/expanding-the-benefits-of-a-growing-digital-economy-in-indonesia-and-india" target="_blank" rel="noopener">Annapurna Finance Pvt. Ltd.</a> (AFPL), uses geographic information systems (GIS) around each of its branches to highlight the density of the population as well as economic activity. They also use a credit bureau report at the pin code level to understand the rates of indebtedness and delinquency in the regions that AFPL serves. Cross-referencing this data helps AFPL to better understand the needs of potential customers and to identify products and services to best serve them. For example, AFPL can then provide more targeted financial and technical support to these clients to strengthen their entrepreneurial skills.</p>


<p>Analytics can be supplemented by qualitative research to uncover meaning behind the data. Increasingly, designers are working with businesses to discover and leverage their findings regarding customers’ motivations, habits, and preferences to inform product and operational decisions.</p>
<h4>Table 1. The business case for data</h4>
<p><img class="alignnone wp-image-22273" src="https://content.accion.org/wp-content/uploads/2020/09/FHtable1-e1599082660588.png" alt="" width="900" height="675" srcset="https://content.accion.org/wp-content/uploads/2020/09/FHtable1-e1599082660588.png 1438w, https://content.accion.org/wp-content/uploads/2020/09/FHtable1-e1599082660588-300x225.png 300w, https://content.accion.org/wp-content/uploads/2020/09/FHtable1-e1599082660588-768x576.png 768w, https://content.accion.org/wp-content/uploads/2020/09/FHtable1-e1599082660588-1024x768.png 1024w" sizes="(max-width: 900px) 100vw, 900px" /></p>
<h2>Behavioral science</h2>
<p><strong>Behavioral science</strong> is being applied across the world to help individuals and organizations achieve their goals and organizational outcomes. Behavioral science emphasizes that humans are not robots. We are impacted by the environment and context in which we make decisions. How information is presented and phrased (and who delivers it) impacts how customers make decisions and behave.</p>
<p>According to the Organization for Economic Co-operation and Development (OECD), there are <a href="https://www.oecd.org/gov/regulatory-policy/behavioural-insights.htm" target="_blank" rel="noopener">200+ institutions globally applying behavioral science</a>. These institutions help individuals and organizations achieve their desired goals and outcomes, including enabling people to make better financial health decisions. Many organizations have developed frameworks on how to apply behavioral science principles. One widely used framework from the <a href="https://www.bi.team/" target="_blank" rel="noopener">Behavioral Insights Team (BIT)</a>, encourages organizations to make things: easy, attractive, simple, and timely (EAST).</p>
<p>Behavioral science seeks to understand how humans actually behave, rather than exclusively listening to how they want to behave or how they would behave in a perfect context. For example, behavioral science suggests that people are more likely to save when they set aside small <a href="http://journal.sjdm.org/12/12327/jdm12327.html" target="_blank" rel="noopener">amounts over time for specific goals.</a> By developing products that account for and design for these behavioral principles, providers can positively influence financial behaviors while building customers’ financial health. For example, when <a href="https://www.ideas42.org/" target="_blank" rel="noopener">Ideas42</a> and <a href="https://www.womensworldbanking.org/" target="_blank" rel="noopener">Women’s World Banking</a> used behaviorally framed SMS messages to recruit women, <a href="http://www.ideas42.org/wp-content/uploads/2018/04/ideas42_ImpactReport2018_digital.pdf" target="_blank" rel="noopener">female customer sign-ups increased by 64 percent</a>.</p>


