It seems like every day you read about the launch of a new mobile money initiative in Africa, another DFS player entering the market, or how a bank is using new technology to push downmarket. Alongside this, over the last five years its clear that client expectations have changed. Online registrations, mobile loan applications, repaying using mobile money and TATs of under 24 hours are now considered normal by clients (and rightly so).
“Organisations that do not invest adequately in technological innovation incur a real risk of capitulation and disappearance.”
As a result, MFIs are increasingly concerned about how to retain their competitive edge, especially when they’re stuck on legacy core banking systems that haven’t kept up with the latest technical developments. In the recently published ‘Financial Inclusion Banana Skins’ survey 2016, respondents considered technology the fastest rising risk, moving its ranking from 15th to 4th in just two years, and up to 2nd amongst African respondents. As one anonymous respondent put it, “organisations that do not invest adequately in technological innovation incur a real risk of capitulation and disappearance”. Another commented “the biggest risks facing the industry today stem from the need to change and adapt quickly in order to keep up with the fast paced tech services now available in the market.”
Perhaps this is not surprising. Everyone is familiar with the phenomenal success of M-Shwari (now with 14m customers and Ksh90 billion of disbursed loans since launch). KCB-M-PESA has also grown rapidly since its launch last year (Ksh7.8 billion disbursed) while Equity Bank’s Equitel receives 80,000 loan applications a day and has so far disbursed Ksh8.5 billion. Showing how blurred the division is between MNOs and banking, Safaricom just hired the former Equity Bank Group director of payments Ronald Webb to head its M-PESA unit.
Outside of Kenya, this week saw the launch of MoKash from MTN Uganda, seemingly a replica of M-Shwari enabling individuals to save as little as Ush50 on their phone while borrowing up to Ush1m. And aside from the MNOs you have organisations like Branch and Tala who lend directly to individuals through smart phone applications assessing risk through online credit scoring. From an MFI’s perspective, its easy to see threats around every corner.
“It’s possible for MFIs to remain competitive and embrace new technology without breaking the bank.”
MNOs and VC-backed DFS providers have large budgets and don’t have to worry about existing legacy systems, branch networks or customer bases. This naturally gives them an advantage. All the same, it’s possible for MFIs to remain competitive and embrace new technology without breaking the bank. This is where organisations like Musoni can help. The Musoni System is a multi-award winning core banking system that is already integrated with the leading MMT services across Africa, includes an SMS module as standard, a tablet application aimed at loan officers, a mobile banking app aimed at clients, and credit scoring to help organisations make better lending decisions. All these modules are included as standard and at a fraction of the cost associated with new technology investments.
Our goal is to help financial organisations climb up the technology ladder, and in doing so transform the livelihoods of the unbanked around the world. What about the actual impact we’ve had on MFIs? Its early days but we consistently see rapid growth in client numbers and reductions in PAR within the first 12 months of adopting the Musoni System. A recent Mastercard Worldwide study into Musoni’s SMS module showed that it had the potential to reduce PAR by up to 50% in just three months, while a 2015 Accion case study on the Musoni tablet app showed improvements in loan officer efficiency of 68%, as well as an increase in income of $86k in the first year. When embraced properly, technology can lead to tangible improvements in efficiency and cost reductions. Musoni is now used by over 65 organisations across Africa, impacting over 300,000 end customers. In recognition of this achievement we won the BBVA Financial Inclusion Special Award in August 2016.
“How many times have we seen shiny strategy powerpoint decks so poorly executed that they become meaningless?”
Of course, adopting new technology is difficult, especially when you’re also changing processes or launching new products. To quote Graham Wright from Microsave, “how many times have we seen shiny strategy powerpoint decks so poorly executed that they become meaningless? The devil is in the details.” One way to improve the chances of success is to work with software providers who have a deep understanding of microfinance operations (our previous experience founding an award-winning MFI in Kenya now serving 40,000 clients has certainly proven useful each time we start work with a new MFI). Another is to work with industry leaders like the Helix Institute for Digital Finance who run an excellent course aimed at helping MFIs looking to adopt new technology. There’s no reason not to do both.
In the last 5 years the financial services landscape in Africa has changed beyond recognition. Its easy to treat the entrance of new players as a threat, but the eventual winners will be those who embrace the opportunities provided by the new technology available, and in doing so start making a dent in the 70% of people across the continent who still don’t have any access to formal financial services.