Upload
malia-bachesta
View
43
Download
0
Embed Size (px)
Citation preview
RAF and FRP PartnerLearning WorkshopRural and Agricultural Finance Learning Lab October 19, 2016Kigali, Rwanda
Business case for digitally-enabled smallholder finance context and framing
PLENARY SESSION 1
Business case for digitally-enabled smallholder finance
Context and motivation
Selected findings
Conclusions and next steps
Why are we talking about digitalization?
• Key learning question: What is the business case for rural and agricultural finance – what are the keys to business model sustainability?
• Role of non-financial institutions: how can fintech (technology providers) unlock growth of smallholder finance?
• Inflection Point finds that few providers are generating market returns; recommends partnerships but also raises whether technology can be a game changer
What do we mean by digitalization across value chain?
• ManageSHFdata(e.g.interactions,repaymentrates)
• SendSMS/mobilenotifications
• Deliversupportservices
• AnalyzeSHFdata(includingexternaldata)
• Communicateloandecision
Client acquisition
Loan origination
Loan analysis approval
Loan servicing monitoring
Loan repayment
Abilityofdigitaltoovercomechallenges
• Facilitateloandisbursement
• Facilitateloanrepayment
Digitaltools
• Fieldstaffequippedwithtabletsfordatacollection
• Mobileregistrationanddatacollectionplatforms
• GPStools
• Facilitatemarketinganddissemination
• Mobilemoneyandpaymentplatforms
• Mobilewalletstodepositsavingsandmanageaccount
• Datamanagementplatforms
• GPStoolstomonitorfieldofficers
• DigitalTAandothervalueaddedservices
• SMS/mobilemarketing
• Up/Crosssellingplatforms
Loan disbursement
Loan workout & recovery
• Facilitatecustomerregistrationandloanapplication
• Facilitatefarmerdatacollection
• Facilitatefollowupofoutstandingloans
RAFchallenge
• HighcosttoreachSHFsinruralareas
• SHFslackproductawareness/literacy
• DifficultandcostlytoregisterandcollectdataonSHFinruralareas
• LimitedunderstandingofSHFforassessment
• SHFlackcredithistory/collateral
• Highcoststodistributeloanfundsinruralareas
• Cashrisks(risksofholdingandtransportingcash)
• DifficultandcostlytomonitorSHFdata
• Highcosttocollectloanpaymentsinruralareas
• Cashrisks(risksofholdingandtransportingcash)
• Highcostsfollowinguponoutstandingloansinruralareas
• Mobilemoneyandpaymentplatforms
• Mobilewalletstodepositsavingsandmanageaccount
• Creditscoringplatforms
• SMS/mobileapprovalcommunication
Digitalcustomerrelationshipmanagement,incl.digitalmarketingandnotificationsDigitaldatacollectionandmanagement
Digitaldecisionmaking
Digitalcashflows
Digitaldeliveryofsupportservices
Digitaluses
• SMS/mobilenotifications
• Laythegroundworktodeterminehowdigitalizationcanenableproviderstomoreprofitablyandsustainablyservesmallholderfarmers(SHFs)
Goal
Objectives
• BuildaninitialknowledgebaseofthecurrentandprojecteduseofdigitaltoolsbyFSPsservingSHFs
• BegintoexploretheimpactofdigitalizationonthefinancialperformanceofFSPs
• Identifykeyconstraintstodigitalizationandareasofopportunitytoacceleratedigitalintegration
• Identifyrequirementsforbuildingoutamorerobustbusinesscasefordigitalizationoverthecomingyears
Study objectives: understand how FSPs use digital tools to improve performance in serving SHFs
Surveyed23FinancialServiceProviders
InterviewedSHFExpertsandDigitalServiceProviders
SpokewithmultipleMCFPartners1 2
3
• 4commercialbanks• 4bankmicrofinanceinstitutions• 7non-bankmicrofinanceinstitutions• 4agribusinesses• 3nichenon-bankfinancialinstitutions• 1mobilenetworkoperator
Thankyoutothoseofyouwhoparticipated!
