Privacy Perceptions, Attitudes, and Behaviors: Perspectives from Indonesian Smartphone Users

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The COVID-19 pandemic has emphasized the important role of financial services in helping low-income people manage uncertainty and economic shocks. Many low-income customers rely on microfinance institutions (MFIs) to provide those financial services; however, the pandemic has also sent many MFIs themselves into crisis and many continue to face serious solvency concerns. This publication provides considerations and options for MFIs facing the need for potential consolidation. 

This brief provides an illustrated overview of five consolidation options: 
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Asset Purchase </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">Share Purchase </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">Forward Merger </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="4" data-aria-level="1">Triangular Merger </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="5" data-aria-level="1">Reverse Triangular Merger </li>
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This brief was conducted as part of CFI’s partnership with Mastercard’s Center for Inclusive Growth.

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Mergers and Acquisitions in Pandemic Recovery: What MFI Leadership Should Know

Trust of Data Usage, Sources, and Decisioning: Perspectives From Rwandan Mobile Money Users

The Precarious State of MSMEs: Understanding the Impact of COVID-19  and Opportunities to Support their Recovery

Weathering the Storm II: A Case Study of Financiera FAMA

For low-income women, digital financial inclusion offers an opportunity to upend entrenched gender inequalities by entering spheres from which they have been otherwise excluded. Financial services delivered via mobile phone can bridge the last-mile gap, bringing financial tools and services directly to women where they work and live. However, women are underrepresented customers of digital financial providers and platforms. Well-established impediments such as cost, literacy, and normative barriers (that shape the way people behave and expect others to behave) prevent low-income women from using such services at the same rate as men. These demand-side constraints, combined with a dearth of sex-disaggregated customer data, leave most fintech firms without a clear picture of women’s wants and needs for digital financial tools. As such, most mass-market tools are not designed with women in mind.
<blockquote>Demand-side constraints and a dearth of sex-disaggregated customer data leave most fintech firms without a clear picture of women’s wants and needs for digital financial tools.</blockquote>
It’s not just digital financial inclusion: Fewer women than men have access to formal bank accounts and mobile technology. Globally, 65 percent of women, compared with 72 percent of men, have bank accounts, while 197 million fewer women own a phone than men, according to the <a href="https://www.gsma.com/r/gender-gap-2019/" target="_blank" rel="noopener noreferrer">GSMA Mobile Gender Gap Report 2019</a>. Regional variations make these gaps more striking. In Sub-Saharan Africa, for example, home to many promising emerging market fintech innovations, the mobile gender gap is 15 percent, while in South Asia (including Pakistan, India, and Bangladesh) the gap is 28 percent. Further, access to formal bank accounts is extremely low across Africa. For example, the gender gap in account ownership in Kenya, according to the table below, looks to be only about 8 percentage points. However, the gap widens when adults with only a mobile money account are disaggregated from formal bank accounts and mobile money accounts. Around 65 percent of men in Kenya have both a formal bank account and mobile money account, while only 50 percent of women do. Interestingly, the gender gap in adults with only a mobile money account is reversed; more women than men have only a mobile money account, likely because the barriers to entry are lower than for a formal bank account. This trend can be seen throughout Africa.

<img class="aligncenter size-full wp-image-41359" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/Sample-of-countries-in-Africa-Table-VF2-800.png" alt="table " width="800" height="412" />

Given the gender gaps in bank account ownership and mobile technology, it is not difficult to see why many fintech firms do not have visibility on how to better serve women. With fewer women users, and little to no sex-disaggregated data around how women’s use of and needs for these products differ from men’s, it can be difficult to identify low-income women’s needs and preferences. Excluding women is often unintentional — “gender-blind” design is thought of as an inclusive strategy. If “bias” is not baked into the design, the thinking goes, then anyone who wants to use the product can. Unfortunately, the opposite is true. Gender-blind product and platform design strategies allow products to flow in the way they always have: into the hands of those who are already in the marketplace and who make the decisions about who else can benefit from or access these products. A “gender-intelligent” or “gender-aware” approach, on the other hand, seeks to overcome women’s specific constraints through <a href="https://financialallianceforwomen.org/download/how-fintechs-can-profit-from-the-multi-trillion-dollar-female-economy/" target="_blank" rel="noopener noreferrer">data-driven design based on market research</a> in order to create distinct customer value. And the numbers in the table demonstrate that men disproportionately benefit from bank accounts and mobile technology.
<blockquote class="pullquote--left">We show the potential of gender-aware design, and how to design for specific needs and constraints of women, while accounting for the norms that define their lives.</blockquote>
This brief examines design principles employed by two fintechs, <a href="https://paycode.com/">Paycode</a> and <a href="https://extramileafrica.com/" target="_blank" rel="noopener noreferrer">Extramile</a>, working in Sub-Saharan Africa. We show the potential of gender-aware design, and how to design for specific needs and constraints of women, while accounting for the norms that define their lives. These two examples provide insights into why intentionally focusing on women can bring benefits to this largely untapped market and how fintechs can design products that meet women’s needs. Only by improving women’s meaningful use of financial services through concerted efforts to close the gender gaps will low-income communities and households begin to see potential economic benefits from inclusion, benefits that will also flow back to the providers that serve them. It is vital that fintechs move away from gender-blind or -neutral strategies toward gender-aware <a href="https://www.ifpri.org/publication/beyond-access-gender-transformative-financial-inclusion-agriculture-and-entrepreneurship" target="_blank" rel="noopener noreferrer">and even transformative strategies</a> that bake in access pathways for potential customers with limited knowledge or physical mobility. <a href="https://medium.com/hh-design/the-world-is-designed-for-men-d06640654491" target="_blank" rel="noopener noreferrer">Gender-blind design is not gender-neutral</a>.
<h2>Fintechs in Sub-Saharan Africa and a Gender-Blind Approach</h2>
According to data collected by <a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50</a> (IF50) -- a competition founded by MetLife Foundation and Visa, with support from Accion and IFC, and additional funding from Jersey Overseas Aid &amp; Comic Relief -- only six of the 403 fintech applicants claimed women as their target customers. Most applicants selected “rural households,” “MSMEs,” or “low-income individuals” as their target market. This belies the fact that all of these fintechs reach women — for many of the IF50 winners, women make up nearly 50 percent of their customers. Indeed, women make up a large proportion, if not the majority, among those market segments.