<p>One famous example of applied behavioral science in the financial industry is the use of defaults for U.S. employer-sponsored <a href="https://www.jstor.org/stable/10.1086/380085?seq=1" target="_blank" rel="noopener">retirement plan (401(k))</a> contributions. By setting an automatic annual increase of income contribution to an individual’s 401(k), employees were able to increase their savings rate over 40 months compared to employees who had not set up auto-contributions. This default design helped earn <a href="https://www.nobelprize.org/prizes/economic-sciences/2017/thaler/facts/" target="_blank" rel="noopener">Richard Thaler</a> the Nobel Prize in Economics. Behavioral scientists have embraced this as the concept of “set it and forget it.”</p>
<p>Similarly, Accion is applying these principles to help <a href="https://www.accion.org/young-people-in-mexico-need-finance-that-fits-their-lives" target="_blank" rel="noopener">Caja Alianza Cerano</a> — a small financial cooperative in Guanajuato, Mexico – develop a goal-based application that allows youth to save or take out a small credit-building loan for a specific goal. The app is designed to harness the power of automation through an AutoPay feature that makes credit payments and automatic savings easy and frictionless for customers. Even though it seems like a simple switch, this allows more seamless movements of money into the system and provides less friction for users.</p>
<h4>Table 2. The business case for behavioral science</h4>
<p><img class="alignnone wp-image-22274" src="https://content.accion.org/wp-content/uploads/2020/09/FHtable2-e1599082793549.png" alt="" width="900" height="585" /></p>
<h2>Design thinking</h2>
<p>As explained by <a href="https://www.ideou.com/pages/design-thinking" target="_blank" rel="noopener">Tim Brown</a>, the CEO of IDEO,<strong> Design Thinking “</strong>is a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Delving deep into understanding the needs and realities of individuals allows providers to design better products, services or experiences that build trust and the financial health of customers. In some cases, it demands that providers embrace a longer-term horizon centered on customer-lifetime value.</p>
<p>Successful instances of human-centered design bring a balance of desirability, viability, and feasibility to the product; which allows an institution to not only design with its end user in mind — to develop an intuitive, engaging, and painless user experience to meet the customer’s goals—but also, to ensure that the design is grounded in technical and business reality. The testing of prototypes, whether they are simple drawings on sticky notes, or more sophisticated prototypes that look like an application, ensures that bad ideas fail rapidly and inexpensively, and good ideas are consistently improved upon. By doing this, institutions can save huge upfront investments in technology developments until they have developed a product or experience that fully resonates with end users.</p>
<p>Design thinking requires that financial service providers invest in understanding who their customers are and what they need. Staff need to meet the customers who have traditionally been left out of the financial sector and spend time in their communities, homes, and businesses. By getting to know their customers’ lives and realities, providers can understand, empathize with, and design for their pain points, habits, priorities, and aspirations, even as these shift over the course of their financial health journey.</p>
<p><a href="https://www.accion.org/fintech-helps-small-businesses-thrive-in-india" target="_blank" rel="noopener">Accion worked with Aye Finance</a> to help their clients build a digital transaction history, which would give them more convenient and frictionless access to Aye’s financial services. Rather than entering the project with a predefined idea of how they were going to deliver value to the target market, the organization conducted one-on-one interviews with customers to understand the pain points that they face in running and growing their businesses. They found that business owners needed a more convenient means of recording and consolidating income and expenses and a simplified way to manage inventory. Given this finding, Accion and Aye Finance set out to design a mobile app that encourages Indian entrepreneurs to digitize their bookkeeping to give them more control and oversight over their businesses. Aye Finance developed a dedicated team for this project to ensure that the product was not only centered on the user’s reality, but technological and operational realities as well, and built upon a solid business case, based on projections. In just three-months after launch, the app was downloaded more than 1000 times, despite the pilot operating across only 4 branches. Aye Finance has integrated learnings from the development of the app into subsequent tools and products.</p>


