Advancing digital transformation for inclusive financial services

New insights from Mastercard's partnership with Accion show how public, private and philanthropic sectors can support financial service providers in building a more inclusive economy.

Advancing digital transformation for inclusive financial services

June 15, 2021

The crux:  Inclusive financial services providers, including microfinance institutions, play a critical role in supporting the world’s most marginalized populations. They also help connect underserved small businesses with the financial tools and services they need to grow and to build financial security for their families.

COVID-19 accelerated the move to a digital economy. This shift could leave many small businesses behind unless the microfinance institutions that serve them get the support needed to adapt their traditionally high-touch service model to an increasingly digital world. There’s also an opportunity to embed small business services into technology platforms that reach this underserved segment.

A new guide based on lessons from Mastercard’s partnership with Accion provides insights from several financial service providers that are undergoing a digital transformation. While the guide is geared to financial inclusion-focused institutions, it also contains insights for how those in the public, private and philanthropic sectors can better support financial service providers in reaching these “last mile” entrepreneurs.

The context: Digital financial services help small businesses transact faster, smarter and more safely, and they help families save more, build wealth and prepare for emergencies. Inclusive financial service providers can be the gateway to a larger market for small businesses globally. 

Research shows that digital businesses are more stable with higher profit margins and greater revenue and productivity thanks to new payment options, access to affordable credit, better inventory tools and other digital functions. And that translates into jobs. Every $1 million loaned to small businesses in developing countries created an estimated 16.3 additional permanent jobs over two years relative to firms without loans, according to the World Bank.

Many inclusive financial service providers have increased their digital users since the onset of the pandemic. For example, Banco Pichincha in Ecuador nearly doubled the number of its mobile app users in 2020 as social distancing kept people safe. Other online tools like digital wallets also saw sharp jumps.

However, these new users are primarily higher income individuals. Far too many others, meanwhile, remain on the other side of the digital divide. This divide means those with access to digital tools and fast internet benefit while others—often women and rural entrepreneurs—do not. This wide and varied gap in access and uptake makes the job doubly hard for financial service providers helping the approximately 400 million informal and formal micro and small businesses in the developing world build and grow their enterprises.

Key takeaways: Three opportunities to drive digital financial inclusion

Inclusive financial service providers have spent the last several years working to bring more small businesses into the digital economy. It’s been a steep learning curve, but their lessons can help build a more inclusive digital economy.

For those in public, private, philanthropic and development finance sectors, we highlight three reasons to consider partnerships and investments to support the digital transformation of these providers. 

1. Microfinance institutions reach both sides of the digital divide. Before COVID-19, Annapurna Finance, a large microlender in India, relied on group lending model to serve its 1.9 million customers who would otherwise lack access to high-quality financial services. But when COVID-19 shut down face-to-face meetings, Annapurna pivoted to digital to keep support flowing. Its first impulse was to build for smartphones, until it learned that only 10 percent of its customers had smartphones. They did, however, have phones with some advanced features. So Annapurna built a text-based loan product that combined tech and touch—and with an easy upgrade to smartphones to future-proof the app. In doing so, it also created a feature-phone to smartphone roadmap to help customers go digital over time.

2. Working with technology partners brings speed and scale. Creative partnerships between organizations with mutual goals, like fintechs or e-commerce platforms, can help achieve scale and build a digital ecosystem. Jumia, Africa’s e-commerce giant, is working with Accion Microfinance Bank’s small business clients to start selling their products on Jumia’s platform. Jumia will benefit by gaining potential customers and providing its existing merchants with access to the bank’s financial services. Accion Microfinance Bank’s clients in turn will gain trust and experience using digital tools.

Similarly, Banco Solidario (BancoSol) in Bolivia partnered with Flourish, a fintech with a deep understanding of behavioral science, to create an upgraded mobile banking app that featured gamification tailored to Banco Sol’s customers. The fintech’s expertise drove engagement and helped Banco Sol get to market in 100 days.

Financial service providers can also benefit from lessons and expertise from other technology fields like data science, data management, cloud computing, cybersecurity and others to better serve their customer base.

3. Emerging tech platforms offer new opportunities to reach underserved small businesses. CÍVICO, a Latin American tech company, started as a crowdsourced, Google-like map of the merchant ecosystem in cities like Bogota. As its cache of small businesses grew, it wanted to begin offering lending products to those businesses. Rather than diving in, it tapped into its culture of experimentation to test a low-fidelity product with a small group of customers, lending very small amounts and limiting its total investment to just $15,000 so it could learn from mistakes. By staying small and nimble, they were able to refine and improve the lending product, reducing the risk to themselves and any partners they bring on to scale the product.

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Image Credit: 
Sub-K client Guthula Nagamani (Courtesy of Accion)