RestartME Advisory 8 - Let’s Make Digital Happen : Building up Resiliency for the Micro Finance Industry

There is no doubt that the COVID19 pandemic is challenging various industries and businesses to find ways to adjust to the so called “new normal”. A lot of businesses are re-strategizing to ensure recovery from the adverse impact of this health crisis. 

The microfinance industry is not immune to this. In fact, some Micro-finance Institutions have acknowledged the need to reinvent their business processes to ensure not only the safety of their employees and clients but also the resiliency and viability of their organizations. Concretely, there are pioneering MFIs who have actually foreseen the need to incorporate digital business solutions in their core operations prior to the outbreak of the Pandemic.

Let’s look at the case of CARD Bank.

What convinced CARD Bank to go digital?

Around a decade ago, CARD Bank noticed that most of their clients from remote areas had to travel for hours just to access their services. When their clients reach the banks in their towns, they still need to fall in line, fill out forms, and wait for the money to be released.

The over-all experience was inconvenient, expensive, and time-consuming.

This realization convinced CARD Bank to take the unfamiliar route. Thus in 2012, they started going digital.

How was the journey like for CARD Bank?

Their representative said that there were a few bumps in the road every now and then but the overall journey was manageable. No journey is flawless, but thankfully, we have CARD Bank telling us what they learned from their experience.

35 of every 100 of CARD Bank’s clients are either resistant to technology or unable to afford cell phones. This was their greatest challenge: they are going digital for their clients, but how do they do so without leaving their clients behind?

CARD Bank introduced two ways for their clients to access financial services: client-initiated and agent-assisted.

For the 65% of their clients who can afford and use cell phones, CARD Bank first designed a banking system powered by SMS. This decision was inspired by the then Filipino market’s love for texting and group messaging – and it worked! Their clients are able to facilitate their transactions via the convenience of texting.

In 2015, three years after CARD Bank introduced their SMS banking system, telecommunication companies started including mobile data as part of their former “call and text” promos. According to CARD Bank’s representative, this was also the time when smartphones became more affordable for their clients as Filipino phone brands and even smaller second-hand phone retail stores latched on to the rise of Facebook.

Thus, in 2017, CARD Bank shifted to internet-based client-initiated mobile banking.

The second half of their two-fold response to the challenge.  

CARD Bank realized that even with these recent developments, there are those who still struggle in accessing their financial services. According to an initial survey conducted, 35% of CARD Bank’s clients either don’t own smartphones or find it extremely difficult to learn the new technology.

So CARD Bank examined each barangay and identified their clients who have entrepreneurial energy. They gave them a business proposition: “Earn on the side by using your smartphones to help the rest of CARD Bank’s clients access our services.” 

In this setup, the 35% of CARD Bank’s clients can just easily seek the help of registered agents to help them for a very small fee. CARD Bank usually has one agent in each community for this “agent-assisted ” approach.

And it worked. Now, most of CARD Bank’s client communities are doing their transactions digitally, whether it be client-initiated or agent-assisted.

Okay, now CARD Bank has a more efficient system, but won’t their employees get displaced by the technology?

This is a common fear voiced out by microfinance institutions as they explore digitization. They fear for the unemployment of their account officers who, in the traditional setup, go to one community after another to collect payments and facilitate financial transactions for clients.

CARD Bank’s response was simple, “Let’s redesign their role. ”

With technology doing the payment collection and other financial transactions, the role of CARD Bank’s account officers needed to evolve. And it did. Now CARD Bank’s account officers teach financial education for communities, recruit and onboard new clients, facilitate community meetings, and conduct loan validations.

Instead of displacement and unemployment, CARD Bank proved that transitioning to digital even adds greater value to the roles of their current employees.

Interested in going digital too?

Great! We, in RestartME, created a briefer that compiles all the different services that microfinance institutions can avail as they explore digitization.

To give MFIs an even more detailed illustration, we interviewed one of CARD Bank's partners, Ayannah. Mr. Neil Palteng, Ayannah's Senior Product Manager walked us through the different services that their company offers to help microfinance institutions build up resiliency.

Ayannah piloted an alternative credit scoring system to help facilitate loan applications and validations for the Philippines’ unbanked population. This uses repayment history, bills payment, load history, and other behavioral data to assess the credit worthiness of any potential client that MFIs may have.

Aside from this, Ayannah also offers digital payment options. Clients can use Ayannah’s payment network to send money and withdraw remittances. Similarly, microfinance institutions can release their loans to Ayannah’s partner networks to disburse.

And here’s what’s revolutionary: Instead of just limiting “payment network” to pawnshops, money remittance centers, and Bayad centers, Ayannah now partners with drug stores, gasoline stations, hard wares, salons, groceries, sari-sari stores, and even merchandise stores to facilitate digital payment transactions for their clients.

Just like CARD Bank, any microfinance institution can make the entire experience convenient, time-saving, and affordable for their clients through Ayannah.

And guess what’s even better?

Ayannah creates application prototypes that map the client journey and pain points for MFIs and their clients. And if these prototypes don’t need much customization, Ayannah provides them free of charge!

To know more about your options, RestartMe compiled a good list for you to read.

Digitization is a huge shift. It’s okay to be uncertain. Transitioning can be overwhelming. So, what’s the first step?

Mr. Palteng was part of a microfinance institution before he joined Ayannah’s team. His perspective from both the MFI and service provider places him in a unique position to give advice.

Here’s what he said:

For MFIs who are just “testing the waters,” they can set up a separate team to lead this innovation and a separate portfolio to experiment with. An institutional shift might be difficult to grasp but having a pilot program as the first step can make it more manageable – slowly, but with evident successes. CARD Bank underwent the same process; they started with a core banking system first, integrated payment channels after, then figured out the rest as they moved forward over the years.

And it worked!

The journey isn’t perfect, but the challenges they encountered along the way made them more resilient moving forward. Most especially during this time of pandemic where our resilience is tested by our ability to adapt.

Let’s make digital happen.