<p>The business value of design has been well documented. McKinsey &amp; Company found that retail banking firms that scored better on the <a href="https://solutions.mckinsey.com/design-index/" target="_blank" rel="noopener">McKinsey Design Index </a>(an online diagnostic tool that benchmarks companies’ design maturity) earned <a href="https://www.mckinsey.com/business-functions/mckinsey-design/our-insights/the-business-value-of-design" target="_blank" rel="noopener">27 percentage points higher revenue growth and 18 percentage points greater total returns for shareholders over five years</a> when compared to their peers.</p>
<p><img class="alignnone wp-image-22270" src="https://content.accion.org/wp-content/uploads/2020/08/FH-brief-chart-e1599060172565.png" alt="" width="800" height="415" srcset="https://content.accion.org/wp-content/uploads/2020/08/FH-brief-chart-e1599060172565.png 1332w, https://content.accion.org/wp-content/uploads/2020/08/FH-brief-chart-e1599060172565-300x156.png 300w, https://content.accion.org/wp-content/uploads/2020/08/FH-brief-chart-e1599060172565-768x398.png 768w, https://content.accion.org/wp-content/uploads/2020/08/FH-brief-chart-e1599060172565-1024x531.png 1024w" sizes="(max-width: 800px) 100vw, 800px" /></p>
<h4>Table 3. The business case for design thinking</h4>
<p><img class="alignnone wp-image-22275" src="https://content.accion.org/wp-content/uploads/2020/09/FHtable3-e1599082949993.png" alt="" width="900" height="506" srcset="https://content.accion.org/wp-content/uploads/2020/09/FHtable3-e1599082949993.png 1439w, https://content.accion.org/wp-content/uploads/2020/09/FHtable3-e1599082949993-300x169.png 300w, https://content.accion.org/wp-content/uploads/2020/09/FHtable3-e1599082949993-768x432.png 768w, https://content.accion.org/wp-content/uploads/2020/09/FHtable3-e1599082949993-1024x576.png 1024w" sizes="(max-width: 900px) 100vw, 900px" /></p>
<h3><strong>How can data + behavior + design help financial service providers? </strong></h3>
<p>Successfully using data, behavioral science, and design thinking approaches, requires a shift in business’ operations and an organization-wide adjustment. The <a href="https://s3.amazonaws.com/cfsi-innovation-files-2018/wp-content/uploads/2019/04/25202818/CFSI_OmidyarNetwork-Report-Final.pdf" target="_blank" rel="noopener">Financial Health Network</a> noted that orienting a business around its customers requires deploying a comprehensive strategy across the organization, one that addresses policies, processes, products, and fosters a culture that supports customers’ financial health. Furthermore, starting with the customer is just the first step. Institutions also need leaders who will stand by those insights and team members with the systematic and operational creativity to design for customer needs.</p>
<p>To pursue these approaches successfully, providers need to engage human-centered designers, interaction designers, behavioral scientists, and data scientists, as well as invest in field research, and conduct experiments to assess the efficacy of interventions and changes. Providers can invest internally or outsource some of these functions and expertise. Business benefits include increased customer lifetime value, enhanced reputational and brand value, larger deposit balances, decreased acquisition costs, increased loyalty and retention, and improved credit access for customers.</p>
<p>Businesses prosper when their customers are successful. People don’t want a bank account just to have a bank account. Instead, they use financial services that work for their purposes: to pay for their children’s education, own a home, launch a business, or recover from both economic and natural disasters. By placing financial health at the heart of the institution, using data, behavioral science, and design thinking, we can make these goals attainable for a greater number of individuals. Understanding these needs and designing for them drives financial health, advances social progress, and creates better, more successful, and more resilient businesses.</p>
<p><img class="wp-image-22178" src="https://content.accion.org/wp-content/uploads/2020/08/mc4g_logo-300x104.png" alt="" width="196" height="68" srcset="https://content.accion.org/wp-content/uploads/2020/08/mc4g_logo-300x104.png 300w, https://content.accion.org/wp-content/uploads/2020/08/mc4g_logo-768x267.png 768w, https://content.accion.org/wp-content/uploads/2020/08/mc4g_logo.png 1000w" sizes="(max-width: 196px) 100vw, 196px" /></p>
<p><em>This brief is supported by the Mastercard Center for Inclusive Growth.</em></p>
<p><em>Contributions from: Malika Anand, John Won, Arisha Salman, Sarah Kovar, Megan Skaggs</em></p>


