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BRINGING SMART POLICIES TO LIFE

DIGITAL TRANSFORMATION OF MICROFINANCE AND DIGITIZATION OF MICROFINANCE SERVICES TO DEEPEN FINANCIAL INCLUSION IN AFRICA

AFI SPECIAL REPORT

EXECUTIVE SUMMARY3

INTRODUCTION

4

DIGITIZING EXISTING MICROFINANCE OPERATIONS

AND OFFERINGS5

5 6 9

DIGITAL FINANCE REACHES MICROFINANCE AND

CONTRIBUTES TO FINANCIAL INCLUSION

10 10 12

EMERGING SYNERGIES AND PARTNERSHIPS BETWEEN

DFS PROVIDERS AND MICROFINANCE PROVIDERS

13 13 16 16

RECOMMENDATIONS FOR REGULATORS TO ENHANCE

SYNERGIES BETWEEN DIGITAL FINANCE AND

MICROFINANCE PROVIDERS17

17 17 20

CONCLUSION22

DEFINITIONS23

ENDNOTES26

APPENDIX

30
© 2018 (August), Alliance for Financial Inclusion. All rights reserved.

CONTENTS

ACKNOWLEDGEMENTSThe report was commissioned by Alliance for Financial

Inclusion (AFI) as part of the

Africa Financial Inclusion

Polic y Initiative (AfPI).

The report was prepared by PHB

Development under the supervision of the

AfPI Expert Group.

AFI sincerely thanks its member institutions: Bank of T anzania, Central Bank of West African States (BCEAO),

Fern Software, Musoni Services, In

T ouch and

Tiaxa.

Special thanks to the authors of the report: Vera

Bersudskaya, Lisa Chassin, Denise Dia

, Isabelle Musat and

AFI Staff who contributed to the report:

Ali Ghiyazuddin

Middle East and North

Africa.

Française de Développement (AFD).

DIGITAL TRANSFORMATION OF MICROFINANCE AND DIGITIZATION OF MICROFINANCE SERVICES TO DEEPEN FINANCIAL INCLUSION IN AFRICA vulnerable clients. Given the scale and rapid rise of DFS and the rural/women focus of DIGITAL TRANSFORMATION OF MICROFINANCE AND DIGITIZATION OF MICROFINANCE SERVICES TO DEEPEN FINANCIAL INCLUSION IN AFRICA The expansion of mobile money, the rise of FinTechs and the introduction of blockchain, super platforms and people (69 percent of the adult population) now have a and the introduction of new products and services (either on their own or with DFS partners). As the Alliance for Financial Inclusion (AFI) strives to individuals and small businesses. The objective of this providers, or MFPs), delve into the different models MFPs discusses how partnerships between traditional MFIs and DIGITAL TRANSFORMATION OF MICROFINANCE AND DIGITIZATION OF MICROFINANCE SERVICES TO DEEPEN FINANCIAL INCLUSION IN AFRICA digitization of existing products, services and operations is

Various options

WHY ARE MICROFINANCE PROVIDERS DIGITIZING THEIR OPERATIONS? For most MFPs, digitizing services is no longer an option.

It is now a compulsory path

to remain competitive and reach the last mile. 5 reconsider their business models. 6 to leverage their license, customer base and outreach to rural areas and low-income clients , which are of interest providers to collect data , and data analytics play a crucial retrieved, structured, cleaned and analyzed much DIGITIZING EXISTING MICROFINANCE OPERATIONS AND OFFERINGS their customers listed below.

BETTER VALUE PROPOSITION FOR MICROFINANCE

CLIENTS

8

Convenience and proximity.

offer more convenience for customers, as they open 9 that customers can access from their doorstep, even in remote areas,

This can be achieved in three main ways:

payments or facilitate clients' loan applications; already deposited money in their mobile wallet. Customers can also receive handy SMS reminders and Lower risks and safer funds. DFS has made a difference in the lives of the poor, and rural customers in particular,

Faster transactions.

to transact, save, take out and repay loans in seconds,

Digital transaction history.

DFS allows customers with no

history, which will later enable them to access loans more history, but also on airtime and mobile money activity. DIGITAL TRANSFORMATION OF MICROFINANCE AND DIGITIZATION OF MICROFINANCE SERVICES TO DEEPEN FINANCIAL INCLUSION IN AFRICA

USING DIGITAL DEVICES:

MUSONI SERVICES AND MUSONI

MICROFINANCE, KENYA

21

Musoni Kenya.

application on tablets instead of paper forms. This increased caseload). with the Credit Reference Bureau and relies on credit data collected from clients over the last four years.

USING MOBILE DEVICES TO DIGITIZE SERVICES AND

PROCESSES

physical branches.

BETTER VALUE PROPOSITION FOR MICROFINANCE

PROVIDERS

12 the productivity of MFPs as staff do not have to spend transactions reduces staff fraud, errors and the risks with value-added services. and approvals enables MFPs to increase the amount of loan portfolios. The convenience of these methods may also attract new customers.

Reaching rural areas at a lower cost.

and mortar branch.

Greater customer loyalty and retention.

similar services to those at branches.

