Digital Transformation

of MFIs in Bangladesh
Opportunities, challenges and
way forward

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 Background
In 2017/18 the United Nations Capital Development Fund (UNCDF) undertook the
first comprehensive review of micro-merchants in Bangladesh engaged in the retail
sector, particularly in Fast Moving Consumer Goods (FMCG) operating mostly in rural
areas.

About this
The Landscape Assessment of Retail Micro-Merchants in Bangladesh showed that
retail micro-merchants require access to financial services, and credit in particular.
Their need for financial services is high, and microfinance institutions are well-placed

report to meet the growing credit needs of micro-merchants. Micro-merchants predomi-

nately borrow from microfinance institutions. With the introduction of digital tech-
nologies, microfinance institutions have a new opportunity to further expand finan-
cial services to micro-merchants by embracing digital and mobile technologies in
their operations.

Keeping the micro-merchant market segment in mind, this report answers the ques-
tions of how and why microfinance institutions should make a switch to digital tech-
nologies to better meet their customers’ needs.

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Acknowledgments
This study was made possible by the Bill & Melinda Gates Foundation and by the European Union under the Poverty
Reduction through Inclusive and Sustainable Markets (PRISM) in Bangladesh programme.

This report was authored by Bhavana Srivastava, Ravi Kant, Ishita Tarun Sharma of MicroSave Consulting (MSC) with
support from Sivakumar Krishnan and Sonal Agrawal. We would like to thank our reviewers, Rajeev Kumar Gupta, Md.
Ashraful Alam and Ana Klincic Andrews of UNCDF. The views expressed in this publication are those of the authors and do
not necessarily represent those of the United Nations, including UNCDF and the United Nations Development Programme
(UNDP), UN Member States or their partners.

Design, layout and cover: UNCDF SHIFT SAARC in Bangladesh

Copy editing by: Beyond Jargon LLC
© UNCDF January 2019

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About the United Nations Capital Development Fund
UNCDF makes public and private finance work for the poor in the world’s 47 least developed countries. With its capital
mandate and instruments, UNCDF offers “last mile” finance models that unlock public and private resources, especially
at the domestic level, to reduce poverty and support local economic development. UNCDF’s financing models work
through two channels: financial inclusion that expands the opportunities for individuals, households and small businesses
to participate in the local economy, providing them with the tools they need to climb out of poverty and manage their
financial lives; and by showing how localized investments — through fiscal decentralization, innovative municipal finance
and structured project finance — can drive public and private funding that underpins local economic expansion and
sustainable development. By strengthening how finance works for poor people at the household, small enterprise and
local infrastructure levels, UNCDF contributes to the Sustainable Development Goals (SDGs), particularly Goal 1 on
eradicating poverty and Goal 17 on the means of implementation. UNCDF also contributes to other SDGs by identifying
those market segments where innovative financing models can have transformational impact in helping to reach the last
mile and address exclusion and inequalities of access.

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About MicroSave Consulting (MSC)
MicroSave Consulting (MSC) is a boutique consulting firm that has, for 20 years, pushed the world towards meaningful
financial, social, and economic inclusion. With 11 offices around the globe, about 190 staff of different nationalities and
varied expertise, we are proud to be working in over 50 developing countries. We partner with participants in financial
services ecosystems to achieve sustainable performance improvements and unlock enduring value. Our clients include
governments, donors, private sector corporations, and local businesses. We help our clients seize the digital opportunity,
address the mass market, and future -proof their operations.

About UNCDF SHIFT SAARC in Bangladesh

The Shaping Inclusive Finance Transformations (SHIFT) programme framework for the South Asian Association for Regional
Cooperation (SAARC) countries is a regional market-facilitation initiative of UNCDF aiming to improve livelihoods and
reduce poverty in SAARC countries by 2021. SHIFT SAARC seeks to stimulate investment, business innovations and
regulatory reform to expand economic participation and opportunities for women and help small and growing businesses
to be active agents in the formal economy.

SHIFT SAARC is currently implemented in Bangladesh where it has two major streams of work: 1) accelerating the uptake
and usage of digital financial services (DFS) to respond to the needs for greater digital financial inclusion; and 2)
enhancing the growth and competitiveness of retail micro-merchants through the “Merchants Development Driving Rural
Markets” project. SHIFT SAARC does this through growing the awareness and demand for DFS through communication,
advocacy and industry research. SHIFT SAARC also stimulates expansion of digital technologies for micro-merchant
segments by encouraging innovation and linkages between retail and financial services industries.

