&gt; Posted by Lisa Kienzle and Gigi Gatti, Grameen Foundation

Women make great digital financial service (DFS) agents: they are often savvy at managing liquidity, effective at building trust, and perhaps most importantly, they are more effective at onboarding other women into DFS than men. This makes the recruitment and training of women agents an important strategy for closing the gender gaps in digital financial services and technology, and for ultimately ensuring universal financial inclusion.

Men in developing markets still outpace women in account ownership by <a href="http://www.worldbank.org/en/programs/globalfindex/infographics/infographic-global-findex-2014-gender-income">9 percent</a>. The technology gap is even larger - women are 14 percent less likely to own a mobile phone than men. Given the growing emphasis on digital solutions to drive financial inclusion, this technology gap could further widen the financial services gender divide if not explicitly taken into account in the design of digital solutions. Women agents are a crucial element of that design.

However, research from the <a href="http://www.helix-institute.com/blog/building-business-case-women-agents">Helix Institute of Digital Finance</a> shows that women are consistently underrepresented in agency networks due to a variety of cultural and socio-economic constraints. These start from their difficulty in obtaining formal financial services. Many women lack a bank account, the documentation to get an account, and any sort of information on their financial behaviors, let alone a credit history needed to access a formal loan. Even greater challenges can confront aspiring financial service agents, who may need to acquire and learn new technologies to act as agents.

In the Philippines, Grameen Foundation, a global nonprofit that uses technology to empower the poor, is harnessing the power of the local investors to fund women agents. Last December, Grameen Foundation launched the Community Agent Network (CAN) Program, which engages nanays - women running sari-sari shops (neighborhood variety shops) - to take on a new role as financial service providers. Grameen Foundation partnered with Payswitch Fintech Ventures to design Panalo, a payments platform.

Across the board, when traditional financing fails, innovative financing is needed - such as leveraging the power of the crowd. Crowdfunding models that use online platforms to enable peer-to-peer lending can offer alternative ways for women entrepreneurs to access funding - either from local or international investors - to overcome their financing challenges.

To help nanays invest in the required technology, Grameen Foundation is launching a crowdfunding campaign in partnership with <a href="https://fundko.com/">FundKo</a>, a local Filipino peer-to-peer lending platform, to provide the women with access to initial capital and the necessary digital platforms, enabling them to become financial service agents for their mostly poor and unbanked clientele. By the end of 2017, the CAN network aims to expand to over 600 sari-sari stores, and reach 66,000 low-income customers across several islands.

We’re seeing crowdfunding being put to work to enable women agents in other parts of the world as well. In sub-Saharan Africa, <a href="http://www.ilovezoona.com/">Zoona Zambia</a>, a digital payments technology provider, found that women as agents make good business sense - they were better at running their agency business than men were.  When Zoona expanded to Malawi, they decided to focus on recruiting women agents. To address the upfront capital hurdle for its agents, Zoona partners with Kiva, an international crowd-funding organization that matches lenders with entrepreneurs to offer low-interest loans. They’ve found that women raise funds twice as fast as men through the platform.  As a result, today <a href="http://blog.mondato.com/women/">70 percent</a> of Zoona’s agents in Malawi are women.

These peer-to-peer models remove the roadblock of access to start-up capital, but another challenge remains. Central to first-time agent banking models is access to training and information. In the Philippines, Grameen Foundation works with Payswitch to train sari-sari store owners on the digital payments platform. The training covers hard skills, including the use of the technology and the digital financial services products on offer, and soft skills, such as customer service and support. Similarly, Zoona educates women on business financing and agency management. The coupling of appropriate access to capital and information ensures that these women have the tools they need to make the most of their investment in their business.

Although access to finance and training are two major barriers facing women agents, agent network managers looking to bring women into their service potentially need to address a host of socio-economic disparities and cultural challenges and their many variations across geographies.  Innovative designs could address the particular needs of these aspiring women entrepreneurs. However, finding unique ways of financing and training women agents when traditional banking fails can remove key constraints to a more inclusive agency system, and in turn, work to decrease the gender divide in financial inclusion.

Lisa Kienzle is global director of financial services at Grameen Foundation. Gigi Gatti is Grameen Foundation's regional director (financial services) for Asia and country director for the Philippines.

Have you read?

<a href="https://cfi-blog.org/2016/12/19/a-review-of-the-case-for-social-investment-in-microcredit-by-tim-ogden/">A Review of 'The Case for Social Investment in Microcredit' by Tim Ogden</a>

<a href="https://cfi-blog.org/2016/08/11/exploring-responsible-agent-management-in-india/">Exploring Responsible Agent Management in India</a>

<a href="https://cfi-blog.org/2016/09/28/fintechprotects-prioritizing-responsible-agent-management-at-oxigen/">#FintechProtects: Prioritizing Responsible Agent Management at Oxigen</a>

Will the Crowd Support More Women Agents?

&gt; Posted by Daniel Balson, Lead Specialist for Eurasia and MENA, the Smart Campaign

This is the fourth and final blog entry in a <a href="https://cfi-blog.org/tag/financial-inclusion-of-refugees-blog-series/">series</a> exploring how financial services can be leveraged to assist refugee populations. This entry will consider the future of refugee financial services and what our sector can do to ensure that the future is an inclusive one that serves genuine needs and protects refugee rights. 

Syrian refugees shop at a market with their bank card given by the Turkish Red Crescent.

It is worth asking whether the financial inclusion sector is at the forefront of the movement to financially include refugees. The humanitarian sector has long struggled to determine how to provide assistance during a crisis in a way that is sustainable, effective, and accountable. Recently, humanitarian organizations such as Oxfam and the International Finance Corporation (IFC) have begun considering whether it’s possible to use payments as an on-ramp for financial inclusion of refugees. Cash transfers have historically facilitated corruption and failed to make it into the hands of the people who needed it most. In-kind donations of goods such as tents, food, sleeping material and other items undermined local merchants who made their livelihoods selling these very goods. In response, the sector has begun experimenting with digital financial payments. In Afghanistan, for example, the World Food Program (WFP) has <a href="https://btca-prod.s3.amazonaws.com/documents/185/english_attachments/Afghanistan_Case_Study_May2016.pdf?1463507198">issued e-vouchers</a> and mobile money to cover food aid. The first e-voucher pilot was carried out on a small user base of 603 recipients in Kabul for a three-month disbursement cycle from April to June 2014. The total value of e-vouchers disbursed was US$72,360. The program proved successful and the WFP launched several follow-on pilots across the country in the subsequent year.

By eliminating the need for central distribution points, e-vouchers helped insulate staff and beneficiaries from security risks. Biometric technology such as finger-print scanning and chip and pin technology helped the WFP overcome literacy challenges and safeguard client data. As a result, e-vouchers were more effective at protecting clients’ rights to privacy and helped deliver a more transparent and approachable payment product.