Financial health has never been more important for financial service providers 

The pandemic has spurred a global economic downturn and widespread uncertainty about the future. The <a href="https://www.accion.org/four-ways-we-can-empower-financially-underserved-people-and-businesses">3</a> <a href="https://www.accion.org/four-ways-we-can-empower-financially-underserved-people-and-businesses">billion</a><a href="https://www.accion.org/four-ways-we-can-empower-financially-underserved-people-and-businesses" target="_blank" rel="noopener noreferrer"> peopl</a><a href="https://www.accion.org/four-ways-we-can-empower-financially-underserved-people-and-businesses">e</a> who are still left out or poorly served by the global financial system are uniquely vulnerable to the effects of COVID-19. They typically rely on daily, in-person interactions to get paid or buy food for their families and the unexpected loss of income for many families has made financial services and a focus on financial health more important than ever.

Financial health assesses whether people are spending, saving, borrowing, and planning in a way that will enable them to be resilient and pursue opportunities over time, as stated by <a href="https://finhealthnetwork.org/research/eight-ways-to-measure-financial-health/" target="_blank" rel="noopener noreferrer">The Financial Health Network</a><u>.</u>

A person’s financial health is determined by their:
<ol>
 	<li>ability to manage day-to-day expenses,</li>
 	<li>resilience against shocks and risks, and</li>
 	<li>effective planning for the future and upward mobility.</li>
</ol>
As economies fluctuate, individuals are turning to financial institutions for added support and security in their lives. Having financial services can enable people to better manage their finances as they navigate the current crisis, save money for a brighter future, protect their families from future shocks, and rebuild their businesses—promoting resilience in the face of crisis.

However, according to a <a href="https://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx" target="_blank" rel="noopener noreferrer">Gallup Global Financial Health</a> study, access to traditional financial products does not automatically result in improved financial stability, resilience, and access to opportunity. Many traditional financial products were not developed with these pragmatic goals in mind. As a result, they are often poorly suited to helping people, especially low-income individuals, achieve their financial goals. To serve customers as they seek to recover from the economic fallout caused by COVID-19, financial service providers have an opportunity to better utilize customer data, behavioral science, and design thinking to create products and services that support households through shocks, that build resilience and enable them to better manage their financial lives. Well-designed products relevant to customers’ lives can lead to feelings of stability, peace of mind, and hope.

To do this, financial service providers should expand their financial inclusion strategy to focus on financial health. This goes beyond traditional access to services, in order to support people’s lived experiences and aspirations. These lived experiences are influenced by several aspects, including but not limited to age, sex, gender, occupation, marital status, dependents, household responsibilities, financial standing, physical and mental health, and emotional characteristics. Financial health is a perpetual journey — not just a snapshot in time. By developing personalized financial products, services, and experiences that better meet users’ needs and preferences, providers can ultimately create more meaningful change in people’s lives.

Financial products and services that truly work for users and fit their lives will ultimately drive more (and better) business for financial service providers. A business strategy oriented around consumer financial health offers <a href="https://finhealthnetwork.org/research/building-your-business-case-for-financial-health-providing-guidance-and-support-to-increase-customer-well-being/" target="_blank" rel="noopener noreferrer">providers an avenue for growth, organizational resilience, and profitability</a>. In addition, it will offer financial service providers better opportunities to differentiate from the competition, especially today, when users are more and more sophisticated and demanding better interfaces that enable faster ways to interact with their financial reality.