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 Executive Summary 07

Chapter 1: Background 12
Chapter 2: Current State of Digitization and Willingness to
Transform in MFIs in Bangladesh 24

Contents Chapter 3: Current Challenges Faced by MFIs

Chapter 4: Imperatives for Digital Transformation
31
35

Chapter 5: Future Digital Options 38

Option 1—Digital Field Application 39
Option 2—Cashless Disbursement 53
Option 3—Cashless Repayment 60
Option 4—Outsourced Database Management 68
Option 5—Core Banking Solutions 75
Option 6—Digital Credit 83
Option 7—Artificial Intelligence 93
Chapter 6: Regulatory Gaps and Policy Recommendations 109

Annex 1: Cases on various digital options 113

Annex 2: List of people interviewed 120

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Acronyms and abbreviations
AI Artificial intelligence
AMC Annual maintenance charge
AUP Association for Under-privileged People
BB Bangladesh Bank
BEES Bangladesh Extension Education Services
CBS Core banking solution
CRM Customer relationship management
DBBL Dutch-Bangla Bank Limited
DBMS Database management system
DBS Daridra Bimochon Shangstha
DFA Digital field application
DR Disaster recovery
ECS Electronic Clearing Service
FGD Focus group discussion
FAS Financial accounting system
FSP Financial services providers
GUK Gram Unnayan Karma
GUP Gono Unnayan Prochesta
HRIS Human resource information system
IVR Interactive voice response

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Acronyms and abbreviations
KYC Know Your Customer
e-KYC Electronic - Know Your Customer
LMS Loan management system
MFS Mobile financial services
MIS Management information system
MFI Microfinance institution
MNO Mobile network operator
MRA Microcredit Regulatory Authority
NACH National Automated Clearing House
NID National Identity Card
NLP Natural language processing
PAR Portfolio at Risk
RIC Resource Integration Centre
RLOS Remote loan origination system
RRF Rural Reconstruction Foundation
SRS Software requirement specification
SaaS Software as a Service
TAT Turnaround time

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 osh
b Gh
ono
C / Pr
BRA
to:
Pho

Executive Summary

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Executive summary
The microfinance sector in Bangladesh has seen unprecedented growth over recent decades. With time, however, microfinance
institutions have had to grapple with challenges that have affected their growth. Internal challenges include high dropout rates
among clients, increasing operational expenses, cash management and cybersecurity, among others. External challenges include
over-indebtedness among clients, MFI’s lack of access to Bangladesh’s National Identity Card (NID) database, and lack of credit
bureau for MFIs, among others. Further, restrictive regulations pose a challenge to the sector’s entry into the payment and remit-
tance systems.
Adding to these challenges, the financial services sector is changing rapidly. The entry of FinTech firms in Bangladesh and the
government’s aim to build an inclusive digital financial ecosystem have made it imperative for the microfinance sector in Bangla-
desh to move towards digital transformation. In this report, we elaborate on the status of digitization in the microfinance sector in
Bangladesh and explore technology options and next steps towards digital transformation.

Chapter 1 provides background on MFIs in Bangladesh, including regulations, initiatives and digital infrastructure.
Chapter 2 describes the current status of digitization in microfinance institutions. Key findings are as follows:
● A majority of MFIs have migrated to web-based, real-time loan management system (LMS) and a centralized database. This

provides a foundation for automation of MFIs.

● All MFIs surveyed for this study have financial accounting software and it is integrated with the loan management system.

● Most of the large and mid-sized MFIs have automated some human resources functions. Small MFIs are yet to integrate

these technologies at the back-end.

● A few of the surveyed MFIs (large and mid-sized) have been piloting digital field applications (DFA).

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● MFIs such as BRAC, Shakti Foundation and Sajida Foundation have rolled out pilot tests for cashless loan disbursements.
● Some of the large and mid-sized MFIs have initiated discussions with their technology service providers for DFA solutions, while
other MFIs have shown willingness to implement DFA. Small-sized MFIs, however, are not yet looking to utilize DFAs in their
operations.
● As for other options in the digital application spectrum, few MFIs have ventured into advanced technology integration. Only a
few of the MFIs surveyed have rolled out pilot tests for cashless loan repayments (Sajida Foundation) and savings collection
(BRAC) through mobile wallets.
● Most of the MFIs surveyed lacked awareness and willingness to explore emerging technologies such as digital credit and artificial
intelligence enabled tools.