Lebanon has proved to be another test case for digital financial services and refugee populations. Lebanon has welcomed 1.2 million refugees within its borders, mostly from Syria, Iraq, and Palestine. As such, it is the country with the most refugees per capita in the world. Here too, digital financial services have played a pivotal role. By creating points of access with merchants and ATMs, aid organizations have <a href="http://www.cashlearning.org/downloads/untappedhumanitariandemand-abusinesscaseforexpandingdfs.pdf">developed a fully functioning distribution network</a>, allowing refugees to use their pre-paid cards in more transactions than ever before.

With the success of these seemingly disconnected technology programs, humanitarian organizations have begun speaking to their financial sector counterparts to explore how these pilots could transition to an on-ramp for genuine financial inclusion. Whereas in the past, humanitarian organizations became adept at quickly installing basic, flexible, and effective financial networks to use in times of crisis, the new approach seems to be focused around developing a more lasting system that can continue to serve at risk populations long after reconstruction. For example, more and more humanitarian organizations are considering how payment networks can evolve into a system that facilitates savings, credit, and insurance.

What can donors do better?

To achieve results on this front, donors, aid agencies, and humanitarian organizations will have to take a critical look at prior approaches and incentives. For example, the sector may wish to reconsider whether old monitoring and evaluation paradigms are best suited to providing sustainable financial services to refugees. Previously, auditors assessing the efficacy of an intervention might have counted how much money was distributed and spent. However, if we are to work towards developing long-standing financial channels for refugees, it is imperative that we account for and encourage savings. Evaluators may be required to develop newer and more accurate metrics to determine whether pre-existing payment channels can grow to accommodate the diverse array of financial services refugees will require.

Additionally, donors and practitioners will need to learn to tell their story better. In doing so, they might consider what counts as a success and why it matters to governments, donors, practitioners, and to refugees themselves. New narratives would be most effective if boosted by emerging research on refugee financial services. For example, if the sector were to demonstrate that financially included refugees are more likely to return to their country of origin, it could use this data to make a stronger case before skeptical donors. Donors champion financial organizations like Al Majmoua in Lebanon and Microfund for Women in Jordan that experiment with financial services for refugees.  By highlighting successes, donors could use their considerable megaphone to reinforce the importance of such programs and demonstrate that they can deliver financial services for refugees in a sustainable and effective manner. Such publicity could be paired with a concerted focus on overcoming the perception of refugees as risky borrowers: donors could guarantee some portion of loans issued.

What can practitioners do better?

Practitioners can find new ways to leverage digital services to address challenges refugees face. Myriad avenues are being explored; a few of the more promising ones are highlighted below:
<ul>
 	<li>Currently, refugees risk losing credit histories that they carefully built in their home countries – as well as credit histories they start from scratch and build in their host country. Credit score portability can help mitigate these challenges and encourage refugees to take up financial services in their host country as well as return to their home countries when it is safe, with the knowledge that their sound financial decision making will be recognized.</li>
</ul>
<ul>
 	<li>Refugees often arrive to their host countries with few fixed assets and limited collateral. Creditors can harness the power of crowdfunding to create digital stores of collateral for potential refugee clients, allowing them to get a foot in the door of the credit marketplace.</li>
</ul>
<ul>
 	<li>As refugees might arrive with limited documentation, they are often unable to demonstrate their creditworthiness. Alternative creditworthiness analysis tools offer one promising solution. By leveraging a refugee’s social media presence, contacts and networks, loan officers can get a sense of the client’s trustworthiness and diligence, allowing the provider to lower the interest rate on an otherwise prohibitively risky product.</li>
</ul>
<ul>
 	<li>Many refugees face political persecution in both their home country and their host country. As such, they are often reticent to divulge personal information necessary to secure a loan. Strong digital safeguards can help protect a refugee’s privacy, anonymize data and minimize risk to the client’s contacts back home.</li>
</ul>
Technology, of course, will not be a substitute for appropriate strategizing and good sense. Many of the core obstacles facing refugees’ financial inclusion can be best solved not through novel technical approaches but by reviewing and carefully internalizing lessons already uncovered by the sector. For example:
<ul>
 	<li>Mobile lending units allow the product to come to the client in cases where the client cannot come to the product. In Syria, UNRWA developed a small fleet of mobile lending units, allowing loan providers to reach clients in areas with few security threats but limited financial infrastructure.</li>
</ul>
<ul>
 	<li>Appropriate and flexible products can help an institution adapt to a rapidly changing situation. In Syria, UNRWA launched its <a href="http://www.unrwa.org/sites/default/files/content/resources/microfinance_department_annual_report_2015.pdf">BST (“Bastat”)</a> product aimed specifically at street peddlers and designed to cope with their frequent displacement, in part through low repayment amounts. A separate product provides home reconstruction loans for Syrians. These highly tailored products help address real and pressing needs faced by Syrian victims of conflict. These strategies are an effective illustration of appropriate product design, the first of the Smart Campaign’s Client Protection Principles. You can learn more about how the Smart Campaign views this principle <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">here</a>.</li>
</ul>
<ul>
 	<li>Providing financial services to refugees is often a contentious proposition. In countries where resources are limited, politics are fraught and conflict is a recent memory, the public and the government are often skeptical when precious funds are redirected to temporary and foreign visitors. Recognizing this reality, institutions can minimize disruption by supporting activities that do not compete with the local economy. For example, in Lebanon, Al Majmoua has funded refugee families who make aghabani table cloths, a traditional Syrian textile in high demand throughout the Middle East.</li>
</ul>
<ul>
 	<li>Institutions serve refugees best when they focus on people. As we’ve seen in <a href="https://cfi-blog.org/2016/09/27/financial-inclusion-of-refugees-azerbaijan-case-study/">our Azerbaijan case study</a>, one of the easiest and most effective ways financial institutions can learn about how to serve refugees and the internally displaced is to hire them. Refugee staff come with an intuitive feel for the clients and their culture and an eagerness to work and learn. Additionally, financial institutions have found success by creating joint refugee and host borrower groups to create interdependence and build bridges between individuals who might not normally associate with one another. Additionally, by offering financial products to women refugees specifically, institutions are more likely to assist an underserved market segment and less likely to be seen as intrusive.</li>
</ul>
What governments can do better:

Meaningful progress on providing financial services to refugees requires the assistance of governments. Elected and appointed officials set the rules of the market, determine the country’s overarching policy towards refugees, signal moral support for migrants’ rights, and channel public concerns. Their support is fundamental to ensuring that refugees and the internally displaced can access meaningful economic opportunities.

Government officials can begin by stimulating an honest dialogue about the political dimensions of refugee financial inclusion and steering the rhetoric away from a binary option. Rather than forcing the public to make an imagined choice between citizen rights and refugee assistance, governments could explore avenues for how refugees can be financially included while benefiting their host communities.

Recognizing that refugees are some of their most vulnerable populations, officials can enact rules that would ensure their protection. By encouraging formal institutions to enter the market before they are superseded by less reputable lenders, officials can prevent the emergence of a black market for credit and thwart abuses before they appear.

While financial inclusion practitioners know far more about what it takes to assist refugees today than ten or even five years ago, there is much more to learn. Are refugees with more access to capital more likely to return to their home country? What types of financial services offered to refugees have the greatest net-positive effect on their host communities? These and other questions require additional research. Governments have the resources and the moral suasion to commission and implement such studies and should be vocal about the need to learn more on this critical topic.

