At today’s European Microfinance Week panel on transforming microfinance institutions (MFIs) into digital financial services providers, the focus was on meeting customer needs – not just implementing digital products, but attaining measurable success for clients and MFIs. Given that 80 percent of many microfinance portfolios comprises renewals, the renewal of microloans is a great process to digitize. This can free up staff to focus on recruiting new clients.
The consensus of the panelists was that going digital cannot be addressed primarily as a technology problem; rather it must be looked at as a business problem. The Vitas Group of Middle Eastern MFIs made the conscious choice to build a parallel system rather than disrupt its existing manual product offerings. The goal of the new digital system was to start small and go after a market segment that the group did not reach in great numbers: youth. Young people often look for products online first. They want a hyper-customized product that they can access instantly, without the need to visit a branch or even talk to a staff person by phone. Ease of use is also key, with an interface designed to minimize the number of taps required to complete each task.
Once the leadership of an MFI has decided to go digital, the institution still needs buy-in from its staff and clients. Sometimes it isn’t the line staff that is hesitant, but rather it can be the middle managers. Among their fears is often that their jobs will be made unnecessary, although this is extremely unlikely.
Digitizing does not have to mean moving existing products to a digital platform. Some products only make sense in a digital context. For example, the Vitas Group found that restaurants were getting slow cash flow from sales they made via the app Uber Eats. The institution developed a short-term loan product based on future income documented through the app.
The US-based NGO CGAP has done a great deal of research on how MFIs can digitize most efficiently and successfully. Among the materials it offers are “Building Value in Microfinance Through Digitization: A Role for Funders” and “Building Value in Microfinance Through Digitization: Lessons from Loan Automation Pilots,” both of which were published this week at https://www.cgap.org/topics/collections/microfinance-digitization.
This report is part of a sponsored series on European Microfinance Week 2023, which began yesterday in Luxembourg and is also accessible online. MicroCapital has been engaged to promote and report on the event each year since 2012. Stay tuned over the coming days for more news from the conference! Learn more about European Microfinance Week at https://www.emw2023.eu/.
Additional Resources
European Microfinance Week 2023 homepage
https://www.emw2023.eu/
MicroCapital coverage of European Microfinance Week since 2012, including the European Microfinance Award
https://www.microcapital.org/category/european-microfinance-week/
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