This trend continues among the IF50 fintechs focused on the African continent. Of the 2020 winners in Africa, the product and livelihood focus ranged from mobile banking, water and utility payments, mobile-based crop insurance, and a range of credit and savings products directed at low-income populations. For example, OKO secures the income of farmers of unirrigated farms in Mali and Uganda through a mobile-based crop insurance that automatically compensates them if they suffer from adverse weather.

<img class="alignright wp-image-41342" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/Social-Norms-Table-VF-1005x1024.png" alt="" width="400" height="407" />Within the profile descriptions of the 15 IF50 winners based in or delivering services in Africa, their customer segments were primarily described as “unbanked,” “underserved,” or “low-income.” A few mentioned women, but most called out their customers by their lack of access to financial services. Only three out of the 15 mention women in their key problem statement, while eight mention “unbanked” populations. Identifying women as their target market is not a requirement, even if women make up nearly half of their customers. But by calling out their target customers in terms of livelihood rather than by gender, these fintechs may assume that every “unbanked” person or MSME has the same level of access to their products. This is rarely, if ever, the case.

If these fintechs do not see women as their target market, how do they reach so many women? Gender-blind product design does not translate into complete exclusion — but it does mean that a product is more likely to reach and work well for certain segments of customers, namely men. Gender-blind design can be seen in mass-market items like car seatbelts and mobile phones as well as digital financial tools such as chatbots with basic financial literacy information or a mobile wallet. In some cases, targeting certain livelihood segments may lead fintechs to see where their design is ill-suited for their women customers and make adjustments. In 2019, <a href="https://www.uncdf.org/article/5171/uncdfs-sprint4women-design-sprint-competition-to-increase-zambian-womens-financial-inclusion-kicks-off" target="_blank" rel="noopener noreferrer">UNCDF hosted a design sprint in Zambia</a> for fintechs seeking to increase their female customers — the finalists all designed and modified their products after interacting with women customers. In other cases, women may in fact be a central target segment, but aspects of a woman’s life, such as normative constraints (like care responsibilities or intra-household decision-making), and thus the product doesn’t achieve desired inclusion or impact.

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

The severe economic impacts of COVID-19 on low-income households and small businesses have underscored the need for innovative solutions that can build greater financial resilience. Findings from <a href="https://centerforfinancialinclusion.org/covid-19-and-msmes-data-and-analysis-to-understand-impact/" target="_blank" rel="noopener noreferrer">surveys of MSMEs</a> conducted by the Center for Financial Inclusion (CFI) show that since COVID-19 struck, many small businesses in Indonesia, Colombia, and Nigeria have either had to close or found their profits significantly decreased. At the same time, the pandemic has provided opportunities for inclusive fintechs to <a href="https://centerforfinancialinclusion.org/rapid-innovation-how-fintechs-are-adapting-under-covid-19/" target="_blank" rel="noopener noreferrer">leverage their agility and adaptability</a> to strengthen and support the financial resilience of low-income, financially underserved customers.

Financial resilience is the ability to mitigate, adapt to, and recover from shocks and stresses in a manner that reduces chronic vulnerability and facilitates inclusive growth. Individuals must deftly navigate a delicate balancing act to stay afloat and may be thrown off course by a whole host of shocks, ranging from unexpected health crises to weather-related disasters that can disrupt otherwise appropriate financial plans. The nuances associated with financial resilience can complicate the financial service industry’s ability to develop and design comprehensive solutions for low-income customers.
<blockquote class="pullquote--right">PesaKit and reach52, two winners of the 2020 Inclusive Fintech 50, have responded to the extraordinary challenges posed by the COVID-19 pandemic by continuing to innovate to meet their customers’ needs.</blockquote>
PesaKit and reach52, two winners of the 2020 <a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50</a> -- a competition founded by MetLife Foundation and Visa, with support from Accion and IFC, and additional funding from BlackRock and Jersey Overseas Aid &amp; Comic Relief -- have responded to the extraordinary challenges posed by the COVID-19 pandemic by continuing to innovate to meet their customers’ needs. In this paper, we share insights on how these two fintechs have adapted to a challenging economic landscape to serve as early examples of how fintechs have leveraged their agility and innovation during crisis. These findings build on the 2020 Inclusive Fintech 50 <a href="https://www.inclusivefintech50.com/white-paper-2020" target="_blank" rel="noopener noreferrer">white paper</a> that draws on the data submitted by the 2020 cohort of applicants and highlights how fintechs are continuing to advance financial inclusion and resilience for the estimated 3 billion financially underserved people worldwide.