Have you read?

<a href="https://cfi-blog.org/2016/09/20/financial-inclusion-of-refugees-an-introduction/">Financial Inclusion of Refugees: An Introduction</a>

<a href="https://cfi-blog.org/2016/09/27/financial-inclusion-of-refugees-azerbaijan-case-study/">Financial Inclusion of Refugees: Azerbaijan Case Study</a>

<a href="https://cfi-blog.org/2016/10/07/financial-inclusion-of-refugees-al-majmoua-in-lebanon/">Financial Inclusion of Refugees: Al Majmoua in Lebanon</a>

The Future of Refugee Financial Inclusion

&gt; Posted by Center Staff

“Despite its recent years of rapid growth, Islamic finance is still in its early stages of development,” the World Bank <a href="http://www.worldbank.org/en/topic/financialsector/brief/islamic-finance">wrote</a> last year. Today in 2016, this is still the case, but this banking segment is certainly demonstrating advances that might suggest otherwise.

Today and tomorrow in Nairobi, delegates from 35 countries are convening to attend the <a href="http://www.alhudacibe.com/gimf2016/">Global Islamic Microfinance Forum</a>. The event, hosted by the AlHuda Centre for Islamic Banking and Economics, seeks to explore the latest developments and trends in the sector, catalyze innovation in the industry, and boost awareness on how Islamic finance can support social development and poverty alleviation. Once the forum concludes there will be a two-day workshop on how to develop, operate, and sustain Islamic microfinance institutions.

Islamic finance has grown at roughly <a href="http://www.worldbank.org/en/topic/financialsector/brief/islamic-finance">10-12 percent annually</a> over the past decade. Between 2011 and 2014, Sharia-compliant financial assets rose from <a href="http://www.brecorder.com/money-a-banking/198/1138766/">US$ 1 trillion to 2.1 trillion</a>. In many Muslim countries, Islamic finance assets have been <a href="http://www.worldbank.org/en/topic/financialsector/brief/islamic-finance">growing faster</a> than conventional banking assets. In non-Muslim-majority counties, Islamic finance has also seen substantial progress breaking ground in new countries and growing in already-established markets, including China, Kenya, Nigeria, Tanzania, South Africa, and the U.K. It’s estimated that there are over 1,500 organizations working in Islamic finance across 90 countries – 40 percent of which are non-Muslim-majority countries.

Islamic microfinance makes up a small slice of the Islamic finance pie, at roughly 1 percent. However, a report by TechNavio forecasts that Islamic microfinance will grow at a compound annual growth rate of about <a href="http://www.prnewswire.com/news-releases/global-islamic-microfinance-market-2014-2018-281593461.html">20 percent</a> between 2014 and 2018.

Globally it’s estimated that out of the 1.6 billion Muslims in the world, only <a href="http://www.worldbank.org/en/topic/financialsector/brief/islamic-finance">14 percent</a> use banks, and that there are <a href="https://www.cgap.org/publications/trends-sharia-compliant-financial-inclusion">650 million Muslims</a> living on less than 2 dollars a day. Further advancing Islamic finance and Islamic microfinance, expanding formal banking options for those whose religion precludes them from conventional banking, would yield huge financial inclusion benefits.

One challenge <a href="http://www.cgap.org/news/innovation-islamic-microfinance">cited</a> as hindering the take-up of Islamic finance is lack of product diversity. More and more microfinance institutions have Sharia-compliant offerings, but they are largely limited to cost-plus-mark-up (non-interest-bearing) loans called murabaha. However, the widespread advent of fintech is also penetrating the Islamic finance realm.

At the Global Islamic Microfinance Forum, there will be awards given for the Best Technology Provider for Islamic Microfinance, and the Best Mobile Banking Product.

Last week, we saw what’s being <a href="https://www.crowdfundinsider.com/2016/11/92018-ethiskapital-claims-worlds-first-licensed-islamic-p2pcrowdfunding-platform/">touted</a> as the world’s first licensed Islamic P2P/crowdfunding platform, <a href="http://www.ethiskapital.com/">EthisKapital</a>. The platform received a license from the Securities Commission of Malaysia to offer P2P funding for real estate development projects and SMEs.

EthisKapital is the result of a partnership between two Sharia-compliant crowdfunding platforms, EthisCrowd and Kapital Boost. EthisCrowd was <a href="http://www.crowdfundinsider.com/2016/10/90971-singapore-based-ethiscrowd-recognized-best-islamic-crowdfunding-platform/">recently named</a> the Best Islamic Crowdfunding Platform at the 6th Global Islamic Finance Awards in Jakarta. EthisCrowd has roughly 17,000 registered members who have invested in building around 5,000 houses for lower-income Indonesians.

Singapore-based <a href="http://www.kapitalboost.com">Kapital Boost</a> is a platform connecting SMEs in Southeast Asia to sources of capital.

In Indonesia, Allianz is piloting a Sharia-compliant mobile phone-based loan service called <a href="https://cfi-blog.org/2016/06/20/allianz-launches-sharia-compliant-mobile-loan-service/">Trust Network Finance</a> (TNF). Micro-enterprises receive funding, and in return TNF receives a minority stake in the business.

And this is just a sample of what’s been happening in the Islamic inclusive finance space. We will look forward to following future developments in this area. In Indonesia for example, which is the largest Muslim country by population, and where according to the Global Findex only 13 percent of adults have formal loans, there are <a href="http://www.indonesia-investments.com/news/todays-headlines/indonesia-is-the-3rd-largest-smartphone-market-in-the-asia-pacific/item6777">more smart phone subscribers</a> than in any Asian country aside from China and India with 55 million individuals.

Have you read?

<a href="https://cfi-blog.org/2013/04/26/sharia-and-savings-islamic-microfinance/">Sharia and Savings: Islamic Microfinance</a>

<a href="https://cfi-blog.org/2011/04/13/islamic-microfinance-the-poorest-of-the-poor-and-more-top-picks-of-the-microfinance-blogosphere-april-13-2011/" target="_blank" rel="noopener">Islamic Microfinance, the Poorest of the Poor, and More – Top Picks of the Microfinance Blogosphere – April 13, 2011</a>

<a href="https://cfi-blog.org/2014/03/31/asset-based-financing-and-flexible-repayment-schedules-to-better-serve-africas-smallholder-farmers/">Asset-Based Financing and Flexible Repayment Schedules to Better Serve Africa's Smallholder Farmers</a>

Islamic Microfinance Advances and Converges with Fintech

Fifteen years ago in the microfinance space you may have been able to get away with understanding very little about your clients. Without much competition, MFIs could probably still make a decent profit by offering one product to all their clients using only one delivery channel. Thankfully, those days are gone.

The base of the pyramid is no longer a hidden or forgotten market segment. In fact, according to the recently-released <a href="http://centerforfinancialinclusionblog.files.wordpress.com/2014/07/2014_microfinance_banana_skins.pdf">2014 Microfinance Banana Skins</a> report, the pendulum is swinging in the opposite direction. Overindebtedness once again tops the charts as the biggest perceived risk, perhaps indicating that many clients are now able to gain access to multiple services providers. In some areas, an excess of providers may now be crowding the market.