The World Economic Forum <a href="http://www3.weforum.org/docs/WEF_White_Paper_Advancing_Financial_Inclusion_Metrics.pdf" target="_blank" rel="noopener noreferrer">noted</a> that “[b]y aligning the success of their business with the success of their customers, financial providers have seen that the future of financial services is one in which the industry will thrive when their customers prosper.”
<h3>Designing services for the people who need them</h3>
To ensure that financial services deliver greater benefits to customers and that our aspirations for achieving financial health are attainable, Accion’s Global Advisory Solutions is advocating for a new approach to product design that combines <strong>data science, behavioral science, and design thinking</strong>. Together these three disciplines put the customer, rather than the product or the service provider, at the center of product or service design. These methods give providers better visibility into household cash flow fluctuations and customer pain points to design products, services, or experiences that are more useful, convenient, and beneficial. These methods can also help providers reach new market segments, retain customers, and improve customer lifetime value across their business.

Despite increasing access to financial services, <a href="https://www.findevgateway.org/blog/2018/may/new-global-findex-what-you-need-know" target="_blank" rel="noopener noreferrer">use of formal financial products continues to lag</a>, particularly in emerging markets. There are many reasons for this lack of uptake. Accion investigated this lag through hundreds of customer interviews globally in the last few years. The interviews revealed that customers do not find the few formal services available to them valuable or trustworthy, and that they are difficult to understand and cumbersome to use. What people really want is to pay tuition, expand or repair their homes, and to be prepared in case of weather or health emergencies. For this, many rely on informal services, like rotating credit groups and store credit, which are embedded in their communities, and are convenient, flexible, and available when and where people need them.

Data, behavioral science, and design thinking can serve as a starting point for financial service providers as they build greater trust with their customers and incorporate a financial health approach, while articulating the business reasons for doing so.

Placing financial health at the heart of financial institutions to create business and customer value

We can improve financial health for more people by incorporating data, behavioral insights, and human-centered design into financial products

Access to financial products alone does not automatically equip people to improve their finances, build resilience, and seize opportunities. A <a href="https://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx" target="_blank" rel="noopener noreferrer">Gallup Global Financial Health study</a> found that having a bank account does not guarantee a sense of financial control or security in emerging markets. In the U.S., where financial access is widespread, <a href="https://www.federalreserve.gov/2015-report-economic-well-being-us-households-201605.pdf" target="_blank" rel="noopener noreferrer">nearly half of Americans do</a><a href="https://www.federalreserve.gov/2015-report-economic-well-being-us-households-201605.pdf"> not</a><a href="https://www.federalreserve.gov/2015-report-economic-well-being-us-households-201605.pdf"> have $400 in savings</a> and <a href="https://s3.amazonaws.com/cfsi-innovation-files/wp-content/uploads/2017/01/24183123/Understanding-and-Improving-Consumer-Financial-Health-in-America.pdf" target="_blank" rel="noopener noreferrer">almost half have trouble paying bills every month</a>.

That’s why organizations are focusing on the concept of financial health as a means to develop financial ecosystems that go beyond just access and usage of products and ultimately create meaningful change in people’s lives. Financial health assesses whether people are spending, saving, borrowing, and planning in a way that will enable them to be resilient and pursue opportunities over time, as stated by <a href="https://finhealthnetwork.org/research/eight-ways-to-measure-financial-health/" target="_blank" rel="noopener noreferrer">The Financial Health Network</a>.

During the COVID-19 pandemic, it is more critical than ever to find innovative ways to support those disproportionately affected by an economic downfall outside of their control. A more holistic understanding of financial health will help financial service providers to support and maintain their client base, even in times of uncertainty.
<blockquote>People want to pay tuition, maintain their homes, and be able to weather health emergencies.</blockquote>
As consumer protection bureaus and financial authorities focus on systemic change, they’ve dedicated less attention to developing products that improve financial health, especially in emerging markets. People want to pay tuition, maintain their homes, and be able to weather health emergencies. They need financial products that help them achieve these goals and empower them to make good decisions through both economic upturns and hardships.