Agility Breeds Resilience: A Tale of Two Fintechs Innovating in the Face of a Pandemic

Past crises have taught the microfinance sector a lot about weathering storms, and microfinance institutions (MFIs) are once again facing challenging times. This case study is part of a series that CFI, in partnership with the European Microfinance Platform (e-MFP) and the Mastercard Center for Inclusive Growth, is publishing to revisit tales of tough times and resiliency in five markets — <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-viator-azerbaijan/" target="_blank" rel="noopener noreferrer">Azerbaijan</a>, Bosnia and Herzegovina, <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-spandana/" target="_blank" rel="noopener noreferrer">India</a>, Nicaragua and <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-vitas-palestine/" target="_blank" rel="noopener noreferrer">Palestine</a> — and discuss how MFIs, with the help of their investors and other stakeholders, emerged and thrived. The lessons learned from these cases will be compiled and examined in a forthcoming report, Weathering the Storm II, a follow-up to the first edition published in the aftermath of the global financial crisis a decade ago. The hope is that these lessons will be applicable to not only the COVID-19 response, but to future crisis responses as well.

During the final months of 2008, as the world was entering what would be the worst economic crisis of the past half-century, Senad Sinanović, CEO of Partner Microcredit Foundation in Bosnia and Herzegovina, was contemplating the future.

A year earlier, he and his staff had celebrated Partner’s 20th anniversary. Partner was founded following the tragic war that marked the breakup of Yugoslavia, which had itself been assembled from the ashes of the Austro-Hungarian Empire 90 years earlier. It was in the country’s capital, Sarajevo, that WWI began, with the assassination of the Archduke Franz Ferdinand. On his frequent work visits to Sarajevo, Sinanović sometimes passed by the plaque marking the site of the “shot heard round the world,” along the way stepping on the Sarajevo Roses — red-painted shell marks on the pavement, remnants of the Bosnian war of the 1990s. In that corner of the world, history can seem omnipresent.

But it wasn’t history that was on Sinanović’s mind. He was worried about how the financial crisis would impact his clients, his institution, and the broader microfinance sector in the country. The path ahead concerned him greatly. The situation was unfolding against a backdrop of high liquidity in the sector. A strong period of growth of the main MFIs during the second half of the 2000s, as well as a new regulatory framework for microcredit, contributed to the high confidence of donors and funders, who responded by pouring large amounts of funding into the market.

In 2008, the tiny country of Bosnia and Herzegovina, with a population of 3.7 million, was the second biggest destination worldwide, behind Peru, for <a href="https://www.cgap.org/sites/default/files/CGAP-Focus-Note-Foreign-Capital-Investment-in-Microfinance-Reassessing-Financial-and-Social-Returns-May-2011.pdf" target="_blank" rel="noopener noreferrer">foreign capital investment</a> in the microfinance sector. In that market, Partner was (and still is) one of its leading MFIs, with the third largest by gross loan portfolio at about 181 million convertible marks (abbreviated KM), or about USD$106 million, and the second largest in number of active borrowers, at 63,500.

High liquidity may be a blessing during growth periods, but it quickly becomes a curse when loan demand contracts and all that cash sits in a bank, yielding no income. The deep recession in Bosnia brought about by the global financial crisis strongly affected the micro and small enterprises in the country, resulting in less appetite for investment, and thus for the business loans provided by the microcredit sector.
<blockquote>High liquidity may be a blessing during growth periods, but it quickly becomes a curse when loan demand contracts and cash sits in a bank, yielding no income.</blockquote>
Those same challenges also lowered clients’ ability to repay their existing loans. In a context of intense competition between MFIs and widespread multiple borrowing — which was difficult to trace since the use of credit bureau data was still incipient — this predictably resulted in severe loan delinquency problems and credit losses across all MFIs. The poor lending standards of several MFIs also undermined the sector’s reputation, further legitimizing non-repayment of loans even beyond what might have been expected from the economic downturn alone.
<h2>Dealing With High Liquidity</h2>
Partner had, by the end of 2008, a total debt of 156 million KM, broken down into 10 outstanding short-term loans with local banks and 23 long-term loans from foreign social and development investors. While the overwhelming majority of these were market-rate loans, Partner also had subsidized loans, including a 6 million euro loan from a bilateral public funder.

<img class="alignleft wp-image-41167" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/Chart-debt-in-KM-4.png" alt="bar graph debt" width="700" height="389" />Some of the loans had just been disbursed when the crisis began to unfold, leading to a situation where Partner was sitting on a pile of money that it could not lend out, and thus could not generate income, even as the interest due on the loans continued to accrue.