Having just returned from the MasterCard Foundation <a href="http://mastercardfdnsymposium.org/">Symposium on Financial Inclusion</a> in Turin, the clear takeaway was that financial inclusion providers need to deeply understand their clients’ needs in order to survive. There are new providers (e.g. mobile network providers, like <a href="http://www.safaricom.co.ke/">Safaricom</a> in Kenya) and disruptive business models/delivery channels (e.g. crowdfunding, the mobile-based savings coach of <a href="http://ahorrandojuntos.com/">Juntos</a>, the mobile banking services of <a href="http://www.bkash.com/">bKash</a>) that are game-changing in the financial inclusion space. There are also a number of organizations (e.g. <a href="http://ideas42.org/">ideas42</a>, <a href="http://bankablefrontier.com/">Bankable Frontier Associates</a>, <a href="http://bankableanalytics.com/">Bankable</a>) who are effectively using data and behavioral science to provide important insights into client segments and behavior.

Given the increased competition and diverse group of providers and products racing to serve the base of the pyramid, I predict that the service providers who will survive in the future will be those who know their clients’ needs well and have an effective (cost and time) and value-based service. These factors will help allow the best providers to reach scale in a sustainable manner. Understanding your client can’t be a peripheral business function that is done once or as an infrequent “add-on.” Knowing clients needs to be an ongoing process as their needs and wants change frequently.
<blockquote>Business models therefore also need to be nimble and solutions-based.</blockquote>
The financial inclusion industry has grown up a lot, which is a good thing. It means the case has been made that the base of the pyramid is a viable client segment worth the time and effort to service. More providers/competition will ultimately lead to better and more cost effective products and services (given the necessary industry safeguards are put in place, of course). As is often true as markets develop, I think the days of MFIs actively collaborating to share client data, knowledge, and research that were longingly mentioned at the symposium are fading. Information that provides insights into client behavior or needs is quickly becoming a huge competitive advantage. I believe it will become less important whether service providers have a stated social mission and more important that they are client-centric in the very core of their business operations. May the best and most client-focused providers prevail!

Image credit: <a href="https://www.flickr.com/photos/michaelfoleyphotography/4369888189/in/set-72157627015513349" target="_blank" rel="noopener">Michael Foley</a>

Have you read?

<a href="http://cfi-blog.org/2014/04/29/the-great-equalizer-how-advances-in-big-data-allow-tech-savvy-start-ups-to-compete-with-the-major-players-in-east-africa/" target="_blank" rel="noopener">The Great Equalizer: How Advances in "Big Data" Allow Tech-Savvy Start-Ups to Compete with the Major Players in East Africa</a>

<a href="http://cfi-blog.org/2014/02/27/approval-pending-a-challenge-to-m-pesas-mobile-money-dominance-in-kenya/" target="_blank" rel="noopener">Approval Pending: A Challenge to M-Pesa's Mobile Money Dominance in Kenya</a>

<a href="http://cfi-blog.org/2013/12/04/what-will-you-do-to-make-financial-inclusion-a-reality-by-2020/" target="_blank" rel="noopener">What Will You Do to Make Financial Inclusion a Reality by 2020?</a>

Understand Your Clients – or Good Luck Amongst the Competition

&gt; Posted by Danielle Piskadlo and Jeffrey Riecke, Senior Program Specialist and Communications Assistant, CFI

<a href="http://cfi-blog.org/category/investing-in-inclusive-finance/" target="_blank" rel="attachment wp-att-9676"><img class="alignright" style="border:0" alt="" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/02/untitled2.jpg" width="310" height="54" /></a>The <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/investing-in-inclusive-finance" target="_blank">Investing in Inclusive Finance</a> program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.

Thanks to social media, we are in a new era of sharing. Everything from major life events to fleeting thoughts like “I’m hungry” get posted, tweeted, and shared within social circles these days. And the provision of financial service – once a private affair – is not immune.

Sites such as <a href="http://www.prosper.com/" target="_blank">Prosper</a> and <a href="http://www.kickstarter.com/" target="_blank">Kickstarter</a> are among the many new crowdsourcing websites that allow people to share – in fact, advertise – their status of “I need a loan.” And these sites are revolutionizing what it means to be an entrepreneur or artist today by smashing the barriers to entry for funding a new idea, skill, or product.

In a big way, the days of trying to explain the market potential of your business plan for a trendy new app to a banker are disappearing as are the days of playing your music in the subway or selling your art on the sidewalk, hoping to get discovered. Now, almost anyone with a product or craft can simply post it on one of many sites to crowdsource the funding.

One of the beauties of crowdsourced financing is that it allows an entrepreneur or artist to assess market demand. The crowd tells you if your idea or art has potential by funding it. And distributed funding requests allow entrepreneurs or artist to tap into social networks for support in a meaningful way and without any real risk.

There are many crowdsourced financing platforms out there, and lots of different business models, so let’s take a closer look at one of the more prominent outfits: Kickstarter. Since the service began in mid-2010, more than 4.9 million people have backed a Kickstarter project, pledging over $800 million across 49,000 projects.

<a href="http://www.flickr.com/photos/mic_n_2_sugars/564570276/sizes/m/in/photostream/" target="_blank" rel="attachment wp-att-12575"><img class="alignright wp-image-12575" style="border:0" alt="" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/09/564570276_65929f5968.jpg" width="350" /></a>The guidelines to Kickstarter are relatively straightforward. You must be over the age of 18 to create a project on Kickstarter. You must declare a funding goal and deadline. Your project must have a clear ending. Kickstarter’s funding model is all or nothing: if your entire funding goal is met, you receive everything; if it isn’t, you receive nothing. You don’t repay your backers with money, but instead you reward them in some other way – often that’s by offering an advance copy of the finished product, like a to-be-released book. Sound simple enough?

Maybe so, but the finer print helps illustrate crowdsourced financing platforms aren’t one-size-fits-all. Kickstarter is only available to those in the U.S., U.K., and Canada. You must have access to the web to use the service – a limiting factor for many unbanked individuals. And projects must fall into one of a handful of categories, such as Art, Comics, Dance, Design, and Fashion. You can’t use Kickstarter to sell equity or solicit loans, or use it to fund personal expenses like tuition or bills (you can find the <a href="http://www.kickstarter.com/help/guidelines?ref=footer" target="_blank">full guidelines here</a>).

However other platforms do help fill in some of these service gaps, broadening the crowdsourced financing landscape. <a href="http://www.indiegogo.com/" target="_blank">Indegogo</a>, another popular “donation-based model” platform, lets people raise funds for almost anything, including personal needs, and its reach is global. Indegogo does attach a fee to any money that is raised. In addition to these donation-based model platforms, the “investment model” is becoming increasingly prevalent among crowdsourced financing services. These platforms, like <a href="http://www.crowdfunder.com/" target="_blank">Crowdfunder</a> for example, take on a more traditional investment approach: businesses seek capital by selling equity stakes or debt online.