Unfortunately, many traditional financial products were not developed with these pragmatic goals in mind. As a result, they are often poorly suited to helping people, especially low-income individuals, achieve their financial goals. It is not always obvious how providers can design more appropriate products, but we recommend that they analyze available data, draw on behavioral insights, and employ design thinking to uncover ways forward.
<h2>Expanding the concept of financial health</h2>
Despite the number of financial institutions that view financial health as core to their mission, many financial health strategies have not thoroughly considered customers’ needs, aspirations, or behaviors in their product innovation. In fact, financial health efforts have primarily focused on what can be tracked and measured, like maximizing profitability or savings balances rather than strategies that allow customers to meet their personal financial goals.

The financial lives of low-income people do not follow the linear pathway of “earn, save, invest, grow, and repay” implied by traditional financial products. Instead, their lives are more turbulent, and the categories may be far more blurred. For example, a typical microfinance customer may accept payment in the form of construction materials like bricks or cement. These materials function as both savings and investment. They are illiquid so cannot easily be spent like savings can, but they may be liquidated at reduced prices at times of emergencies. These materials can also be considered the first step towards future physical improvements, however, they are also likely to deteriorate with exposure to weather and are subject to value fluctuations, so they’re not as secure as traditional savings. Today’s financial products do not reflect the unique ways in which low-income individuals manage their assets and liquidity.

Moreover, current products do not accurately reflect the diversity of low-income individuals’ needs. A young student who depends on cash injections from his family to make ends meet will use a microfinance loan very differently than an established entrepreneur who is trying to expand her business. Most providers currently offer both customers a fundamentally identical credit product without considering their different needs.
<h2>Approaches to adapting financial products</h2>
Financial health strategies must encourage innovation to create financial products that improve customers’ lives — in health, education, and overall well-being. They should also consider emotional dimensions — such as feelings of stability, peace of mind, and hope — as these are closely intertwined with our perception of our own financial health. The sector needs to reimagine traditional financial products, rethink our approach, and start designing more appropriate products. Fortunately, the growth of digital finance and advances in human-centered design have given us data, methods, and theories that can power analysis of users’ needs to improve the products we offer. New innovative approaches will also allow financial institutions to introduce new business models and serve customers in a way that adds value not only to the individual but to the institution itself.

To ensure that financial services deliver greater benefits and that our aspirations for achieving financial health come into reach, Accion’s Global Advisory Solutions team is advocating for a <a href="/placing-financial-health-at-the-heart-of-financial-institutions-to-create-business-and-customer-value">new approach to product development that combines design thinking, behavioral science, and data science</a>. Together these three disciplines put the customer at the center of product design. These approaches apply insights from psychology, economics, statistics, and data science to design products that are better connected to customers’ behaviors, ambitions, and aspirations — empowering them to achieve their goals. The key to this approach is to grounding good design within the business and operational reality of the financial service provider so that the product is sustainable over the long-term.

To learn more about these strategies for product development, read our latest brief developed in partnership with Mastercard Center for Inclusive Growth: “<a href="/placing-financial-health-at-the-heart-of-financial-institutions-to-create-business-and-customer-value">Placing financial health at the heart of financial institutions to create business and customer value.</a>”

Products that truly work for users will ultimately drive more and better business for financial service providers. A business strategy oriented around consumer financial health offers providers an avenue for <a href="https://finhealthnetwork.org/research/building-your-business-case-for-financial-health-providing-guidance-and-support-to-increase-customer-well-being/" target="_blank" rel="noopener noreferrer">growth, organizational resilience, and profitability</a>.

The ultimate goal of financial inclusion should be ensuring everyone has access to financial tools that improve their lives. By making financial health the central principle of product design, we can make this goal attainable and better serve a greater number of individuals.

The crucial but overlooked factor for financial health? Humans.

An interview with Creditas COO Ann Williams about focusing on long-term customer relationships and digital engagement to help people improve their financial lives.