To limit interest losses, especially on its more recent and expensive loans, Sinanović tried to give the money back, asking to prepay the loans ahead of schedule. However, this was not welcomed by all investors, and some needed to be persuaded to accept the money and terminate the contracts without penalties. This process included a meeting in April 2009 with lenders at the Microfinance Centre (MFC) conference in Belgrade, organized by a group of Bosnian MFIs, including Partner. Facing the reluctance of some investors to accept early loan prepayment, one of the Bosnian CEOs questioned if their behavior was consistent with social investing, which helped change investors’ minds. During the period of crisis, and in the following years, Partner’s short- and long-term debt fell significantly. By the end of 2011, its total debt was down 61 percent from its peak in 2008.
<h2>Getting Ahead of Events</h2>
While reducing excess liquidity solved a part of Partner’s problems, the MFI was still facing strong, serious challenges in its loan portfolio and the consequences of escalating credit and market risks.

<img class="alignright size-full wp-image-41142" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/Chart-glp-delinquency-partner.png" alt="graph" width="600" height="320" />During 2009 and 2010, Partner’s portfolio contracted by nearly 50 percent off its 2008 peak, and while it has been recovering steadily since then, as of 2019, its portfolio remains 25 percent smaller than it was over a decade ago, at 137 million KM ($78 million).

<img class="alignright size-full wp-image-41191" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/01/Chart-write-offs-partner-V2.png" alt="chart" width="600" height="266" />Beginning in 2008, delinquency levels grew rapidly, peaking at 11.5 percent in 2010. Partner also took an aggressive approach to writing off loans it saw as non-recoverable. Between 2009 and 2011, the MFI wrote off 11.4 percent of its 2008 gross loan portfolio (GLP). While high, these credit losses were modest in the context of the Bosnian microfinance crisis. Three of Partner’s major competitors experienced cumulative write-offs of 25 percent or more of their peak 2008 portfolio (according to the authors' calculation using <a href="https://databank.worldbank.org/source/mix-market" target="_blank" rel="noopener noreferrer">MIX Market</a> data).

Nonetheless, Partner’s portfolio quality was worrying, and during the early months of the crisis, Sinanović knew already that Partner would breach many of its debt covenants with its lenders. Together with Partner’s board of directors, Sinanović decided to get ahead of events and provide lenders all the information available on the context of the crisis, the reputation issues affecting the sector, and the exact situation of the MFI. For this, Sinanović and his staff prepared a detailed, 13-page memorandum outlining the impact of the crisis on Partner, its clients, and the Bosnian microfinance market, as well as Partner’s response up to that point and planned next steps. The memo also included extensive monthly data and ratios pertaining to Partner’s portfolio and financial situation. This document was sent to all 17 creditors in April 2009, when the crisis was still in its early phase.
<blockquote class="pullquote--left">Sinanović and his staff prepared a detailed, 13-page memorandum outlining the impact of the crisis.</blockquote>
In this way, Partner’s transparency helped gain lenders’ confidence and, at the same time, effectively created the reporting template for all individual creditors. This early transparency helped Partner avoid being flooded with multiple and diverse requests for information by lenders and gave Sinanović and his team the space to focus on containing repayment problems in its portfolio.

Midway through the crisis, after extensive conversations with like-minded MFIs in the country and with support of outside stakeholders, Partner went further. In 2010, together with two other MFIs, EKI and Mi-Bospo, Partner created U-Plusu. This non-profit financial management advisory center aimed to tackle client over-indebtedness and improve the public image of the institution and the sector by providing financial education and mediation services between clients and financial institutions, especially in cases of multiple borrowing.

Despite the serious impact from the crisis, with credit losses accompanied by steep drops in lending and profitability (ROE decreased from 24 percent in 2008 to -5 percent in 2009), Partner managed to keep the situation under control throughout, and its solvency was never at risk. In fact, despite the large provisions and eventual write-offs, Partner’s equity only slightly decreased during the crisis period (from 43 million KM to 41 million KM).
<blockquote>Partner's solvency was never at risk and its equity only decreased slightly.</blockquote>
Partner’s ability to weather the storm was closely linked to a process of foresight and preparation led by Sinanović and the MFI’s directors. It started with swift adaptation to a significant decrease in loan demand, both in terms of credit offer and operational structure, and an aggressive strategy regarding write-offs, while getting rid of excessive liquidity and being proactive and transparent in its communications with creditors. All this helped Partner ready itself for what would be a sustainable — albeit smaller — future.

What are some dos and don’ts and key success factors that the microfinance sector can learn from the Partner case? CFI’s forthcoming report, Weathering the Storm II, will draw on lessons from Partner and cases from microfinance institutions in four other markets: <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-viator-azerbaijan/" target="_blank" rel="noopener noreferrer">Azerbaijan</a>, <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-spandana/" target="_blank" rel="noopener noreferrer">India</a>, <a href="https://centerforfinancialinclusion.org/weathering-the-storm-ii-vitas-palestine/" target="_blank" rel="noopener noreferrer">Palestine</a> and Nicaragua. See also the <a href="https://centerforfinancialinclusion.org/weathering-the-storm-hazards-beacons-and-life-rafts-lessons-in-microfinance-crisis-survival-from-those-who-have-been-there/">original Weathering the Storm</a> report from 2011.