There are many other different incarnations of crowdsourced financing, as well. A platform called <a href="https://www.sofi.com/" target="_blank">SoFi</a> enables schools’ alumni networks to fund student loans. With any of these services, it’s important to remember that you’re harnessing the financial support of one particular community. There are more and more platforms being established, giving crowdsourcers more options, but each of these outfits is only as valuable, or dependable, as the community that supports it.

On the whole, it’s estimated that the crowdfunding industry raised $2.7 billion in 2012, spanning over 1 million projects, and that in 2013 the industry will grow to <a href="http://www.forbes.com/sites/chancebarnett/2013/05/08/top-10-crowdfunding-sites-for-fundraising/" target="_blank">$5.1 billion in annual crowdfunding</a>. This explosion of crowdfunding via the internet has the potential down the road to revolutionize how lending is done – and could eventually cut out financial intermediaries like banks altogether, or at least transform how they do business.

But for now these sites are providing the financially excluded people who have been rejected from banks in developed countries another option to fund their businesses/ideas. And it puts them more in the driver’s seat with setting lending terms because they can more easily shop around for a lender willing to accept their terms. The crowdfunding phenomenon is doing for developed countries exactly what microfinance did (or was meant to do) in developing countries. Self-help groups, with the power to set their own lending terms, were formed so unbankable women who were rejected from formal financial institutions could pool their money together and lend it all to one person needing it for a business.

Utilizing the power of online technology and networks to help individuals, businesses, and everyone in between with their fundraising needs, what a novel idea.

Image Credit: <a href="http://www.flickr.com/photos/mic_n_2_sugars/564570276/sizes/m/in/photostream/" target="_blank">mic wernej</a><a href="http://www.middle-east-online.com/english/?id=54291">
</a>

Have you read?

<a href="http://cfi-blog.org/2013/04/24/what-technology-can-and-cant-do-for-financial-inclusion/" target="_blank">What Technology Can (and Can't) Do for Financial Inclusion</a>

<a href="http://cfi-blog.org/2013/02/25/designing-financial-services-for-chinas-marginalized/" target="_blank">Designing Financial Services for China's Marginalized</a>

<a href="http://cfi-blog.org/2013/09/17/micro-opportunity-alternative-microfranchising/" target="_blank">Micro-Opportunity Alternative: Microfranchising</a>

Financially Included Through Crowdsourced Financing?

Leonardo Tibaquira

Kathleen Yaworsky

Liza Guzman

Priya Punatar

Chile

Latin America and The Caribbean

Mexico

Brazil

Access Usage Gap

Appropriate Product Design and Delivery

Banks

Behavioral Insights

Challenges and Crises

Consumer Protection

Credit

Crowdfunding

Customer Centricity

Delivery Channels

Digital Credit

Digital Financial Services

Digital Transformation

Enabling Environment

Entrepreneurs of MSMEs

Financial Capability

Financial Health

Financial Service Providers

Fintechs

Human Centered Design

Microfinance

Microfinance Institutions

MSME/SME Finance

Partnerships

Personal Financial Management

Resilience

Supply Chain Finance

Underserved Groups

Financial Technology

Payments

Women

Advisory Services

Financial Inclusion Strategy

Human Touch

Mobile Banking

Responsible Digital Finance

Rural Populations

Smallholder Farmers

Youth

Agricultural and Rural Finance

Governance

Risk and Credit Analysis

Risk Management

Case Study

Article

Report

Video

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

In 2018, MetLife Foundation and Accion Global Advisory Services launched a partnership to explore how financial services providers (FSPs) can craft digital products to support financial health. The Accion team partnered with five FSPs in Mexico and Chile to design and launch innovative financial products and monitor their impact on the financial health of underserved customers. This work succeeds our <a href="https://www.accion.org/metlife-foundation-and-accion" target="_blank" rel="noopener noreferrer">joint effort with MetLife Foundation to advance financial inclusion</a> in Latin America, by building the capabilities of the underserved while engaging and motivating the financial inclusion industry and community.

Although the products were launched as pilots during a time when the market and customers were facing challenges from a pandemic, initial results suggest that the products have positive impact on users' financial health. Data suggests that timely credit, tailored advice and training, and enhanced user experiences can improve customers’ overall financial well-being.

<img class="wp-image-25226 aligncenter" src="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-Social-FINAL-08-1024x819.png" alt="Accion-MetLife-report-graphics-client map" width="661" height="529" />
<h3>Leveraging distributor intelligence for small business credit </h3>
Located in central Mexico, cooperative Caja Bienestar partnered with Accion to develop a product to appeal to micro businesses. Initial research with business owners revealed they are more comfortable taking credit from their suppliers, who allow them rotating credit, to repay once they have made sales, and without complex paperwork or collateral. Recognizing the power of the relationships and data that suppliers have with and from small businesses, the Accion and Bienestar teams worked with suppliers and distributors to pre-approve micro-entrepreneurs. The resulting loan is much like the credit shopkeepers receive from distributors, featuring a fee (rather than interest rates), an open line of credit, and flexible repayment schedules.

During the pilot, the product had 14 active users, each of whom received an average of 18 rounds of credit. The percentage of users who said their financial situation caused them stress decreased by nearly 10 percent during the pilot.

MetLife Foundation and Accion: Improving financial health in Mexico and Chile

Francisco Romero Heda is the second-generation owner of Deposito San Francisco. His father started the business in Querétaro, Mexico over 40 years ago, and Francisco hopes to pass the business onto the next generation of his family 40 years from now. He sells construction materials to large distributors and construction firms, as well as to small businesses and individual contractors. Like many business owners, Francisco found that cash became tight during the pandemic and noticed that many of his customers have struggled with cashflow. He knew that he was losing sales because his customers needed credit to purchase materials for their projects, but his business lacked the liquidity and ability to provide it.

Cashflow constraints are particularly challenging in the construction industry. Contractors are expected to source and purchase materials to get their work done, but they often only get paid after completing their projects. They may receive a small deposit at the outset, but most must finance supplies and labor themselves, so they seek credit from the shops and distributors where they purchase materials. This need for liquidity stretches across the value chain and especially disadvantages small business owners who lack the cash to buy supplies upfront or extend credit themselves. Though small contractors and construction businesses may be well established, they tend to be small and aren’t an attractive customer segment for traditional banks.
<blockquote class="pullquote--right">
<h4>“My greatest satisfaction is helping entrepreneurs get the tools they need to get one step closer to their dreams for their businesses.”</h4>
</blockquote>
Caja Bienestar seeks to serve exactly this segment of small businesses, those unserved by traditional banks. As Manager of Institutional Sales, Elias Nahmad Buenfil notes, “We know them and trust them, and can provide a differentiated analysis to give them access to opportunities they don’t have today.” For over 25 years, Caja Bienestar has found creative, innovative ways to extend financial services to businesses and individuals in Querétaro. They’ve especially focused on serving new entrepreneurs, from small manufacturers to caterers cooking in home kitchens to large firms, that traditional banks overlook. “We are more people-oriented. We don’t just look at profit margins, but also the entrepreneur, their plans, and the overall growth of the sector,” says Elias. The work is rewarding for Elias and his team: “Today, I can tell you that my greatest satisfaction is helping entrepreneurs get the tools they need to get one step closer to their dreams for their businesses.”

