Data based management of clients and staff was the focus of Week 7 @ Boulder Digital Transformation of MFIs

Data based management of clients and staff was the focus of Week 7 @ Boulder Digital Transformation of MFIs

This week’s module was about “Data based management of clients and staff” and was presented by Dagoberto Cereceda, Technology Manager at Mypedigital Lab.

Dagoberto Cereceda introduced the module by reminding some ground principles on the microfinance industry: it is still very product oriented and not so much client oriented, customer segmentation is still rudimentary (there is often no differences in the way of servicing customers from agriculture, trade, production, services, etc.), product offerings are mostly mono product (credit and/or insurance). In addition, very few MFIs have product offerings that incorporate payments methods, and the development of remote customer service channels is still in its infancy.

Yet, it is crucial for MFIs to digitalise and rapidly adapt, because market conditions are evolving very fast. In the past 30 years, millions of micro entrepreneurs have been banked. Hundreds of thousands of micro entrepreneurs have been evaluated and have been granted loans, so they now have records in credit bureaus with years of history and behaviour data. This means that many micro entrepreneurs who used not to be creditworthy are now clients of banks and even retail companies. They are also increasingly able to negotiate rates and terms.

Another major trend is that today’s young urban micro entrepreneurs, or at least some of them, are very familiar with technology. Many shop online, use Uber for business and personally, hire Netflix or Amazon, etc. This opens doors to new opportunities and markets, but this also means that serving customers “the old way” will not be a viable in the long run.

To adapt, MFIs need to:
(i) Reorient their institutions from product oriented to client oriented;
(ii) Develop a multi-product offering (beyond just insurance and credit), including payment methods and multi channels. It is essential for MFIs to develop financial products linked to the cash flow of the micro entrepreneurs’ business. Means to do that can include credit cards, checking or demand accounts, or savings accounts;
(iii) Move towards client segmentation and have products tailored to the needs of each segment. This notably requires to develop evaluation methodologies for each segment, to design products with payment schedules that are truly adapted to the real cash flows of clients and that respect the seasonality of activities, and to have specialised officers for each segment;
(iv) Promote digital transformation of their processes (back office, customer relationship, transactions…);

As for the last point, digital transformation can encompass many things: digitalising files (eliminating paper), introducing smartphone and PC features for loan officers, remote evaluations and pre-evaluations (for instance through a call centre or web form) potentially with the help of algorithms and rules, remote credit committees, mobile banking, digital contact with customers (through a web page, APPs, Whatsapp…).

At this stage of the module, Dagoberto Cereceda introduced a new concept to explain how MFIs can manage these very different digital components: one major move MFIs need to do is to develop – on top of a very efficient CORE banking system – a “customer management system”. The concept of customer management system was further explained at this stage: a system to manage all data, from all origins: call centre, CORE banking system, external sources such as the risk central, the rules engines…, and we went during the module through very interesting examples of MFIs using such systems.

Writer: Violette Cubier, grantee