Weathering the Storm II: A Case Study of Partner

COVID-19 has reinforced the importance of financial services in helping people navigate the effects of the pandemic and lay the foundations for recovery. The rapidly changing context presents a unique opportunity for fintechs and other digitally driven business models to step in and onboard new customers to meet this evolving demand.

The 2020 iteration of the Inclusive Fintech 50 competition maintained the core value proposition of the 2019 initiative — a transparent methodology, independent judging panels comprised of industry experts, and a strong focus on inclusion — while iterating to ensure relevance in a particularly challenging year. The 2020 competition attracted 403 qualified applicants operating in 111 countries and reaching 116 million customers.

Drawing on the data submitted by the 2020 cohort of applicants, this paper provides insights as to how early-stage fintechs are adapting to the current economic uncertainty and continuing to advance financial inclusion and resilience for the estimated 3 billion financially underserved people worldwide.

Follow CFI and #InclusiveFintech50 for updates on Inclusive Fintech 50. For more information about the competition, insights from previous cohorts, and more, visit <a href="http://www.inclusivefintech50.com">InclusiveFintech50.com</a>.

Inclusive Fintech 50 White Paper [2020]

Past crises have taught the microfinance sector a lot about weathering storms. Microfinance institutions (MFIs) are once again facing challenging times. This case study is part of a series that CFI, in partnership with the European Microfinance Platform (e-MFP) and the Mastercard Center for Inclusive Growth, is publishing to (re)visit tales of tough times and resiliency in five markets – <a href="https://www.centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-viator-azerbaijan/" target="_blank" rel="noopener noreferrer">Azerbaijan</a>, Bosnia and Herzegovina, <a href="https://www.centerforfinancialinclusion.org/weathering-the-storm-ii-a-case-study-of-spandana/" target="_blank" rel="noopener noreferrer">India</a>, Nicaragua and Palestine – and discuss how MFIs, with the help of their investors and other stakeholders, emerged and thrived. The lessons learned from these cases will be compiled and examined in a forthcoming report, Weathering the Storm II, a follow up to the <a href="https://www.centerforfinancialinclusion.org/weathering-the-storm-hazards-beacons-and-life-rafts-lessons-in-microfinance-crisis-survival-from-those-who-have-been-there/" target="_blank" rel="noopener noreferrer">first edition</a> published in the aftermath of the global financial crisis a decade ago. The hope is that these lessons will be applicable to not only the COVID-19 response, but to future crisis responses as well.

In the spring of 2018, Alaa Sisalem, the general manager of Vitas Palestine, was reviewing the materials prepared for an upcoming board meeting. In the first quarter of 2018, Vitas Palestine – part of <a href="https://www.vitasgroup.com/" target="_blank" rel="noopener noreferrer">Vitas Group</a>, a holding company that operates non-bank financial services companies in the Middle East and Eastern Europe – achieved 95 percent of projected portfolio growth while maintaining a PAR 30 (loans in arrears for over 30 days) of 2.1 percent. As Sisalem looked through the growth projections for the year, he glanced outside his window at the bustling streets of Ramallah. He thought about Vitas Palestine's clients and their ability to pay in the current economic conditions, and he realized that while the financials didn't show it yet, a major storm was coming.

A few weeks earlier, in April 2018, the salaries for about 38,000 civil servants in the Gaza Strip were delayed. The following month, the Palestinian Authority (PA) <a href="https://www.reuters.com/article/us-palestinians-gaza-salaries/anger-as-palestinian-authority-cuts-gaza-salaries-and-pays-late-idUSKBN1I41LM" target="_blank" rel="noopener noreferrer">cut staff salaries</a> by 20 percent. This marked the beginning of a crisis for Vitas Palestine. The civil servant salaries were unpaid or delayed multiple times, especially in Gaza, which took a toll on the local economy. Gaza's economy was already under severe stress because of movement restrictions brought about by the conflict between Hamas and Israel. Hamas gained control of Gaza in the 2006 elections, but the PA continued to administer payroll in the region, causing tensions between Hamas and the PA.<img class="alignright wp-image-40560" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/11/Vitas-Chart-1-4-1024x678.png" alt="chart " width="400" height="265" />

Civil servant salaries significantly impact the Palestinian economy because of the low rates of private investment and a low labor force participation rate of <a href="https://databank.worldbank.org/Palestine---Labor-Force/id/ecae3350" target="_blank" rel="noopener noreferrer">44 percent</a>. The territory has one of the highest unemployment rates in the world, with a quarter of the working-age population unemployed. The situation is even more dire in Gaza, which accounted for 29 percent of Vitas' 2018 gross loan portfolio and has an unemployment rate close to <a href="https://databank.worldbank.org/Unemployment/id/2a6c0966" target="_blank" rel="noopener noreferrer">45 percent</a>. In Gaza, 37 percent of the employed individuals worked in the public sector, and therefore, interruptions to civil servant salaries tend to have a cascading effect on consumer spending and the local economy.

