2nd April 2019
Hélène Keraudren-Baube, Chief Financial Officer at the Grameen Crédit Agricole Microfinance Foundation, was granteed a InFiNe.lu complementary grant to attend the Harvard Busines School (HBS) – Accion Programme 2019 on Strategic Leadership in Inclusive Finance. The executive programme is taking place in Boston from April 1st to April 5th, 2019. Follow what Hélène is currently learning in her articles.
The Programme on Strategic Leadership in Inclusive Finance, run by HBS – ACCION, is an intense five-day course designed for professionals from the field of inclusive finance, to reflect on the advances, challenges, lessons learnt and future of inclusive finance.
Teachings are articulated around a series of case studies, which we prepare ahead of time and then discuss in small groups before a broader discussion is engaged in class time, with the full group, guided by an academic. “Our job is to make you think, not to give you answers”.
A recurring theme in many of the cases this year is “digital” – a thematic that keeps coming up, be it in terms of digitising operations to improve processes, providing cashless solutions to clients, using digital scoring systems, the arrival of digital financial services providers …
On Sunday, after spending 48 hours of intensive preparation for the case studies, I arrived on the HBS campus, and joined the 69 participants of this year’s session. We are from 32 different countries, and balanced representations from Africa, America and Asia – with an additional few of us from Europe and MENA region. We all come from a variety of backgrounds and lines of work: microfinance practitioners, investors and funders, fintech providers, regulators, etc. which makes it all the more interesting.
Day 1 – financial inclusion
Our first work session aims to introduce the theme of financial inclusion and define it. It involves a case study on Mastercard’s public-private partnerships in South Africa and in Nigeria where they introduced their cards in government programmes to (1) help channel government benefits in a cashless manner (South Africa) and (2) to provide ID to people that didn’t have it (Nigeria). The South African example can be seen as a success: it has enabled the government to reduce fraud and save on distribution costs, the beneficiaries receive their benefits directly on the card and save time, millions of South African households now have this card instead of cash. In a perfect world this could be seen as a promising stepping-stone to cashless, secured, instant transactions – hence be qualified as financial inclusion. But is this really the case? In South Africa, most clients cash-in their benefits, as they prefer cash (liquid), and find no real benefit to having the card. In Nigeria, very few people actually went for the ID cards, as the process to obtain them was quite tedious and cumbersome.
We come to observe that pushing technology does not lead to financial inclusion – in order to have maximum take-up, for inclusion to be effective, it should be about proposing solutions adapted to the end users, and if it is through technology then it must come along with the appropriate ecosystem.
Our first full-day schedule started with our small ‘living room discussion’, an interesting link in the case study methodology, in between the preparatory personal work and the full class session.
The theme for today was about the changes we’re seeing in the traditional microfinance sector, affecting the so-called incumbents. In some markets, we see moves towards mergers and acquisitions (case study on Peru), in others we see microfinance institutions having to adapt to (sometimes sudden and stringent) regulatory changes (case study on Bolivia) and more recently we see the arrival of digitisation as a new game changer MFIs have to adapt to.
In the M&A case, before even tackling the question as to whether the buying MFI should buy their main (and larger!) competitor on the market, there was a discussion around the very reason why that MFI was put on sale in the first place, and why it’s operations and profitability had declined in recent years. These were in fact the consequences of the main shareholder having taken on too much debt, and then pressuring the MFI to generate more return and more cash. This led the once prosperous flagship institution to decline, and eventually sell at a much lower value than would have been the case had they maintained the quality of their operations. Then when we look at the M&A operation itself, a smaller player merging with a larger (and somewhat weakened) institution, we see that the whole operation is about managing risks, not avoiding risks (which would have been my preferred option upon reading the case!), and this was indeed the best bet.
In the Bolivian case a new (and challenging!) banking law comes into force. And in examining how to comply with these new rules, we see the MFI in our case study remaining very focused on its mission and intent on not drifting in terms of clients, products or services, to manage their way around the interest rate cap. While this is indeed the more difficult way to address the question, in the end of the day this mission-driven focus and response, and the engagement of all the governance, enabled the MFI to succeed while remaining on its mission and its identity.
An interesting takeaway from this case was the importance of dialogue with the regulator. Rather than voicing frontal refusal, the MFI’s management chose to talk to the regulator, keep a dialogue going. While this does not lead the regulator to change their mind, it certainly helps build mutual understanding and avoid even worse regulatory swings from happening in the future. A smart approach.
Our final case study was on an incumbent facing the challenge of digitisation. How technology affects internal processes, product delivery, payments, credit scoring, … interesting discussion, helpful in clarifying digital implications for microfinance institutions, but it left me wondering: are the client’s needs still placed first? is interaction with clients preserved? is the question of responsible practices still integrated in the process? More on that in the coming days, hopefully.
Day 3 – Fintechs
We continued our journey in the weeklong programme with another set of cases, on the arrival of Fintechs in the landscape. I welcomed these case studies as a chance to delve into concrete examples of what to me was still a bit of a nebulous… fintechs.
In the Indian scheme, we see what started as a payments provider for mobile recharge quickly grow and diversify to provide digital payment services applicable to a wide array of services so as to touch as many areas of their clients lives as they could do. Their outreach is such that they have replaced cash in many daily transactions across a very broad spectrum and their brand name even became a verb ‘I PayTM-ed you’! A corollary to this is that, by doing this, they collect masses of data on their clients… OK, that is very attractive from a technological point of view, but what has that to do with financial inclusion? They do provide the opportunity to millions to take part in the economy, at an affordable price (for free, in fact!), and in an extremely convenient way. They are allowing millions to “create a digital footprint”. Are they about financial services or about big data?
This discussion opens many different questions… Allowing digital payments instead of cash was very useful, namely in the wake of demonetisation, but after cash came back into the system, many merchants actually returned to cash: what was the effective buy-in, in the end? Creating a digital footprint sounds good, but how do you ensure responsible use and treatment of client data? Moving from payment services to offering credit does favour access to finance, but isn’t a lot of this consumer loans?
In China, we had a look at a peer-to-peer platform, which was created at the crossroads of two unmet needs: funding needs by micro-entrepreneurs on the one hand and a mass of ‘investable assets’ from increasingly well-off and numerous middle-class Chinese individuals on the other. This creative project certainly did respond to both of these segments, whose needs were not met partly because of ill-adapted regulation. The platform managed to scale up very quickly, and reach millions. It went further than its initial model facilitating loans and savings, and developed an e-commerce platform, with access to credit. Again, we’re on the topic of “scraping data”, building digital history, providing easy loans digitally … which still raises questions on how to make sure these practices remain responsible….
While this company was well managed and reached out to many in a sustainable way, this case highlighted the need for regulation to catch up and to adapt. Peer-to-peer platforms boomed in China over the last few years, and many cases of fraud and Ponzi schemes happened. In fact, there were several thousand such platforms at one stage, several have collapsed, and now the regulator is seeking to clean up the sector and reduce the number to 100 licensed operators.
Fintechs are the disruptors of inclusive finance, as they create opportunities for those who didn’t have them, they change the ecosystem and they are able to scale rapidly. This indeed fits perfectly the definition of “disruption” that was given to us today. But I am concerned if we want to make them part of financial inclusion, then we must place the clients at the centre: watch out for client protection, watch out for true inclusion beyond gender gap or urban/rural gap, make sure to provide adapted products and services.
Author: Hélène Keraudren-Baube