Sources: FSP surveys, desk research, expert interviews
Surveyed firms grouped into 4 “digitalization profiles”
Lessthan1,000farmersserved
1,000– 10,000Farmersserved
10,000– 25,000farmersserved
25,000– 100,000farmersserved
Over100,000farmersserved
Legend
Creditonly
Prod
ucto
fferin
g
Digitalintegrationalonglendingvaluechain
Low High
End-to-Endfinancialsolution1
TraditionalMFIs.TraditionalMFIsleveragingdigitalforloananalysis
Agribusinesses.Agribusinessesleveragingdigitalpaymentsanddigitalizingdatacollectionandloananalysistoevaluatefarmerrisk
HighTechBanks/NicheNBFIs.HightechcommercialbanksandnicheNBFIsofferingfullydigitalfinancialservices.
CommercialBanks/InnovativeMFIs.InnovativeMFIsandcommercialbanksequippingfieldagentswithmobiledevicesandpartneringwithB2Bdigitalservicesproviderstoofferpaperlessandcashlessendtoendsolutions
Business case for digitally-enabled smallholder finance
Context and motivation
Selected findings
Conclusions and next steps
Loan analysis the start of the digital journey and support services the final frontier?
1. Customer Relationship Management includes Sales & MarketingSource: RAFLL Business Case Survey & Dalberg analysis
HighTe
chBan
ks
/Niche
NBF
IsCo
mmercialBan
ks/
Inno
vativ
eMFIs
Trad
ition
al
MFIs
Agri-
busine
sses
CustomerRelationshipManagement1
CustomerRegistration
LoanAnalysis CashFlows Delivery ofSupportServices
Organization 1Organization 2Organization 3Organization 4Organization 5Organization 6Organization 7Organization 8 N/A
Organization 9Organization 10Organization 11Organization 12Organization 13 N/A
Organization 14Organization 15Organization 16Organization 17Organization 18Organization 19Organization 20Organization 21Organization 22Organization 23
FullydigitalizedLessdigitalized
Notdigitalized
N/A Nosupportservicesoffered
Revenues more likely to cover costs, when the provider is digitalized?
1. Program associated costs refers to cost of funds, direct field operation costs, direct costs of nonfinancial support services, direct marketing and sales costs, and all other overhead and allocated program supportSource: RAFLL Business Case Survey & Dalberg analysis
Numberofsurveyrespondentsbycostscoveredbyloanrepaymentandfeerevenueandbyprofiletype
9%
67%
91%
33%
75%
25%
3 11
HighTechBanks/Niche
NBFIs
CommercialBanks/
InnovativeMFIs
TraditionalMFIs
34
Agri-businesses
Loanrepaymentandfeerevenuecoversoroutweighsallprogramassociatedcosts,orisexpectedtointhenext2years1
Loanrepaymentandfeerevenuedoesnotcoverallprogramassociatedcosts,andisnotexpectedtointhenext2years
DegreeofDigitalIntegration
+ -
HighTechBanks/NicheNBFIs
respondentsexcludestwoorganizationswhohaveyetnotrolledoutlending
products
Organizationsbelieveitwilltakeonaverage5-10yearsfortheirSHFlendingunittobecomeprofitable
Obstacles to incorporating digital relate to high upfront costs and lack of internal capabilities
Numberofsurveyrespondents(outof23)byperceivedobstaclestodigitalimplementationandbyprofile
2 13 2
21
1
21
11
6
7
8 7 6 4
2
13
11
1
8
Lackofcustomer
mobilephoneaccess
Highinitialinvestment
17
Lackofinternal
capabilities
11
Toodrasticofaprocesschange
11
Lackofknowledgeonbesttools
98
Lackofproofofvalue
Transactionfeestoohigh
9
HighTechBanks/NicheNBFIsCommercialBanks/InnovativeMFIs
AgribusinessesTraditionalMFIs
Cost-related InternalCapabilities CustomerEcosystem
Source:RAFLLBusinessCaseSurvey&Dalberganalysis
Business case for digitally-enabled smallholder finance
Context and motivation
Selected findings
Conclusions and next steps
Findings and partner feedback on FSP and DSP investment priorities
Taking digital further• Data analytics: to improve credit-scoring, increase reach, improve operational
efficiency, etc.• Broader and deeper use of alternative data in partnership with other data owners• Integration of internal and vendor systems• Using data, including user feedback loops, to increase understanding of farmer
needs• Creating customer-centric digital solutions that boost customer enrolment and
retention
Doing digital better• Track performance and financial returns, and build case for digital investment• Improved digital product/tool design: simpler interfaces for users and staff, more
flexible systems for FSPs• Innovative risk sharing between DSPs and FSPs.