Additional revenues.

from additional loans) and transaction costs for MFPs (read more about FINCA Greater savings mobilization. DFS provides customers the likelihood that customers will save. HOW MICROFINANCE PROVIDERS ARE DIGITIZING THEIR OPERATIONS: OPTIONS AND REQUIREMENTS has been accelerated by the rapid adoption of internet demand more convenient and accessible services. While business models, operations, processes, products and services rather than DIGITAL TRANSFORMATION OF MICROFINANCE AND DIGITIZATION OF MICROFINANCE SERVICES TO DEEPEN FINANCIAL INCLUSION IN AFRICA

FINCA MOBILE'S PARTNERSHIP

WITH MNO AGENTS IN TANZANIA

FINCA Mobile in partnership with three

can perform a variety of transactions at partner MNO bill payments, airtime purchases, loan payments and

FINCA Mobile improved the customer experience,

branches.

PARTNERING WITH A DIGITAL FINANCIAL SERVICE

PROVIDER TO DIGITIZE EXISTING PRODUCTS, SERVICES

AND OPERATIONS

MFPs, especially when they lack DFS experience and/or (usually an MNO) can provide an easy solution. There to leverage assets (mobile money in most cases) on behalf of the partner provided by the partner. Mobile money transactions the bill payments. MFPs have reported it does not usally take MNOs. Since neither MFP had previous experience with point. its clients to transact via mobile money services at DFSP However, MFPs are often not in the best position to DIGITAL TRANSFORMATION OF MICROFINANCE AND DIGITIZATION OF MICROFINANCE SERVICES TO DEEPEN FINANCIAL INCLUSION IN AFRICA

DEVELOPING AN AGENT NETWORK TO DIGITIZE EXISTING

PRODUCTS AND SERVICES

network to become sustainable. to control the delivery channel as they identify, recruit, outreach and convenience) and improve overall access

BAOBAB SENEGAL'S

AGENCY BANKING MODEL

areas, reduce investment in new branches and reduce network. client transactions such as deposits, withdrawals, transfers, loan repayments, bill payments and automatic loan renewals. to visit in person. &$6(678'<

LETSHEGO'S AGENCY BANKING

MODEL IN MOZAMBIQUE

The MFI introduced its

incorporates a smartphone and a tablet Currently, customers are only allowed to open a basic

The LetsGoBlueBox will also

Bluetooth printer to provide customers with printed

BOTSWANA

SWAZILAND

DJIBOUTI

REPUBLIC OF THE CONGO

SÃO TOMÉ E PRÍNCIPE

LESOTHO

DIGITAL TRANSFORMATION OF MICROFINANCE AND DIGITIZATION OF MICROFINANCE SERVICES TO DEEPEN FINANCIAL INCLUSION IN AFRICA IMPLICATIONS FOR MICROFINANCE PROVIDERS DIGITIZING OPERATIONS: PREREQUISITES, CHALLENGES AND RISKS forward, products and services. BENEFITS, CHALLENGES AND RISKS OF DIGITIZATION FOR MICROFINANCE PROVIDERS

BENEFITS

CHALLENGES

RISKS

Greater outreach and portfolio

per transaction: costs - Increased loan recovery/reduced

PAR (via SMS alerts)

- Reduced fraud/loss from cash - Better internal controls and

Improved customer service and

experience (faster, more convenient, more individualized) compliance (enables analytics, credit reference bureaus

Enables APIs for others to access MFI

client information and for MFI to link to other institutions> hardware - Poor infrastructure (electricity, connectivity) trust - Business continuity - Data safety, security and protection on use of cloud services necessary skills systems > Operational risks: data from mobile devices to core loss of devices) - Business continuity (loss of data)

Consumer protection risks:

paperless disclosure overindebtedness, unsuitability - Data privacy and security (easier to base) DIGITAL TRANSFORMATION OF MICROFINANCE AND DIGITIZATION OF MICROFINANCE SERVICES TO DEEPEN FINANCIAL INCLUSION IN AFRICA Rwanda, Tanzania, El Salvador, Peru and Ethiopia, have set rural and female customers remain the hardest to reach

The scant evidence available

limited. Moreover, only about a third of the accounts is room for DFS products to be more tailored to user needs. THE CONTRIBUTION OF DIGITAL FINANCE TO FINANCIAL INCLUSION

GROWTH IN REGISTERED ACCOUNTS

have been fueled primarily by mobile money. 65

EXPANDED DIGITAL SERVICE OFFERINGS

Merchant payments.

66

Merchant

69

Bulk disbursements.

like social welfare, salaries or humanitarian payments, vulnerable populations and entice them to use DFS. cash have a mobile phone.

Credit.

Africa

Over the last decade of market development,

transfer and bill payments to merchant payments, bulk disbursements, credit, and urban, in contrast to the traditionally agent networks has dramatically reduced the cost of to the mass market in Africa. boost brand loyalty. of DFS has fueled an 'inclusive' drive to maximize their urban, salaried, male counterparts.

Over the last decade, product

43
and business model evolution 44
have generated a greater variety of formal available to the formerly unbanked. transactions), airtime purchases and bill payments of value), bulk disbursements, credit, and insurance. and and value chain 55
56
MTN and Airtel 59
to name a few) to help expandquotesdbs_dbs32.pdfusesText_38