[caption id="attachment_25402" align="alignleft" width="355"]<img class=" wp-image-25402" src="https://content.accion.org/wp-content/uploads/2021/12/Elias-holds-his-phone-1024x683.jpg" alt="Elias Nahmad Buenfil, Caja Bienestar’s Manager of Institutional Sales" width="355" height="237" /> Caption: Elias Nahmad Buenfil, Caja Bienestar’s Manager of Institutional Sales[/caption]

Together with Accion’s Global Advisory Solutions and with <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion" target="_blank" rel="noopener noreferrer">support from MetLife Foundation</a>, Elias and the Caja Bienestar team realized that distributors like Francisco are an untapped source of intelligence about small businesses in the construction sector that need credit. Over the years, Francisco and his team have accumulated many customers and have even provided some with materials on credit. In other words, Francisco’s customer records are functionally a credit and work history for many small construction businesses.

Caja Bienestar is now working hand-in-hand with Francisco and his team to offer credit to contractors and other customers so they can get the supplies they need to complete jobs that they may otherwise have to turn down. When customers come to buy supplies from Francisco, they can apply for credit from Caja Bienestar. Bienestar developed a tailored credit-scoring methodology for these small businesses by leveraging Francisco’s experience with them. The two teams work in close partnership to understand customers’ financing needs, assess their creditworthiness, and deliver products in a timely manner.

With financing, the entrepreneurs can purchase the supplies they need at affordable rates, and Francisco doesn’t have to worry about extending credit from his balance sheet. The arrangement frees Francisco to focus on sales and distribution, while Caja Bienestar takes on the burden of credit evaluation and collections and carries the risk of non-payment. “It is a great relief not to worry about collections and administration of credit now that Bienestar takes on that part of the work, analyzing the clients and carrying the risk. We can focus on selling and serving our clients,” says Francisco.

As Francisco notes, the goal of the partnership with Caja Bienestar is not just to deploy credit and sell materials; the objective is to help small business owners get the resources and information they need to grow their businesses. “The issue of credit is extremely complicated that can easily harm rather than help clients, so we handhold and advise them to ensure they see the benefits in their own business.” With the Bienestar partnership, clients can grow and develop their businesses via a relationship they already know and trust. He says, “We aim to go beyond getting our customers the materials they need. We also want to help with their capacity to get other important resources like financing, so that we can grow together.”

He notes that the collaboration creates a virtuous circle by creating benefits for his business, his customers, and their families and communities. Francisco believes this partnership can help his business achieve more and for more; “We are just scratching the surface with our Bienestar partnership. We have the capacity to sell, allocate, and reach even farther, to create a more inclusive economy and a world of opportunities for all.”

Entrepreneurs get one step closer to their dreams in Mexico

The global pandemic has been extremely challenging for most micro and small businesses. In the United States, the Federal Reserve estimates<a href="https://www.wsj.com/articles/covid-19s-toll-on-u-s-business-200-000-extra-closures-in-pandemics-first-year-11618580619" target="_blank" rel="noopener noreferrer"> 200,000</a> small businesses closed during the first year of the pandemic, and in South Africa, <a href="https://businesstech.co.za/news/business/455100/lockdown-forced-nearly-half-of-small-businesses-in-south-africa-to-close-study/" target="_blank" rel="noopener noreferrer">nearly half</a> of small businesses were forced to shut their doors. But for a few businesses, the pandemic has also presented new opportunities.

Outside of Santiago, Chile, an entrepreneurial young woman named Daniela Romero found a way to expand her business during the pandemic. During the day, Daniela works as a nurse technician. When COVID-19 hit, she found that many of her patients needed help purchasing medical supplies. She started to earn extra money delivering masks, antibacterial gel, and other supplies to patients unable to leave their homes.

[caption id="attachment_25392" align="aligncenter" width="1024"]<img class="size-large wp-image-25392" src="https://content.accion.org/wp-content/uploads/2021/12/DSCF3272-1024x683.jpg" alt="RedCapital Client Daniela and her husband" width="1024" height="683" /> Caption: Daniela and her husband stand behind the counter at their store.[/caption]

Daniela realized that her side business could become something more permanent and substantial. “We saw other needs as the quarantines were put in place, so we added other items like pet food, work clothes, and things that people in the area were missing.” But as her sales increased and customer demand for more products rose, she didn’t have the capital to stock her store with more items. “It was a complicated moment,” she says. “I wasn’t banked. We didn’t have access to support from any direction. Banks didn’t recognize me as an entrepreneur or a professional or even a private citizen.”

Things changed when Daniela learned about <a href="https://redcapital.cl/" target="_blank" rel="noopener noreferrer">RedCapital</a>, a crowdfunding platform for micro and small businesses in Chile. “Thank God for RedCapital,” says Daniela. “I need credit on a regular basis. For example, a client will want something I don’t have, and the investment may be slightly higher than the cash I have on hand.” She filled out a simple application and received the credit she needed to buy inventory for her store, allowing her to make more sales and grow her business.

While the financing was critical, the relationship with RedCapital is more important to Daniela. She says, “It is really an issue of trust. To be able to count on someone who has confidence in you, that believes you are working hard and that you will be able to pay. It feels good.” After finding a solution to her cashflow problem, she looks forward to her future as a small business owner, saying, “I am motivated to support the community and see the opportunity for my business.”

Since working with RedCapital, she has recommended the service to her friends. “When you have a business, things always come up, so it is extremely important to have support. RedCapital is my support.”

<a href="https://www.accion.org/how-daniela-grew-her-small-business-in-chile" target="_blank" rel="noopener noreferrer">Watch Daniela’s story</a>:

[embed]https://vimeo.com/624565782[/embed]

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 a digital credit product focused on the financial health of microentrepreneurs. When entrepreneurs can get the funding and support they need, <a href="https://www.accion.org/as-agribusinesses-grow-so-does-food-security" target="_blank" rel="noopener noreferrer">they can grow their businesses and strengthen their communities</a>.

How Daniela grew her small business during the pandemic

When you think about how fintech products are created, you might picture a coder sitting behind a desk at a computer. While coders certainly play a critical role, good financial products get their start in the field, shaped by the voices and needs of their users. Unfortunately, most of the digital financial products currently available to people in Latin America are too expensive, difficult to use, or inappropriately designed for the low-income people and small businesses who need them most.

Developing relevant financial services for low-income households and small businesses — services that can have a meaningful impact on people’s financial health — is not straightforward. These customers often lack financial records and have limited experience with formal financial services, making it difficult for providers to pinpoint their needs. Moreover, many of these customers distrust formal financial services and hold negative beliefs around account ownership and credit.

To develop financial services that improve financial health for low-income people, Accion Global Advisory Solutions, with support from <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html" target="_blank" rel="noopener noreferrer">MetLife Foundation</a>, partnered with fintechs, cooperatives, and traditional financial service providers (FSPs) in Chile and Mexico. Accion worked with these partners to design and launch digital products and services to reach underserved people, improve their financial health, help them maintain resilience against adversity, and enable them to seize opportunities.

