Ferdinand TUINSTRA welcomed the panellists and asked them to introduce themselves. Tuinstra then opened the session by asking the panellists to give their views on the consequences of the COVID-19 crisis, and the resulting digitalisation challenges and opportunities of financial institutions.
Ciprian PANTURU highlighted the practitioners' viewpoint, from the perspective of PHB Development in Uganda. He explained how the COVID-19 crisis has acted as a catalyst for the implementation of digital financial solutions by MFIs. According to Panturu, there is increased willingness to embrace digital solutions, and seek collaboration to drive digital transformation.
Jessica SCHICKS agreed to these observations, and added that the COVID-19 crisis has reduced clients' averseness to the use of digital channels. BIO did extensive research (on digitalisation and client uptake used to be a challenge. However, it seems that in some geographies COVID has proven to be an accelerator in that respect. It has brought about a sense of urgency to overcome challenges that were previously hampering client uptake.
According to Edmund HIGENBOTTAM, the COVID-19 crisis can indeed be seen as the direct catalysts of overcoming the hurdle of trust and literacy. There were also important indirect catalysts for the digitalisation efforts of MFIs: face-to-face contacts were becoming less convenient because of COVID and lockdowns, and MFIs needed to reduce their operating costs anyway. This economical principle drives much of the development of the MFI landscape, with several steps in the digitalisation of the MFIs and their products.
Schicks jumped in to say that the digitalisation process can indeed improve efficiency and reduce costs. However, it often requires large upfront investment and patience, as the process is capital and time intensive. Sometimes, major investments take a long time before showing benefits, and a strong business case is needed to justify the size of investments that digitalisation requires.
Panturu agreed with both, and added that the development and implementation processes of digital solutions still need to be optimised. MFIs are more mindful about investing scarce financial resources, by selecting digital solutions that will provide them the specific benefits they are seeking. Not just digital solutions in general, but solutions that are better adapted to solve particular loan processes and will reduce costs, thereby improving performance of loans and credit scoring.
Schicks pointed to yet another economic driver for the digitalisation efforts, which came up during BIO's research on digital products and services such as savings mobilisation. Part of the motivation of MFIs to digitalise services and products besides efficiency also lies in client acquisition and retention. Digitalisation is essential to reach underserved and remote areas. Higenbottam added that MFIs will move more from analogue to digital, and therefore will push digital rural outreach and close down more traditional branches.
Tuinstra then invited comments and questions from the audience. One of the participants raised the point that in many cases the right digital infrastructure may not be in place. Higenbottam stated that the traditional infrastructure is indeed weak. Schicks also articulated a strong need for improved digital infrastructure, in terms of network quality, smartphone ownership and digital literacy, in order to achieve rural expansion via digital solutions. To attract larger investments, digitalisation needs to go beyond efficiency gains and client retention benefits for MFIs. At the same time, Panturu noted that there is an entire array of light or hybrid digital solutions that could be employed to deliver solutions in areas with limited infrastructure, which should allow progress to take place in the meantime. Higenbottam added that digitalisation will also reduce operational costs and transaction costs for consumers.
The discussion then turned to strategic thinking in setting digitalisation strategies for MFIs. Schicks pointed out that digitalisation leads to a fundamental shift for MFIs. However, BIO's investigation of MFIs, and where they stand in terms of digitalisation strategies, showed that MFIs deal with digitalisation in an ad hoc manner, focusing on short-term gains. MFIs are not yet developing a long-term vision, and there is a lack of alignment and integration within their internal systems. The panellists agreed that innovation is still rather ad hoc, requiring an agile approach. Furthermore, MFIs need support to meet the basic requirements to maximize the potential of digitalisation.
When asked what specific support MFIs need in terms of capacity and capability to bring about digital transformation, Panturu said that partnerships with technology companies can lead to knowledge exchange to complement the in-house expertise to implement digital solutions.
Schicks supported this by referring to research results that show a need for IT expertise and HR capacity in MFIs. The panellists agreed that technical assistance is critical to build institutional capacity, human resources and strategic agenda-setting procedures for hardware and software development. Longer-term digitalisation vision must be reflected throughout the MFI organisation, and be well-represented in the board. Schicks stressed, however, that initiating organisational transformation must be aligned with the larger goal of catering to clients' needs with tailor-made digitalisation offerings.
For the near future, panellists expressed that there is a good opportunity for public institutions, MFIs and clients to reach out and leverage the momentum and readiness by providing and enabling the take-up of digital solutions. Moreover, they mentioned a disparity in financial and human resources for digitalisation among MFIs. This is expected to lead to consolidations that will change the MFI landscape. This in turn requires proper assessment of technical assistance for MFIs, carried out systematically, and leading to closing gaps by applying high-impact solutions that attract the necessary investments to drive the digitalisation efforts forward.