Source: Workshop feedback; Dalberg analysis
Providerswanttoinvest…
Findings and partner feedback on barriers to growth and effectiveness of digitalization
…but facethesechallenges:
• Unclear ROI on investment in digitalization, especially given the high upfront costs, which hits smaller orgs particularly hard
• FSP internal challenges to adopting new technologies, from lack of technical proficiency requiring costly training and onboarding, to outright resistance by staff in some cases
• Enabling environment hurdles that cap the potential of some solutions, including regulatory limits on new uses of digital and underdevelopment of the mobile ecosystem
• Demand-side limitations including low digital literacy, and high cost of training end users
• Difficulty accessing or integrating data from external sources limiting innovation; reluctance to share data stems from uncertainty about: o Intellectual property rights, o Value of datao Data privacy best practiceso Iterative, trial-and-error technology development processes
Source: Workshop feedback; Dalberg analysis
Findings and partner recommendations on sector-level solutions
1. Investment orientation: An unbiased view of…a. What digital can and cannot dob. The landscape of technology vendors in key geographiesc. Pricing benchmarks on the cost of investment
2. Knowledge and tools to understand ROI, including a. Evidence base/quantitative data for where digitization has biggest bang for buckb. Models for measuring ROIc. Case studies of success/failure
3. Capability building and experimentation support:a. TA for DSPs and FSPs: building/using products and working togetherb. Digital literacy for end usersc. Policy-maker capability building around digitalizationd. R&D funding for innovations and risky technology investments
4. Industry-level guidelines or principles ona. Intellectual property rights for digital datab. Data privacy – balancing user protection and innovationc. Valuation of data (facilitated by specialist DSPs that can develop sustainable data
sharing models)
Sector-levelsolutions
Source: Workshop feedback; Dalberg analysis
More FSPs (6/7) who measured saw increased customers, than saw decrease in cost to serve (3/7)
Source: Survey of FSPs; Dalberg interviews with experts and DSPs
Digitalizationseentodrivevaluethrough
portfoliogrowth
Dataisthekeylevertoincreasing
FSPs’addressablemarketcostefficiently
Keylearnings
• Earlyevidencesuggestsportfoliogrowthisthekeyvaluedriverbehinddigitalinvestments
• PortfoliogrowthisparticularlyimportantforcommercialbanksandMNOswhichhavetighterinvestmenthorizons
• Alternativedataopensupnewmarketsbyunlockinginformationonborrowerspreviouslytoorisky/expensivetoserve
• However,thetypeofdatausedtodaycontinuestobelimitedandnotasrelevantforSHFlending
• Modelsthatown(oreffectivelyaccess)thedata tomakeSHFcreditsolutionsviablewillcapturethemostvalue
“Mostofthebenefitscomefromincreasingcustomerdeposits…foraleadingfinancial
institutionwehavebeenabletoincreaseactivecustomerbasedfrom12K-53Koveraperiodof18
months…Volumeiskeytorecoupingthedigitalinvestment”-DSP
“CommercialbanksandMNOstargetprimarilyportfoliogrowth”–DSP