First, we had to gain a deep understanding of their customer’s financial behaviors, pain points, ambitions, attitudes, and capabilities. In each partnership, the team began with an intensive research process to understand the financial, business, and digital capabilities that customers were missing. This allowed us to comprehend how financial products might improve their lives, understand how their beliefs and past experiences influence their financial decisions, and learn what capability building interventions products were needed to close such gaps and drive product adoption. These findings shaped product design and features, both fundamental and cosmetic user experience, which were all critical to the products’ success.

In Querétaro, Mexico, we partnered with <a href="https://www.ahorrosbienestar.com/" target="_blank" rel="noopener noreferrer">Caja Bienestar</a>, a cooperative seeking to increase lending among microentrepreneurs. However, like many lenders, they found that owners were more comfortable taking out loans from their suppliers and distributors, even if that credit was more expensive than that offered by the cooperative. For example, Jorge Luis Prado, owner of a construction supplies store, was accustomed to buying inventory on credit from his supplier to secure reasonable prices, noting that “my own competitiveness depends on securing good prices from suppliers.” In our research, we found that entrepreneurs dislike credit with interest rates. As Jose Eduardo Ruiz Suarez, Commercial Director of Caja Bienestar, notes, “Many had bad experiences with credit and felt that interest rates could easily get out of hand.” Instead, customers reported they preferred fixed fees which felt safer and less risky. The finding helped Caja Bienestar design a product with a pricing structure that their clients preferred.

<a href="https://www.accion.org/young-people-in-mexico-need-finance-that-fits-their-lives" target="_blank" rel="noopener noreferrer">Caja Popular Cerano</a>, a cooperative in Mexico, struggled to attract youth. Accion held focus groups with young people to understand their habits and expectations from a financial service provider. When the team learned that almost half of them were spending at least four hours a day online, they realized that social media was an entry point for digital banking services. In response, they integrated several aspects from social media experiences into their mobile banking app. For example, the new product allows users to choose an avatar who receives encouraging and congratulatory messages throughout the banking experience. While the avatars do not necessarily impact the underlying financial product, they make the product appealing to the target segment.

In Chile, <a href="https://redcapital.cl/" target="_blank" rel="noopener noreferrer">RedCapital</a> — a crowdfunding platform that <a href="https://www.accion.org/as-agribusinesses-grow-so-does-food-security" target="_blank" rel="noopener noreferrer">provides credit to microentrepreneurs</a> — aimed to improve lending among microbusinesses. Research with small business owners revealed that they were uncomfortable providing sensitive financial information over an app or an online portal. Instead, they wanted to speak to a person and feel confident that their data was secure. In response, the team designed a chatbot to mimic a conversation with a human. The resulting product is digital but still provides a more human experience, so users feel comfortable with the experience.

In each of these examples, careful, qualitative, and behavioral field research allowed the team to uncover simple but effective insights to design digital financial products and services that aim to improve customers’ financial health. This approach to research, design, and implementation process is not easy to undertake as the results are not clear from the outset and it is not simple to integrate them all into a product value proposition. However, the experience of the Accion team and its partners suggests that it is well worth it.

Read more about the insights we learned from this project in our new paper, <a href="https://www.accion.org/how-providers-can-build-products-that-improve-financial-health-examples-from-mexico-and-chile/" target="_blank" rel="noopener noreferrer">How providers can build products that improve financial health: Examples from Mexico and Chile</a>. We share five case studies about our work with Chilean and Mexican partners over the past three and a half years. We hope that this paper will help financial service providers develop and optimize financial health-centric products that will lead to meaningful changes in the financial lives of underserved customers.

How to build digital tools that boost financial health

<h1>Foreword</h1>
<a href="https://www.accion.org/finding-a-path-to-financial-health-in-chile-one-step-at-a-time" target="_blank" rel="noopener noreferrer">Karen</a> is a single mom who lives in Santiago, Chile, with her young daughter. She went to school to study business administration but had to drop out to care for her daughter. Today, she works at a retail shop where she makes just enough to get by. Karen worries all the time — about paying the bills each month, about providing for her daughter, and about her growing credit card debt. She knows she needs to make a change, but she doesn’t know where to start. She has tried to put together a plan to pay off her debt, but it is difficult to figure out the total amount she owes or identify the right person to call. Thinking about money makes her feel stressed, overwhelmed, and alone.

To achieve their goals and build financial health, people like Karen need products and services that can help them to better track their finances, manage shocks (like global pandemics) and pursue financial goals. 

Unfortunately, most low-income individuals and small businesses currently lack access to formal financial services; <a href="https://databank.worldbank.org/reports.aspx?source=global-financial-inclusion" target="_blank" rel="noopener noreferrer">nearly half of adults</a> in Latin America do not have a formal bank account, and those with accounts use them <a href="https://publications.iadb.org/en/converting-dormant-bank-accounts-dynamic-force-latin-america" target="_blank" rel="noopener noreferrer">infrequently</a>. This suggests that most of the financial products available to users in Latin America may be expensive, inconvenient, inappropriate, or all three. 

This is because developing relevant financial services for low-income households and small businesses — that can have a meaningful impact on their financial health — is not straightforward. Low-income customers often lack formal financial records, operate informally, and have little experience with formal financial services, making it difficult for providers to pinpoint their needs. Moreover, many of these customers distrust formal financial services and hold negative beliefs around account ownership and credit. To craft relevant financial products, providers must acquire a deep understanding of their customer’s financial behaviors, pain points, ambitions, attitudes, and capabilities. 

To help them develop financial services that can deliver financial health, Accion Global Advisory Solutions along with <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html" target="_blank" rel="noopener noreferrer">MetLife Foundation</a> partnered with fintechs, cooperatives, and traditional financial service providers (FSPs) in Chile and Mexico to develop products to better serve their low-income customers. Accion worked with these FSP partners to design and launch viable digital products and services to reach underserved clients and improve their financial health, to help them maintain resilience against adversity and take advantage of opportunities. 

This paper shares five case studies about Accion’s work with Chilean and Mexican partners over the past three and a half years. In Chile, we used human-centered design and behavioral economics to launch a business management application for microbusinesses with <a href="https://www.accion.org/this-new-app-is-helping-small-business-owners-build-financial-health-and-resilience" target="_blank" rel="noopener noreferrer">Organizame and Banigualdad</a>, revamped a financial health portal with <a href="https://www.accion.org/fintech-founders-have-a-formula-for-building-financial-health" target="_blank" rel="noopener noreferrer">Destácame</a>, and deployed a crowd-funding platform for microentrepreneurs with <a href="https://redcapital.cl/" target="_blank" rel="noopener noreferrer">RedCapital</a>. In Mexico, we developed a savings product for youth with <a href="https://www.accion.org/young-people-in-mexico-need-finance-that-fits-their-lives" target="_blank" rel="noopener noreferrer">Caja Popular Cerano</a> and launched a supply chain finance product with <a href="https://www.ahorrosbienestar.com/" target="_blank" rel="noopener noreferrer">Caja Bienestar</a>. In this paper, we share our key challenges, learnings, and overall results from this project — uncovering best practices on how to design for and influence financial health along the way. 

