European Microfinance Week 2021

PANEL DISUSSION

Moderated by Johanna RYAN of VisionFund International, the closing plenary reflected on the huge effects of the COVID-19 pandemic on financial inclusion, from how resilient the sector has been 18 months on from the onset of the pandemic to the catalysing effect it has had on digitalisation.

Ryan kicked off by letting the panellists introduce themselves to the audience, starting with Babak ABBASZADEH of Toronto Centre, followed by investor Jessica SCHICKS of BIO, Apricot WILSON, working on risk and impact evaluation at LMDF, Stanley MUNYAO of digital microfinance service provider Musoni in Kenya, and Maria MAY, working on financial services for the poor at Gates Foundation.

Ryan popped the first question to May, asking her what she knows now that she had wished to have known to 2 years ago. May responded that she is particularly struck by the explosion in digital payments, in particular the uptake of new users and people with new financial accounts. Reasons for that were the unprecedented cash transfers by governments, which doubled in 2020 compared to 2019, and Governments started to use digital channels and services for these transfers. This also led to some regulatory changes, and has really been a step-change in the uptake of digital services.

Munyao answered the same question by saying that Musoni had envisaged the need for digitisation as a driver for financial inclusion. He had not expected however, that this would become so needed for a time of crisis as now seen. When they designed their systems, they were mostly meant for improving efficiencies and customer experience. Covid made them aware of the urgent need to improve these systems for in particular the bottom of the pyramid in this time of COVID; some measures worked well, others not so much.

Schicks also confirmed the push for digital MFI services due to COVID, and needing to do this faster. She pointed to the global effects of the pandemic, making some investors shying away from investing. Luckily others did not, showing the resilience of the MF sector. They had to make some tough decisions to respond to emergencies, and realises the crisis is not over. Yet, she feels that the sector is standing together to improve services. 

Abbaszadeh tabled the notion that we should not be too hard on ourselves, because it is virtually impossible to prepare for such a once in a century pandemic as COVID. We can learn from history however, that such major shocks can be overcome; some recent financial crises in 2008 have also made us better prepared for future crises. In fact, this time around financial authorities were part of the solution by easing credit flows, robust monetary policy and supervisory forbearance. What we can learn from the current crisis is that disruptions to the financial and economic systems can basically come from anywhere, including health related, and that they do not necessarily have to originate in the financial system. The pace and intensification of digitisation is definitely one of the few positive consequences of the crisis. Innovation brings advantages but also risks, hence harnessing the advantages and mitigating risk is important Ryan commented that she loved the optimism that came out of this answer.

Ryan then invited the investors in the panel to speak out on what they would expect other sector players to do more or better. Wilson once more articulated the great resilience of the sector, by increasing and optimising digital services and flexibility, proving to be very client-centric. FSPs could improve on communication with creditors, also in terms of data being collected. Schicks confirmed and added that every player has played their part quite correctly, doing things they had never done before. In the short term, FSPs need to find their way back to growth, even if that means shifting culture by taking more risk, while still retaining the good repayment practice. In the long term FSPs need to be more flexible and think bigger, also by applying digitalisation and improving efficiency, capacity and innovation.

Ryan next asked Munyao what he would like to see the investment community do more. While he responded that this community had stood by well to collectively contribute to face the crisis, some lessons could be drawn. One lesson in particular had to do with scale; the smaller you are, the more vulnerable you remain. You cannot grow without the support of investors to help you scale and deal with risks. Institutions should do more to support the adoption and use of digital services, as this is key to growth. This needs to be accompanied by investors pushing institutions to become more digital-savvy, which is a longer process beyond the COVID-19 pandemic.

The panel was then challenged to envisage what the sector would look like in 5 years from now. In summary, there is overall optimism, but it is imperative not to lose momentum, and to strive for the best possible balance between personal contact and digital convenience and efficiency. The generally high resilience of institutions has been a feature of the past two years, yet strengthening of the resilience of clients at the bottom of the pyramid remains the sector’s key task. This was underlined by the audience; in an online poll they chose ‘deepening outreach to the very poor’ as the most important way to make last-mile clients more resilient to a future crisis.

In this sense, expanding and diversifying (digital) services, well aligned with capacity building, women’s empowerment and the promotion of good governance to ensure financial inclusion were all mentioned as key to reaching the poor and vulnerable. We are only at the beginning of improving people’s lives through innovations in the sector, bringing about a diversity of models that will need to be tested and evaluated throughout.

The narrative between impacts and sustainability also requires revision. From the regulatory side this requires more stress testing, as crises will continue to happen. We have to find ways to make the financial system more stable and inclusive, with risk-based supervision and regulation, good governance and capacity building, a spirit of collaboration and an openness to innovation.