Full financial inclusion requires that a person be an active user of a suite of products for both short- and long-term financial needs. We look here at two strategies for moving beyond simple accounts to a broader product suite: products that serve as on-ramps to usage and a broader suite of products, and products that accommodate the irregular cashflows of many BoP customers.
On-Ramps to the Financial Mainstream
A number of products have been heralded as on-ramps to inclusion (entry products that connect users with a broader range of financial services). Assumptions abound about which products are most effective.
Digitizing G2P payments is often cited as a prospective on-ramp, because they can connect millions of people at once. However, the question is still outstanding as to how and whether connecting benefit recipients to transaction accounts can lead to deeper inclusion, through either through active account use or access to additional products.
Likewise, remittances are claimed as a potential on-ramp, since sending or receiving remittances is often the first and only point of contact with formal financial services for many poor consumers. With support from the Inter-American Development Bank’s Multilateral Investment Fund (IDB/MIF), Fonkoze, Haiti’s largest microfinance institution, offered clients money transfer services, along with a suite of other financial services and education at a “teachable moment.” Recipients of remittances would be informed about the loan or savings program while transacting or waiting in line and offered a chance to take up additional services. Many women who received this information subsequently used money received from relatives to launch and expand their businesses, while saving part of the money transfer in Fonkoze savings accounts.
A much-cited example is Commercial Bank of Africa/Safaricom’s M-Shwari account, which makes M-Pesa mobile money transfers an on-ramp to savings and loans. M-Shwari (and now M-Pawa in Tanzania) has become quite popular: M-Shwari had 9.2 million users at the end of 2014. Financial Diaries and Intermedia reveal that customers use the product for short-term money management, and in particular for very small short-term loans. There is no denying that M-Shwari addresses the short-term liquidity issues faced by many low-income households. And it is provoking competition, including Kenya Commercial Bank’s M-PESA account, which also offers one to six month loans that are more competitively priced and with lower interest rates than M-Shwari, and Equitel, Equity Bank’s mobile money product, which also offers savings and loans.
We would like to see the evolution of digital financial services continue to even more comprehensive offerings, such as extending greater amounts of credit on better terms to borrowers who demonstrate reliability over time, and designing mobile savings solutions that assist consumers to meet their own goals. Equitel’s savings products are designed with subaccounts, based on the idea of “pockets,” which allows consumers to designate money for goals.
These examples suggest that if properly managed, getting on the “grid” can result in active account usage or access to additional products. Further investigation is required to understand the product design elements, delivery channels, consumer behaviors, and market contexts that can consistently turn an entry product into an effective on-ramp.
Goin’ With the Cash-Flow
Low-income and poor consumers value services adapted to their cash-flow needs, given their low, irregular, and unpredictable incomes. A number of recent examples show financial institutions that are experimenting with flexible terms, less frequent repayments, or grace periods. AMK, a large microfinance institution in Cambodia, launched a popular credit line that allows clients to draw down credit as needed, rather than pay interest on unused capital. AMK found that customer draw-downs and payment patterns allowed it to offer the service sustainably and without incurring liquidity issues. One Acre Fund offers smallholder farmers in East Africa loan products with flexible repayment schedules. This type of flexible repayment has been shown to meet the needs of smallholder farmers and increase the amount invested in farm inputs.
Flexible payment models have also been successfully employed for livestock insurance in China. Credit vouchers allowed farmers to take up insurance while delaying the premium payment until the end of the insured period (when pigs were sold). This was seen to increase the uptake of insurance by 11 percent. Old Mutual South Africa developed a “pay when you can” microinsurance funeral product to address income irregularity. It provided a top-up option rather than requiring monthly premium payments. Initially customers found it difficult to understand how the product worked. Consequently, Old Mutual worked on increasing knowledge among its front line staff to educate consumers about the product. This product illustrates the challenge of balancing between features that are simple to understand and operationalize, and those that are responsive and flexible.
Lastly, financial services that directly address basic human needs should be central to the financial inclusion story. This includes not only the agricultural finance and funeral insurance examples just mentioned, but also health insurance and finance for education, housing, and water and sanitation. These kinds of products can be transformative for clients. We see some exciting examples, such as M-Kopa and Angaza Design, which use technology and mobile money to allow off-grid consumers to pay for solar energy in small increments.
In Financial Services We Will Eventually Trust
Adopting new products can take a leap of faith for anyone, and even more so for people who have low literacy, little confidence, or limited exposure to new technologies. One negative experience can erode an individual’s trust for years (not to mention the damage an unhappy customer can do through word of mouth). Indeed, lack of trust in financial institutions is a major reason people cite during Findex interviews for avoiding formal finance. Earning trust requires providers to invest in the entire customer experience, going beyond product offerings to developing appropriate engagement, delivery channels, and recourse mechanisms. For instance, there is strong evidence that poor customer service, such as system downtime or agents lacking liquidity, dampens usage of digital financial services.
One way to develop trust is to invest in the capacity of front-line staff and banking agents and provide them with the tools and skills to engage effectively with customers. Front-line performance quality can be assured by developing and incentivizing agents to be effective facilitators for this purpose, as indicated in a review of five microfinance institutions by Freedom from Hunger.
Building on its already strong and trusted brand as a mobile operator (telcos generally score higher than financial service providers in terms of trust in Africa), Tigo, a mobile operator, partnered with Bima, a mobile insurance service provider, to build a cadre of agents responsible for educating and registering subscribers into Tigo Kiiray insurance products in Senegal. However, tactics requiring extensive training can be costly, and incentives have to be carefully designed to engage staff, while minimizing potential conflicts of interest around sales.
The financial inclusion community is also seeking ways to harness technology to build trusting relationships with customers in affordable and scalable ways. Tanzania’s Tigo Pesa recently partnered with Juntos to use its two-way SMS engagement platform to build relationships, troubleshoot technology problems, and address customer service questions. It remains to be seen how effective technology-based approaches are in deepening engagement, but we are excited by the promise they bring of reducing cost and increasing the richness of client interactions.
Accessible and timely complaint and dispute resolution mechanisms can also support customer trust. Since its launch, M-Pesa has prioritized customer service, which has helped it develop into a trusted brand. FSD Kenya and CGAP in Kenya found that nearly all users of M-Pesa were aware of whom to contact when they had a problem with the service. MDO Arvand, a microfinance institution in Tajikistan, broadcasts a radio program called “Arvand is Online.” While promoting the microfinance institution, the show operates as an “on air” call center. When participants call with questions on their financial services, loan officers, managers or attorneys for the organization are in the studio to respond. (For more on building trust, see the financial capability and client protection progress reports.)