The West Bank economy is more diversified than Gaza, with <a href="http://www.pcbs.gov.ps/pcbs_2012/Publications.aspx" target="_blank" rel="noopener noreferrer">16 percent</a> of all employed individuals working in the public sector. Yet, there were concerns that the crisis would seep into the West Bank after the Israeli government passed a law in 2018 that allowed unilateral deductions from the tax revenues it transfers to the PA. The deductions are equivalent to the amount paid by the PA to families of Palestinians killed or put in jail due to the conflict with Israel (about $12 million per month). The tax revenues transferred from Israel represent more than 60 percent of PA's total revenues, and the deductions would further strain PA's budget.
<h2>The Board Moves to Head Off Crisis</h2>
Vitas Palestine began in the early years of the microfinance sector as a USAID project. The incorporation of Vitas Palestine as a for-profit company in 2014 made it easier for the company to borrow from local and international lenders. This ease of access to funding contributed to the rapid growth of Vitas' loan portfolio (see graph below).

<img class="wp-image-40561 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/11/Vitas-Chart-2-2-1024x487.png" alt="bar graph" width="600" height="285" />

But when the Vitas Palestine's board met in May 2018, the region's worsening economic conditions dominated their discussion. Following the salary interruptions in early 2018, Vitas Palestine began to experience declining portfolio quality, with a 10 percent drop in the collection rate, resulting in a PAR 30 of 6 percent for the total portfolio in May, and a PAR 30 of 16 percent in Gaza. This was a significant increase from the December 2017 PAR 30 of 1.32 percent. Vitas Palestine had a strong debt to equity ratio of 1.81 at the end of 2017, but in 2018, the declining portfolio quality led to a breach of delinquency covenants.

The board and the management agreed that Vitas needed to prepare for further challenges due to the political instability. After deliberations with management, the Vitas board advised against aggressive growth targets and counseled the management to prioritize three areas: managing liquidity, improving portfolio quality, and controlling operational costs.
<blockquote class="pullquote--right">Managing liquidity, improving portfolio quality, and controlling operational costs were three priorities for the board.</blockquote>
Sisalem had been through numerous crises at the company, ever since CHF Ryada, Vitas Palestine's predecessor, disbursed its first housing loan in 1995. As Sisalem was formulating the plan of action to tackle the salary crisis, he knew from experience that maintaining strong relationships with clients, investors, and staff would be crucial to Vitas' survival. The management team at Vitas ensured open communication with its staff and investors. The management also recognized that the front-line staff plays an essential role in deepening client relationships and continued its investment in client relationship officer training to prepare staff to handle difficult conversations with clients.

In order to control operational costs, the management team performed a detailed analysis of its expenses and identified ways to optimize operations. Their analysis showed that there was sufficient liquidity to tackle the next six to nine months without exploring drastic measures to reduce costs. Further, the loan officers' incentives were based in part on portfolio quality, and the increase in PAR 30 during the crisis led to lower incentives paid by the company. This variable component of the compensation structure led to lower staffing expenses and aided the management efforts to lower costs.

Weathering the Storm II: A Case Study of Vitas Palestine

Raliat Sunmonu

Priya Punatar

Amy Stewart

Yanina Seltzer

Kenya

Sub-Saharan Africa

Chile

Latin America and The Caribbean

Mexico

India

South Asia

Access Usage Gap

Agricultural and Rural Finance

Appropriate Product Design and Delivery

Challenges and Crises

Consumer Protection

Credit

Customer Centricity

Delivery Channels

Digital Financial Services

Enabling Environment

Energy Finance

Financial Service Providers

Fintechs

Human Centered Design

MSME/SME Finance

Payments

Responsible Digital Finance

Rural Populations

Smallholder Farmers

Underserved Groups

Advisory Services

Behavioral Insights

Data Analytics

Entrepreneurs of MSMEs

Financial Capability

Financial Health

Financial Technology

Resilience

Digital Transformation

Governance

Microfinance Institutions

Personal Financial Management

Women

Financial Inclusion Strategy

Youth

Brief

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

For farmers in rural Kenya, the impacts of climate change are all too real, even if they can’t articulate the science behind it. They suffer the effects of unpredictable weather patterns. “My biggest challenge is drought,” many say, “but when it rains, it rains too much and destroys everything.”  

So it should come as no surprise that farmers understand the need for climate-smart, tech-based solutions to make their farms more profitable and lives much easier. Ultimately, smallholder farmers think like businesspeople: they look for smart investments that will optimize their return on investment. The difference is that their inputs are ruled by seasons and weather patterns.  

In March 2021, in an initiative funded by <a href="https://www.fsdkenya.org/" target="_blank" rel="noopener noreferrer">Financial Sector Deepening (FSD) Kenya</a>, Accion’s Global Advisory Solutions team worked with <a href="https://sistema.bio/" target="_blank" rel="noopener noreferrer">Sistema.bio</a>, which manufactures and distributes biodigesters, to pilot a biodigester rollout in Nakuru County. Biodigesters are systems that break down and convert organic waste into biogas and other outputs. They take a resource that’s widely available to dairy or pig farmers—manure—and convert it into biogas that can be used for household and farm energy needs.  