To date, most financial health efforts have focused on measurement and monitoring, but little guidance has been provided to financial service providers that are at the frontlines of engaging and serving customers on a daily basis. This paper is a first effort in that direction, giving providers actionable lessons for how to support positive financial health outcomes among their users. Moreover, the case studies within demonstrate the positive impact that a financial health-focused approach has on loyalty, customer lifetime value, and in creating new customer acquisition opportunities.

In the midst of enormous financial uncertainty sparked by COVID-19, our efforts to help underserved families and businesses improve their financial capabilities and develop healthy financial behaviors are critical. Our hope is that this paper will help financial service providers develop and optimize financial health-centric products that will lead to meaningful changes in the financial lives of their customers. This will require a more holistic approach to designing products for underserved individuals that includes consideration of their financial capabilities and historic behaviors. We believe that such an approach will result in better products with greater uptake and engagement. 

&nbsp;

Liza Guzman

Vice President and Program Manager, Customer Strategy

How providers can build products that improve financial health: Examples from Mexico and Chile

[embed]https://vimeo.com/641199249[/embed]

Latin America is one of the world’s leading food producers and exporters. Food distributors play a critical role in their food supply chains, but they can't always get the funding they need to succeed. Watch how Karolayn, an entrepreneur in Chile, <a href="https://www.accion.org/as-agribusinesses-grow-so-does-food-security" target="_blank" rel="noopener noreferrer">grew her avocado business</a> with support from our partner RedCapital.

Accion worked with RedCapital, with support from MetLife Foundation, to develop a digital credit product designed for small business owners like Karolayn, helping them grow their business and improve their financial health.

How Karolayn grew her avocado business

Karolayn started her business five years ago when she and her husband visited his grandfather. They noticed that local avocado producers were struggling to get their produce to market. She started by helping one neighbor harvest his fields and sent his avocados to buyers, and soon others approached her. She remembers another neighbor saying, “I have this land and these trees, but I need help harvesting and selling.” Karolayn used her savings and support from her family and friends to launch Don Beño, a wholesale avocado distribution business named after her husband’s grandfather.

Don Beño sources avocados from small producers in Chile, sorts and packages them, and then delivers them to various consumers across the country. The business is responsible for getting food from farmers to consumers safely, quickly, and efficiently. Latin America is one of the <a href="http://www.fao.org/americas/noticias/ver/en/c/1200912/" target="_blank" rel="noopener noreferrer">world’s leading food producers and exporters</a>, and agribusinesses like Don Beño play a critical role in Chile’s food supply chains, from food production to distribution to sales. The COVID-19 pandemic exposed the fragility of global supply chains and reinforced their importance in moving food from producers to tables. Many distributors are also micro, small, and medium enterprises (MSMEs), which make up more than <a href="https://www.worldbank.org/en/topic/smefinance" target="_blank" rel="noopener noreferrer">90 percent</a> of businesses worldwide and are the engine for ensuring that food and agricultural products reach consumers where and when needed. Despite the prevalence and importance of MSMEs, many businesses in Chile face difficulty getting the funding they need to grow.

In the beginning, Karolayn and her husband worked from their home and their workspace spilled out into the hallway of their patio. Now they have a flourishing business on their hands with a sizable office and warehouse. While their business is now stable and established, they started slow and faced challenges along the way. For example, when she needed investment for a bigger office and warehouse space two years ago, she found that capital was scarce. “It was a moment in which no one would support you,” she remembers. “We were only two years old, but the banks were asking for revenues and statements for businesses at least four years old.”

Until recently, Karolayn still faced the same funding problems. Things changed when she learned about <a href="https://redcapital.cl/">RedCapital</a>, a crowdfunding platform with a sole focus on MSMEs in Chile, and filled out their credit application. She remembers she didn’t have records or sales receipts but, under the company’s new credit scoring model adapted for the MSME segment, her application was approved. RedCapital disbursed the loan electronically, leveraging the digital infrastructure of its platform. She says, “They believed in our business, but, more than that, they believed in us as people.” RedCapital issued Karolayn her first loan, and now she is in her third round of credit. She states proudly, “they trusted us, and we have delivered.”

Though Don Beño is an established business now, Karolayn isn’t done growing. In fact, she says they are only halfway there. She wants to acquire another warehouse and invest in materials for temperature-controlled packaging. Since Don Beño is committed to getting its customers fresh avocados at the exact ripeness required, seasons can present a challenge. The fruit ripens too fast in the summer and not fast enough in winter. Adding cool packs to the boxes during the summer would alleviate stress during the warmer months and ensure that local consumers get the food they need when they need it. But such materials require capital.

Karolayn also wants to invest in a machine to sort the avocados. Currently, the team separates the fruit into five different grades by hand, weighing each avocado individually and placing them in separate corners of the warehouse. A machine could automate this sorting and cut two days of work down to just an hour. She notes that this investment would allow her business to grow dramatically, but it can only be acquired via credit. It isn’t feasible to save for such a purchase because her capital is tied up in inventory and smaller investments like boxes, trucks, and other assets. Any spare capital goes to these incremental growth opportunities, so she must look for financing for large investments like this machine and materials for temperature-controlled packaging.

RedCapital has helped Karolayn make the investment Don Beño needs, and she is hopeful the next phase of her business is within reach. RedCapital supports many businesses like Don Beño, which are critical to enabling players across the food chain — farmers, restaurants, retailers, and consumers. These businesses are essential, but they cannot succeed without adequate support and services. Financial institutions like RedCapital assured small business success, and in so doing, shore up the food production and distribution value chain, contributing to overall food security.

Accion worked with RedCapital, <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion">with support from MetLife Foundation</a>, to develop a digital credit product distributed through their crowdfunding platform. Specifically designed for MSMEs like Don Beño, their product helps entrepreneurs grow their business while giving them the ability to understand and improve their financial health. Watch Karolayn’s story here:

[embed]https://vimeo.com/641199249[/embed]

As agribusinesses grow, so does food security

[embed]https://vimeo.com/624565782[/embed]

Daniela Romero is both a part-time nurse technician and a small business owner in Santiago, Chile. Like many other small business owners in Chile, Daniela had trouble securing funding to help her grow her pet store. She found a solution in RedCapital, a crowdfunding platform that provides credit to microentrepreneurs. Accion worked with RedCapital, with support from the MetLife Foundation, to connect more people like Daniela to the resources they need. “We now see our business growing, and we feel we can take on any challenge, especially with this kind of support” says Daniela.

Daniela grows her small business in Chile

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">By Maria</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" /> Blogs accessible to RedCapital customers: "Manage your Debt," "Plan Your Future," "Control your Costs," "Organize your Finances" (top left to bottom right)[/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 calls to action 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" /> Calls to action available in the "Manage your Debt" blog: Calculate the percentage of Debt, Credit Financing, Credit Rules (from left to right)[/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. Red means network 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.

Megan Skaggs also contributed to this article.

How we built a network for microentrepreneurs in Chile