Podcast

[embed]https://soundcloud.com/accioninternational/the-pandemic-is-a-moment-to-get-in-touch-creditas-ann-williams[/embed]

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"The pandemic has been a great learning experience for us and an opportunity to be even closer to our customers in a moment of crisis," says Ann Williams, COO of Creditas, a digital platform that offers financial products and consumer solutions in Brazil and Mexico. The company began by offering asset-backed loans to provide "lower interest rates, longer terms, and lower payments that can fit into the pocket of our customers". In the tenth and final episode of VentureKast: Rebuild, Ann explains how the fully digital company has reached out to their customers — especially small business owners who have been deeply affected by the COVID-19 crisis — to restructure loans and create new products that address their challenges.

"Brazil has one of the highest interest rates in the world for consumer loans and the banks are some of the most profitable in the world," says Ann, who elaborates that their high-cost structures and focus on shorter-term, "toxic" debt have created a need for better, cheaper loans. "There’s been a push among fintechs like Creditas, along with central bank and policymakers, looking to create opportunities for consumers to access more fair financial products," she says. By leveraging a digital platform, Creditas can give customers more information and more opportunities, even during this challenging time. Ann reminds us that "it’s always the moment to work to build something better for the underserved," and she asserts that Creditas’ resolve to enrich the relationships with their customers is as strong as ever.

For more conversations about how the pandemic is shaping our industry, listen to the rest of our <a href="https://www.accion.org/series/venturekast-rebuild"><strong>VentureKast: Rebuild season here</strong></a>. Host and co-managing director of  <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab" target="_blank" rel="noopener noreferrer"><strong>Venture Lab</strong></a><strong>,</strong> <a href="https://www.accion.org/bio/vikas-raj" target="_blank" rel="noopener noreferrer"><strong>Vikas Raj</strong></a> interviewed industry leaders every Thursday for the last 10 weeks about how COVID-19 has impacted their work.

"The pandemic is a moment to get in touch" — Creditas’ Ann Williams

An interview with Center for Financial Inclusion managing director Mayada El-Zoghbi on working across financial services ecosystems to support vulnerable populations with more digital delivery and consumer-centric policies

<strong>“We want to facilitate information to the stakeholders that need it: policymakers, investors, providers,”</strong> explains Mayada El-Zoghbi, managing director of the Center for Financial Inclusion (CFI), an action-oriented think tank that develops insights and collaborates with stakeholders to achieve a comprehensive vision for financial inclusion. In this moment, CFI is providing real-time data to help governments and financial service providers understand the impacts of COVID-19 on their constituents and determine how to best support them. In episode nine of <a href="https://www.accion.org/series/venturekast-rebuild" target="_blank" rel="noopener noreferrer">VentureKast: Rebuild</a>, Mayada explains that “the impact COVID-19 has not been equal across all segments or across all countries,” and that there has been a disproportional impact on women, migrants, and micro and small businesses. She adds that effects have also depended on “how digitally connected people are," pointing out that some MSMEs who sell through e-commerce have actually grown.

“Everyone right now is looking at how can we shift delivery to more digital means,” says Mayada, “because that’s the way we will reduce infection [and] spur recovery.” Mayada discusses how microfinance institutions are “making efforts to divert to digital disbursement and collection.” Digital ID systems, e-commerce platforms, and innovative lenders who leverage data to deliver credit are scaling to provide crucial services to previously excluded customers. Mayada’s message is an inspiring one as she emphasizes the importance of collaboration across the ecosystem, adding that there has been a “massive increase in the number of countries who have realized that this is not a problem that can be solved purely through commercial means.” Mayada  shared some of her key takeaways from the ..

Please join our host and co-managing director of <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab" target="_blank" rel="noopener noreferrer"><strong>Venture Lab</strong></a><strong><u>,</u></strong> <a href="https://www.accion.org/bio/vikas-raj" target="_blank" rel="noopener noreferrer"><strong>Vikas Raj</strong></a><strong><u>,</u></strong> as he interviews industry leaders every Thursday about how COVID-19 is impacting their work.

