European Microfinance Week 2016

PRESENTATIONS 

Moderator Matteo SNIDERO opened the session by saying that Fintech recently is much in the news for potential risks and disruptions. Referring to news articles like ‘The Fintech threat is real’, ‘Bitcoin: is the crypto-currency doomed?’, and ‘Fintech: Banking Disruption’, he pointed out that the language about Fintech is often hyperbolic and the concepts expressed are often extreme. A panel of experts was hence a welcome idea to remove some of the hype and raise the level of understanding around this topic. Fintech is therefore also one of the 3 main topics of the e-MFP Digital Innovations for Financial Empowerment (DIFE) Action Group. This Action Group (AG) has 60 members with the aim to facilitate and ensure an efficient implementation of digital operations throughout the sector. The AG has generated a number of case studies and organised 3 sessions during the 2016 European Microfinance Week. Snidero urged the speakers in this session on ‘How MFIs can adapt’ to speak out clearly pro or against the prospect of financial inclusion.

Graham WRIGHT of MicroSave, in his presentation ‘Fintech, where are we headed’, responded to this theme by saying that ‘the unbanked’ will require a whole range of digital financial services (DFS), not just credit. MFIs then basically have 5 options, ranging from building their own DFS, through facilitating services to ‘wait and see’. The last is in fact not an option, as developments are coming in with the speed and force of a fast train. Smartphones will constitute the next disruption, not only due to changes at provider level, but also changes at customer level, due to easier user interfaces, peripheral devices and lower costs. Wright subsequently showed how smartphone and biometric technologies, as now adopted and promoted through government services in India, are opening up a whole new range of possibilities to connect the poor; the end game appearing as a ’cash-lite’ world, enabling cashless business and supply chains. As a result of this initiative, there will be tremendous pressure on the public sector banks to perform, in the end bidding for the right terms and conditions with the poor as consumers of their services.

The next speaker, Jonathan WHITTLE, explained the services provided by Quona as a venture capital firm focused on Fintech for inclusive finance in emerging markets. Sponsored by Accion International and backed by financial institutions, Quona partners with Fintech entrepreneurs, leveraging a global network of industry experts and co-investors. According to their investment thesis, there is a huge underserved population, a massive funding gap for MSMEs, growing purchasing power and accelerating technology adoption. They therefore invest in Fintech game changers for underserved consumers and businesses, through scalable business models with social impacts. Hence they have a dual filter of financial returns and social impact, which they measure against a framework of promoting financial inclusion through improved access for the underserved, a commitment to a high quality of services, and the effect on broader market development. According to Whittle, there are abundant opportunities across all regions.

Antonio SEPAROVIC then highlighted Oradian’s core services in the cloud that evolved from re-thinking the sector’s approach to technology, features, the future, and geography. This led the organisation to develop a business model that enables microfinance be more efficient and focused on their core business. According to their mission statement they aim to reach 100 million families through financial inclusion, thus impacting 2.5 billion unbanked. If they want change the current way of business, they have to focus on operational inefficiencies. That implies moving away from decentralised services such as data storage, and focus on integrated services, consolidation of data, and validation of data and systems. They want to grow organically by increasingly adopting more branches, the summary of benefits showing what is in it for the financial institutions and for the sector. So far, they never lost a customer!

Lisa NESTOR introduced Stellar as a new ‘Internet for Money’. The Stellar Network operates as an encrypted global payment infrastructure for every financial institution. Customers require an internet protocol to connect to the Stellar Network, after which transactions of any amount can be done at the cost of 1/100 of a cent. This block-chain technology will lead to financial inclusion, traceable and transparent, leading to more services like micropayments and loans. There is also a role for ‘market-makers’, to close deals concerning currency exchanges, and to be hold accountable through keeping ledgers. Stellar considers itself as ‘steward of this technology’ as an operational non-profit financial institution.

Lisa NESTOR introduced Stellar as a new ‘Internet for Money’. The Stellar Network operates as an encrypted global payment infrastructure for every financial institution. Customers require an internet protocol to connect to the Stellar Network, after which transactions of any amount can be done at the cost of 1/100 of a cent. This block-chain technology will lead to financial inclusion, traceable and transparent, leading to more services like micropayments and loans. There is also a role for ‘market-makers’, to close deals concerning currency exchanges, and to be hold accountable through keeping ledgers. Stellar considers itself as ‘steward of this technology’ as an operational non-profit financial institution.

DISCUSSION

Moderator Snidero pointed to the sophistication of new solutions presented, now challenging the panel and audience to come forward with ideas on how practitioners and MFIs can adopt these in their systems. Separovic stressed the urgent need to ‘anchor’ these developments well into MFI systems, by applying and creating change. Whittle added that we have now access to data which before were not available, new tools tapping into mobile and transaction data, requiring specialist groups and strategies for architecting new technologies, and perfecting these further to drive efficiency. Wright said to ‘hurry up and don’t wait’, pointing out that only 10% is technology, the rest being operational implementation; he mentioned getting rather tired of the slow response to change. Digital data can be used to base our decisions, in turn creating ‘thick data’.

Snidero subsequently asked what priorities there are to be taken. While Whittle argued that some companies are taking a more comprehensive approach in leveraging data, Nestor disagreed: MFIs do not necessarily have to do everything by themselves to find the right solutions, they can create communities such as Stellar, or form broader associations or think-tanks. When asked about the added value of MFIs with respect to financial inclusion, Separovic responded that there is a crucial role for them because of their face-time with customers, next to validating data for better decisions. Wright countered not to over-emphasize and romanticize about the potential of data, as you cannot make decisions based on data alone; you need to build relationships for social inclusion. Nestor confirmed that this would be potentially irresponsible; data should be a means to connect and understand. Whittle brought in the example of red-yellow-green profiles for credit allocation; by buying into technology, customers can improve their profile and use other credit schemes. The other panel members agreed that this indeed helps building understanding, efficiency and serviceability, thus avoiding bit-solutions through bundling services (in the cloud). Clearly, solutions need to be well shared and learned from to ensure financial inclusion.

On the question from the audience regarding the work with the regulators in Nigeria, Separovic replied that these regulators, unlike in some other countries, were actually quite keen to work with them to help resolve problems with MFIs. Wright confirmed that regulators need help to regulate their eco-systems; they are often struggling. 

Some final answers to questions from the audience related to the need to have anchored systems in countries in order to transfer money in the case of Stellar, and to Quona developing unified SPIs/KPIs to measure (social) impacts.