Savings and microfinance in Moyo, Uganda
For decades, microfinance struggled to reach scale due to the supply-side barriers of high costs relative to small loan sizes and high credit risk uncertainty.
Then came mobile technology and advanced data analytics, promising a revolution. Both delivered, contributing to a halving of financial exclusion in developing economies in a decade.
But hold the applause.
A staggering 1.4 billion adults remain financially excluded.
A new set of barriers, this time on the demand side, has left many behind. Limited access to smartphones and internet connectivity, low digital literacy, and mistrust in technology has created a digital divide that is disproportionately affecting women, the poorest, and the least educated. In a financial services landscape that is increasingly digital, these groups are now more vulnerable than ever before.
And even for those who have been ‘reached’, the promises of financial inclusion: security, opportunity, and peace of mind - often remain unfulfilled.
At VisionFund International (VFI), a global network of 25 microfinance institutions (MFIs), we believe in a future where financial inclusion doesn’t leave anyone behind. A future where financial inclusion brings families and children out of poverty. For good. Here’s how we’re making it happen.
High-touch and High-tech
To address both the demand and supply side barriers of financial inclusion, we champion a hybrid onboarding approach that is high-touch for clients and high-tech for staff. This is an approach where technology is used to enhance touch, not replace it.
Client relationship officers meet clients face-to-face in their homes and communities, building trust, understanding needs, and providing access to the digitally disconnected. This high-touch relational approach, the bedrock of microfinance, also allows for a level of flexibility in the screening process that fully digital onboarding models lack.
The trade-off? Cost efficiency. To address this, we equip client relationship officers with high-tech digital onboarding tools that, where possible, are integrated with third party Know Your Customer (KYC) platforms, credit reporting service providers, and in-house decisioning software. Always looking to improve, we are exploring the use of generative AI co-pilots for client relationship officers and underwriters to not only increase efficiency, but also to improve accuracy and enhance customer experience.
While this division of labour between touch and tech may not achieve the level of cost-efficiency of a fully digital onboarding model, the productivity gains it creates allows VFI to deliver more of what the fully digital models are not, and that is financial inclusion of the most vulnerable.
Bridging the digital divide
Once onboarded, we provide clients with digital literacy training tailored to their readiness and delivered in local languages and formats. This training equips them with the skills and confidence to enter the digital financial landscape and navigate it safely and effectively. We have supported thousands of ‘new-to-digital’ clients to make their first digital payment, download and use their first mobile banking app, and submit their first online account application. By bridging the digital divide, our clients unlock financial products and services that build financial resilience and empowerment, while we gain operational efficiency and insights that help us to develop more data-driven solutions.
Focusing on generating client value, not technological hype
Reaching the most vulnerable and building their capability to engage in the digital financial services landscape is crucial. But we can only reach the financially excluded with quality solutions when services genuinely deliver value to them.
A key reason why digital financial services often don’t bring value is that the provider has been caught up in the hype of a new technology without considering if it solves a pressing need or problem. A hammer gets implemented without a nail.
To avoid this, we empower our operational teams to lead our digitalisation efforts. They understand the needs of our clients and can ensure technology functions as a problem-solver, not a solution in search of a problem.
One example. Millions of village savings groups struggle with record keeping, savings goals, and connecting to financial services. In response, VisionFund and World Vision are rolling out DreamSave, a mobile app that addresses these issues and accelerates the digitalisation of these groups, giving members easier access to microloans and microinsurance.
Building an ecosystem of inclusion through partnerships
Application Programming Interfaces (APIs), the digital bridges that enable applications to communicate and securely share data, have unlocked a new era of collaboration. No longer do MFIs need to operate in silos. Through APIs we are integrating with partners across the microfinance value chain from fintech partners providing chat-based onboarding and digital signature verification, to more traditional partners like mobile money and credit scoring providers. By combining the unique capabilities of each partner, these API-powered partnerships are delivering financial services that are more accessible and impactful for the most vulnerable.
VisionFund strives to lift families out of poverty through the power of financial inclusion. By embracing a human-centered approach that bridges the digital divide, empowers clients, and fosters impactful partnerships, we're ensuring financial inclusion reaches not just the many, but the most vulnerable – the last billion.
Article published on Bond.org on August 8, 2024 (linked here)