“Dataopensnewmarkets..Weexpect[anMFI]toincreaseitsSHFportfoliofrom2%to8%byusing
ourdigitalcreditscoringservices”-DSP
“Data.Data.Data.Themoredataweareabletocapturethefurtherdownwecanget”–DSP
Summary
Digitaltechnologyserviceproviders(DSPs)reportonwhatthey’veseen:
DSP experience cont’d: cost savings for higher-touch business models, higher-risk farmers
Source: Dalberg interviews with experts and DSPs
Digitaltoolsdeliver
additionalrevenue
benefitsbyenablingcustomer-centricproducts
Costsavingsandportfolioqualitymoresignificantfor
highertouch/smallerorganizations
• DigitaltoolsallowFSPstomeetcustomerneedseffectivelyandimprovethecustomerexperience
• Customercentricproductsincreaseuserengagementandproduct“stickiness”,drivingrepaymentrates,repeatborrowing,cross-sellingandultimatelycustomerlifetimevalue
• Hookingcustomersiskey:SHFswhotakefirstloanwithanFSParelikelytocontinuetoborrowwiththesameFSP
• Highestcostsavingscomefromreducedcustomeracquisitioncosts
• Reducingcostsandfarmerrisksisparticularlysignificantforhighertouchinstitutionsoperatingintightmarginsorservinghigherriskfarmers
“Financialservices,ifdoneright,canbeextremelysticky.Youhavetolookatthefirstfinancialproduct
asmarketing,and thinkintermsofcustomerlifetimevalue.”
“[FSP]previouslytriedSMSrepaymentremindersthatdidn’twork.Usingourplatformtoadd
targetedinformationalcontentincreasedcustomerengagement.Webuildaffinityforthecompanywhichactuallydrivesusageandrepayment.”
“Wehadacustomerwhohadan11dayidentityverificationprocess;wetookitdownto22secondswithouthavingtosendpeopleouttothevillage”
“MFIsaremoreopentousingourtechnologybecausetheyarebeingpushedforprofitabilityand
wanttoreducecostsandhaveabiggerimpact.”
SummaryKeylearnings
Obstacles corroborated by DSP reports on challenges to close partnerships with FSPs
Highupfrontcosts
“Wearefacingacostproblem.It’squiteexpensivetogetabanktosetuptheplatform.Itcosts$16k-$70ktosetup,and$300monthlyperbranch”-DSP
Summary
Lackofinternal
capabilities
“Ourtechnologyistheunderwritingbuttouseityouneedthewholedigitallendingstackinplace.The
smallerplayersneedintegratedofferings…youreallyneedtoworkhand-in-handwiththem.That’saconstrainingfactor,wejustcan’taffordit”-DSP
• TraditionalMFIsandlesstech-savvyorganizationslacktheinternalcapabilitiestoimplement,integrateandmanagedigitaltools,andrequireintegratorstodigitalizetheircorebankingsystemsfirst
• ThehighupfrontcostchallengestheDSPs’abilitytoselltheirproductstoFSPs;highestforlowervolumeplayers/withoutdigitalprocessesinplace
Keybarriers
Lackofdigitalliteracy
• Risk-aversecommercialbanksrequireproofofimpact,butprovingthebusinesscaseischallenginginanascentfieldwhereprofitabilitydatahasyettobecollected
• Valueofdigitaltoolsdependentondigitalliteracyoftheendcustomer;digitalsupportservicesrequirehumaninteraction
• Goingcashlessrequiresmajorbehaviorchangeinnascentmobilemoneyecosystems
“Forfinancialliteracytraining,therehastobeahumancomponentsomewhere.Digitalizing
everythingisunrealisticgivenourtargetcustomer.”-DSP
Moreproofofvaluerequired
“CommercialBanksendupsaying‘let’sseemorenumbers,let’sseeatrackrecord.’Theywanttoseeatestedmodel.Thechallengeisbuildingthatmodel
cantakeyears.”-DSP
Source: Dalberg interviews with experts and DSPs