[caption id="attachment_26091" align="aligncenter" width="646"]<img class="wp-image-26091 size-full" src="https://content.accion.org/wp-content/uploads/2022/04/Screen-Shot-2022-04-14-at-23.58.01.png" alt="A diagram of Biodigester benefits" width="646" height="403" /> Figure 1: Biodigester benefits. Sistem.bio © [/caption]

Though biodigesters offer many economic, health, and environmental benefits, they haven’t been widely used by smallholder farmers in Kenya. The project sought to better understand and respond to some of the underlying causes of lower-than-expected adoption of biodigesters by farmers, addressing: 
<ul>
 	<li data-leveltext="-" data-font="Poppins" data-listid="5" aria-setsize="-1" data-aria-posinset="1000" data-aria-level="1">Customer interactions – Farmer buying and decision-making behavior and appropriate customer engagement approaches. </li>
 	<li data-leveltext="-" data-font="Poppins" data-listid="5" aria-setsize="-1" data-aria-posinset="1000" data-aria-level="1">Financing – Bringing more financial service providers (FSPs) on board to create and offer custom credit products that would give farmers the means to acquire a biodigester. </li>
 	<li data-leveltext="-" data-font="Poppins" data-listid="5" aria-setsize="-1" data-aria-posinset="1000" data-aria-level="1">Strengthening the ecosystem - Exploring new or alternative channels for distribution. </li>
</ul>
Ten months, 200+ farmers, three financial institutions, and one installation later, we encountered both surprising results and familiar challenges. 
<h3>Farmer buying behavior is influenced by strong mental models and perception of value </h3>
Although farmers are constantly looking for new technology and tools to improve and maximize output, inherent motivations differ widely. Unsurprisingly, children are key motivators for farmers. Technology that could immediately and directly contribute to their children’s well-being, including alternative green technology such as solar panels that would help provide more light to do homework, or liquefied petroleum gas (LPG) or biogas that would facilitate a quick breakfast, makes the decision to invest a quick and easy one. Farmers would proceed with the investment even when financing it was difficult. If they had several children in primary or secondary school, that meant spending a hefty portion of their income on school fees and prioritizing their children’s education rather than investing in their farms. A common scenario would have a farmer purchasing LPG for cooking because it allows them to cook in less time and ensure that their children are fed before leaving for school in the early morning. 

For farmers without school-age children or who aren’t over-burdened by school fees, investing in their farms took priority. Two key insights inform how they invest: (1) farmers are driven by finding ways to decrease their effort, including in old age, and (2) farmers analyze the physical exertion and financial outlay required. If they found a technology solution that would decrease physical effort, they would be interested in it, especially if it made their outputs more effective and if they could afford it. This also means that farmers think deeply about how to balance the amount of money they invest with the amount of physical effort needed. If something requires too much physical effort and is too expensive, it might not qualify as a worthwhile investment. 

As more and more alternative technologies are put in front of farmers, their choices increase, and naturally, so does their skepticism. They start believing in a technology when they see it working in someone else’s home, or when they hear about it from a trusted source, such as a relative, their local cooperative, or another farmer. Farmers we spoke to cited testimonials from relatives using biodigesters on their farms or biogas in their homes as the source of their interest in acquiring a biodigester. One of the most consistent pieces of feedback from farmers during the project was their preference for live demonstrations, ideally done by another farmer with an active installation. The more complex the equipment was perceived to be, as is the case with biodigesters, the greater the need for these types of demonstrations.  

<hr />

Lesson: Farmers’ social networks can be powerful catalysts for shaping behavioral change and enabling adoption of innovative solutions. 

<hr />

<h3>Farmers want “green” solutions but are not necessarily concerned about how green it is </h3>
While farmers understand the adverse impact of climate change and are willing to adopt climate-smart solutions to protect their livelihoods, during our field research and throughout the project, we did not see farmers make buying decisions based on whether the technology was “green”; they were more concerned about increasing their productivity and efficiency to improve their incomes and farm yields, or “greening” their pockets and lands, to benefit their families.  

<hr />

Lesson: When positioning and educating farmers about climate-smart practices and technologies, the primary focus needs to be on understanding farmers’ realities and speaking to their motivations and decision-making models. 

<hr />

&nbsp;

[caption id="attachment_26080" align="aligncenter" width="1024"]<img class="wp-image-26080 size-large" src="https://content.accion.org/wp-content/uploads/2022/04/GAP3030-1024x681.jpg" alt="Andrew Kipkirui feeds waste into a small biodigester on his farm." width="1024" height="681" /> Andrew Kipkirui feeds waste into a small biodigester on his farm.[/caption]
<h3>FSPs are willing to be innovative, but old habits die hard </h3>
Financing models for biodigesters and similar Productive Use Renewable Energy (PURE) assets don’t fall neatly into typical financing products that most financial institutions offer. For example, the average ~$1,000 base price would ordinarily require some form of collateral by financial institutions for asset financing; at $25-$30 monthly repayment rates, the loan tenor is longer than the 6-12 months typically offered by institutions. The cumulative effect of these issues is that original equipment manufacturers (OEMs), such as Sistema.bio, have been forced to finance the equipment off their own books.  

We worked to design a bespoke asset financing blueprint for biodigesters which incorporated considerations for longer loan tenor, additional security for FSPs in the form of a biodigester buyback program in the case of consistent loan defaults, and alternative farmer cashflow considerations, among others. To understand adoption challenges and opportunities for scale, Accion explored partnerships with various types of financial institutions including a fintech, a commercial bank, a microfinance institution (MFI), and a Saving and Credit Cooperative (SACCO). Starting with more than ten prospective FSP partners of various types, with active engagement with six of these providers over a 4.5-month period, two partners were eventually onboarded: an MFI and a SACCO.  