&nbsp;

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"We need collaboration and a multi-stakeholder approach" — CFI’s Mayada El-Zoghbi

Robert Abare

Accion partner Lulalend is supporting women entrepreneurs as they build more resilient communities in South Africa

Yashmita Bhana, a business owner based in South Africa, is no stranger to confronting a challenge with confidence. She studied civil engineering at Wits University, where she was the only woman in her class. Her first business collapsed after she stepped away to care for her second child. And when she was three months pregnant with her third child, she scaled Mount Kilimanjaro, raising R500,000 for charity.

Today, Yashmita is adapting her business to help people in her community affected by COVID-19. Her company Nihka Technology Group is providing temporary free access to tech platforms for business owners, including an online finance and proposal writing tool that is integrated to WhatsApp.

In addition, Yashmita has helped 50 early childhood development centers to complete online training and communicate with other social projects during South Africa’ three-month lockdown, which ended in early June.

“Every time someone stands up for a cause, or does something to improve the lives of others, you are creating a tiny ripple of hope. And that ripple will build and become a massive wave,” said Yashmita.

Yashmita and her company are clients of Accion partner <a href="https://www.lulalend.co.za/" target="_blank" rel="noopener noreferrer">Lulalend</a>, which uses a digitally-enabled business model to provide short-term funding for small and medium enterprises that have been traditionally underserved by other financial service providers.

Lulalend has <a href="https://www.accion.org/how-three-financial-service-leaders-are-adapting-to-covid-19">quickly adapted</a> to support their small business clients coping with the effects of the pandemic. They are addressing client concerns on a case-by-case basis, restructuring loans and extending payment terms as needed. Lulalend also set up a Facebook page for their clients to connect with other struggling business owners and share their experiences.

Yashmita says a major source of strength is her community of fellow women entrepreneurs. “Throughout my journey, there is one really important lesson I’ve learned,” she said. “I didn’t do it alone. I was supported by some incredible women. Women are so powerful when we stand together. We are invincible together.”
<h2>Supporting women in business creates a “multiplier effect”</h2>
Lulalend is proud to support women entrepreneurs like Yashmita. “Studies have shown that when you empower women, you create a multiplier effect,” said Lulalend CEO Trevor Gosling. “You give them what they need to succeed, and they grow and they take entire communities along with them.”

<img class=" wp-image-22155 alignleft" src="https://content.accion.org/wp-content/uploads/2020/08/lulalend81720-2-225x300.jpg" alt="" width="290" height="387" />Jennifer Classen, another client of Lulalend, is living proof of this multiplier effect. She started Ngaphaya Y2K10 (or “Beyond 2010”) with the goal of delivering high-quality industrial equipment and products during the 2010 Soccer World Cup. Since then, Classen has made a difference in her community by creating more jobs and better opportunities for local women.

As an essential business, Classen kept operating through South Africa's COVID-19 lockdown, providing job security to her employees. Beyond that, she’s used her infrastructure to help other businesses, many owned by women, deliver essential products like hand sanitizer. She is now on the forefront of the effort to deliver approved COVID-19 antibody test strips.

“For us, success means so much more than just financial reward,” said Jennifer. “As a woman-owned and managed company, our business is built on the principles of creating opportunities for other women through skills-transfer, sustainable employment, and genuine empowerment.”

Jennifer and Yashmita’s stories demonstrate how, with targeted support, underserved and women-owned businesses can be valuable partners for communities confronting the many challenges raised by COVID-19. In turn, they can also lay a foundation for more women to succeed in business and build financially resilient communities.

How South Africa’s women entrepreneurs are leading responses to COVID-19

Latest insights

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

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

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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

Pablo Anton-Diaz

Expanding financial capability benefits financial service providers and customers

Alex Taylor

The Smart Campaign and Accion’s Global Advisory Solutions team up to build a digital monitoring tool for Sa-Dhan, the largest network of microfinance institutions in India

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