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Promoting Inclusive Markets and Financial Systems

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Technology is Powering a New Era for Financial Inclusion. Are You Ready?

by on Feb 10, 2014  |  posted in Financial Inclusion, Microfinance  |  4 Comments
Douglas Pond, Executive Vice President for Mambu (one of The SEEP Network’s newest members) discusses how technological innovation is spawning new competitors and putting microfinance organizations under pressure

There is no doubt that technological innovation is rapidly driving new opportunities for financial inclusion.  As Sharon D'Onofrio, Executive Director of The SEEP Network commented recently, “We are at a transformative point in the evolution of the microfinance sector, as world leaders embrace the mandate of global financial inclusion, and technological innovations present immeasurable opportunities to make it a reality.”

An Increasingly Competitive Field
A convergence of multiple market forces are having a widespread impact on microfinance organizations worldwide.

In financial services, both traditional banks and new alternative service providers such as mobile network operators and online lenders are seeking new markets and innovating to attract new customers, including the historically unbanked and underbanked. At the same time, increasing access to mobile devices, cloud-based services and the increasing consumer choice that goes with ubiquitous internet access means clients are demanding more from their suppliers.

Both these forces are undermining the status quo for many microfinance organizations.  Some might ask, is this the end of the traditional microfinance business model?

In fact, in our experience working with more than 100 financial innovators in more than 28 countries worldwide, these factors actually create huge opportunity for microfinance organizations. By embracing new technology, innovative microfinance organizations of any size can professionalize service offerings in a radically new way, harnessing the power, scalability and security previously reserved only for top-tier financial service providers, but at a drastically reduced cost.

With this new-found ability to lower service delivery costs and reduce operational risk, microfinance organizations can achieve a step change in client service, differentiate their client offerings from new market entrants, and accelerate financial inclusion as never before.

How Can Microfinance Networks Keep Ahead?
It is an exciting time to join The SEEP Network and be a part of a community that is driving the financial inclusion agenda. We see it every day in our clients’ businesses and when talking to prospective clients. As a new member of SEEP, we are seeking to raise awareness of how technology can help drive success in achieving financial inclusion. Working in collaboration with SEEP, we look forward to sharing best practices from our customer base to accelerate the financial inclusion mission.

Technology innovation, especially in service delivery, will be the defining factor in financial services for those looking to lead in financial inclusion. We like to think of it as zero gravity banking. Together, we can be bigger than the challenges we face and usher in a new world of financial inclusion.

4 Comments

anuj jain says:
Feb 02, 2014

The conclusion section sums it up for me. I don’t think it is the intent, but it will be useful to say that the biggest gap, and hence most effective innovations in financial inclusion must come from products designing and offers, as much as the delivery of those products also remain important, and the technology will help solving the ‘distance’ problem. Here is a counter poise to support this point. We have hundreds of bank branches, and a very wide mobile network outreach in urban towns and cities. Physical distance in those cases is not the most important barrier. It is the social distance, and the general scorn that main-street financial sector has for people living in informal economies are all too pervasive. Technology can not and will not change that on its own. This is NOT to say that we should ignore technology. To the contrary, we must take advantage of it indeed. Kudos to all who are pushing boundaries in this regard. And yet, we need not be unrealistic in our expectations on what technology can or can not do alone.

balasekar says:
Feb 02, 2014

nice clarification. but now when the financial inclusion has become much severe in developing countries by the developed countries the main hurdles will be the local politics and the less awareness of the people without proper propaganda regarding the same mainly due to the concerned authorities of the area. much care should be taken for the awareness to be spread among people and mainly should be concentrating on bringing the people the basic knowledge of financial studies.

Mugisa Jared says:
Feb 02, 2014

Dear Douglas,
You have opened the discussion by stating that Technology is Powering a New Era for Financial Inclusion. You then pause this question: ” Are You Ready?”
Douglas,
When I was doing Christian Religious Education in ‘O” level some years back, I remember one of the themes entitled “Man in a changing World’. Being a long time now; I might have forgotten quite a lot about the theme save for one phrase: ‘Change is a fact of life”. Among my peers, I always here this common phrase: ‘If you refuse to change. change will change you”
Let me come back to the topic. About five years back, I received a mail from my colleague in Belgium talking about Mobile Money Banking in Uganda. I should not have responded so quickly to that mail. By that time, the concept seemed unworkable in my poor country. My feedback to him was so pessimistic, quite discouraging! Alas, just in a couple of years my perception and appreciation of the concept of Mobile Money Banking has changed drastically. May be by that time I was right. I had a phone and no one else of my next of kins. In the whole of my rural village, a phone was perceived as very expensive luxury. To day, I am overwhelmed. There are as many mobile phones as people over the age of 18. two days back; I sent money to pay for labor through my phone which cost me 5000 UGX compared to a cost of over 150,000 UGX transport and accommodation to make the same labor payment.

Recently, MTN Company was talking of 8 Million customers, Zain boasting of 7.2 Million without considering others like Uganda telecom… Currently; Uganda’s population is estimated at 34 Million.

Coming back to the question of being ready: Un like a few yeas back; I now have to accept reality and move with it. For Uganda now; if you look at the trends, people are already ready because each person has access to a phone. Just a few things to make right. For example; I sent my 70,000 UGX to a wrong number belonging to an un-co-operative character last month. This I will never recover. I wish my semi-literate aunties and grand mums in the villages fall less victim of this phenomena.

Otherwise, technology is indeed driving financial inclusion to great heights.

Douglas Pond says:
Feb 02, 2014

Thanks to all for your comments so far.

Anuj,

I have been reflecting on your post and, you are right, it was not the intent. However, as I’m sure you can imagine, it would be a challenge to cover this in detail in one post. However, I would suggest that it’s not necessarily that “product designing and offer” is the “biggest gap”, either. I see three major gaps in achieving the financial inclusion goal – products that are simple and tailored, services that are convenient and flexible and credit that is made available quickly and easily. This all needs to be done at a very low cost and that is where, for me, technology plays a critical role.

I also agree that where established branch networks and mobile networks exist, the physical barrier may not be the biggest challenge. However, in many parts of the world like Africa, which lays claim to about half of the top 20 lowest population density countries in the world it is still a huge issue. Technology can help address these unique challenges.

I understand your point on social distance. Some see it as a social problem that can’t be changed and others, like myself, see it is an opportunity to serve a socially marginalized market segment. Technology is not the ‘silver bullet’ but there are definitely ways in which it can play a role in breaking down some of those barriers.

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