Despite clear appetite from all the FSP prospects that were actively engaged throughout the process, most were unable break beyond their standard procedures to test and learn from new business models. From stringent risk assessments that deemed new players and startups such as Sistema.bio too risky to partner with, to long-drawn deliberations trying to retrofit existing processes to cover new type of products, it was clear that financial institutions of all stripes have a long way to go to better position and operationalize innovative solutions.  

<hr />

Lesson: To accelerate and scale new financial innovations that support green technologies and non-standard productive-use assets, more investment is required at the institutional and industry levels to explore new approaches to incentivizing and de-risking purpose-built financial solutions. These could include credit guarantee schemes, regulatory sandboxes, and innovation hubs. The key to the ubiquity of credit products and widescale access to finance is to help ALL lenders, whether OEMs like Sistema.bio or other types of FSPs, to offer better, cheaper, and more suitable financing for biodigesters and other green assets. 

<hr />

<h3>All FSPs are not created equal </h3>
Just as understanding intrinsic and explicit motivation of farmers is key to creating behavioral change and high impact interactions, knowing each service provider’s motivations, expectations and motivations will help align all partners on expectations, roles, and responsibilities. For example, we found clear differences in the engagements with the FSPs during the project, specifically with regards to: 
<ul>
 	<li data-leveltext="-" data-font="Poppins" data-listid="6" aria-setsize="-1" data-aria-posinset="1000" data-aria-level="1">Risk appetite: regulated entities such as the commercial banks expectedly had more stringent standards for partner selection, which translated into longer and more complex partner vetting processes. Of the various types of FSPs, those with the closest relationships to target customers such as MFIs and SACCOs appeared more willing and certainly more able to engage and explore new types of financial products.  </li>
 	<li data-leveltext="-" data-font="Poppins" data-listid="6" aria-setsize="-1" data-aria-posinset="1000" data-aria-level="1">Aspirations on engagement depth: The SACCO appeared more eager for a deeper level of commitment and engagement – seeing their role not just as a provider of credit, but as an opportunity to provide a more holistic support for their customers, enabling better farming practices and livelihoods. They were therefore more eager to invest time, effort, and resources to all areas of the partnership, from customer education and training to after-sales support. The MFI on the other hand preferred to focus on access to credit and leave the complexities of selling what they considered a technical product to the technology provider. </li>
 	<li data-leveltext="-" data-font="Poppins" data-listid="6" aria-setsize="-1" data-aria-posinset="1000" data-aria-level="1">Operational complexity and impact on customer experience: Farmers’ experience with the SACCO was less fraught with friction, had (relatively) shorter turnaround times, and was better coordinated by the SACCO team. The hierarchical structure of the MFI made it more difficult to align HQ priorities with branch/field staff activities on the ground, whereas the flatter structure of the SACCO enabled more seamless communications and coordination between branches and central authority. </li>
</ul>

<hr />

Lesson: There is room for all types of financial and other service providers, but to be effective and successful, partnerships need to be structured with critical adjustments and considerations for varying levels of engagement, risk appetite and partner operational complexities.

<hr />

Farmers are already exploring new and innovative solutions from various service providers to improve yields, productivity and/or reduce costs. Access to biodigesters and similar PURE equipment fit nicely into this space and offer positive societal impact over the long-term, within the context of climate change and the growing need for sustainable technology. Encouraging the adoption of new, innovative solutions requires continuous innovation and an ecosystem-wide approach to ensuring that all actors—from the farmers themselves to the service providers that serve them—have the support they need to embrace these solutions and derive maximum value. Emily Koech, a farmer and Sistema.bio customer, has been able to install a biodigester on her farm and is seeing her investment pay off. “It has helped me reduce the cost of living, and the money I save I pay school fees [for my children] and I buy basic needs that are needed in the house. It has helped me a lot,” she says. 

[caption id="attachment_26078" align="aligncenter" width="1024"]<img class="size-large wp-image-26078" src="https://content.accion.org/wp-content/uploads/2022/04/GAP3554-1024x681.jpg" alt="Emily Koech is looking up" width="1024" height="681" /> Emily Koech is seeing her investment in a biodigester for her farm pay off.[/caption]

We will continue our efforts to support smallholder farmers by developing and integrating the ecosystems around them. <a class="Hyperlink SCXW32790450 BCX8" href="https://www.accion.org/advisory-contact" target="_blank" rel="noreferrer noopener">Contact us</a> to learn more about our work and approach.

Transforming waste into sustainable energy and cost-savings for farmers

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.

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 <a href="https://www.accion.org/fintech-founders-have-a-formula-for-building-financial-health" target="_blank" rel="noopener noreferrer">Destácame</a> in Chile. 

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.

Using this approach in Chile, we developed a business management application 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>, 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 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 a supply chain finance product with <a href="https://www.ahorrosbienestar.com/" target="_blank" rel="noopener noreferrer">Caja Bienestar</a>. 
<h2>Desirability — are we solving customer problems?</h2>
To combat the persistent issue of dormant accounts, financial service providers must design desirable 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 why 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

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

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>.

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 data science, behavioral science, and design thinking. 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

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

Achieving financial health in Mexico and Chile