Chapter 3 presents internal and external challenges faced by the microfinance sector in Bangladesh and the need for digital trans-
formation. Any future digital strategy must focus on countering these challenges and preparing for external variables. This report
focuses on various options of digital transformation as a way forward.
Chapter 4 identifies key pillars for digital transformation including digitizing processes, digitizing product and business models,
digitizing channels and digitizing customer engagement. Digital transformation must aim to solve the internal and external chal-
lenges faced by the microfinance sector. The impact can be measured in tangible reductions and increased profits.

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Chapter 5 features future digital options for microfinance institutions to explore. Depending on their preparedness and willingness,
the MFI can choose any or some of the digital options as per their digitalstrategy.

Basic Advanced

Loan management Financial Digital field Cashless disbursements Digital credit Artificial intelligence
system accounting & application and repayments enabled tools, CBS
central database HRIS

Future digital options:

1. Digital field application
2. Cashless disbursement
3. Cashless repayment
4. Database management
5. Core banking solution
6. Digital credit
7. Artificial intelligence enabled tools: chat-bots, credit risk assessment models, and robo advisors for financial advisory

This section elaborates in specific detail what these technologies entail, challenges that the MFI may encounter in their
adoption, cost implications, and global use-cases for the solutions.

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Implementation of digital solutions needs to be done through a well-thought-out exercise. MFAs face some common challenges in this
context:
1. Lack of IT capability in-house: Advanced digital solutions require deep technical know-how. Due to a lack of in-house expertise, firms
may have to look for technology partners to envision, design and implement such solutions.
2. Balancing high touch and low touch: Microfinance traditionally is a high-touch business, with constant client interactions. Digital
interfaces offer low-touch solutions, which minimize the cost and increase efficiency. Often, the trade-off is in losing the human
touch and thereby distancing customers. MFIs must be mindful to strike a balance between digital and human interactions.
3. Regulatory challenges: Digital payment systems and digital credit are often governed by country-specific regulations. For every
digital solution, regulations must be clearly understood and interpreted and planned.
4. Transition: Digital transformation will ensure a lot of change in the organization’s systems and processes and also in the organiza-
tional structure. Even the most able technologies may fail if they are not integrated properly with the organization’s core values,
structure and human capital. An effective digital transformation strategy thus becomes critical.

Chapter 6 concludes the report. Here we put forward regulatory challenges that restrict microfinance institutions to streamline digital
solutions and align operations for the digital financial ecosystem. The section also covers policy-level recommendations and responsible
institutions that need to take charge of the action. Only with an enabling regulatory system can a digital financial inclusion ecosystem
operate and thrive.

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Chapter 1

Background
Objectives and methodology
Key DFS regulatory highlights impacting MFIs
Initiatives taken by the Government and Bangladesh Bank
Digital infrastructure in Bangladesh

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Background—Need for the study
Interventions since the late 1970s by the microfinance sector in Bangladesh have had a positive
influence on the low-income segment of the population. By FY 2016–17, MFIs operating as
non-governmental organizations (NGOs) had an outreach of 39 million clients and 32 million
outstanding borrowers. Currently, however, MFIs are facing internal and external challenges.
Competition from other financial institutions including commercial banks, mobile financial
service providers and financial technologies (FinTechs) has intensified in the low-income segment
market, making the situation more difficult for MFIs. This is an opportune time for MFIs to
upgrade their systems and processes in order to stay competitive in the market. Loan Disbursement (Tk. Billion) Total borrowers (Million)

MFIs have been facing challenges to their growth

Source: MRA statistical publication 2015, 2016
• When MFIs increase their outreach, they face challenges in ensuring efficiency in microfinance
processes, achieving a high level of internal control and providing better customer service. As a
result, many MFIs in Bangladesh are not able to offer need-based products to customers. Also,
they face challenges in risk management functions and optimizing staff costs. The MRA
statistical publication (2015, 2016) also suggests that growth in terms of the number of
borrowers of MFIs stagnated from 2012 to 2014.
• Demand from customers for loans has been growing. Loan disbursement in 2014 stood at
BDT 647.21 billion (US$ 7.67 billion) while in 2017 it was BDT 1207.53 billion* (US$ 14.31
billion), thus showing a compound annual growth rate (CAGR) of 23.11%. Assuming the
same CAGR for future growth, the projected loan disbursement in the next three
successive years would be BDT 1486 billion (US$ 17.61 billion), BDT 1830 billion (US$ 21.68
billion) and BDT 2253 billion (US$ 26.70 billion).
• MFIs lack a robust information technology (IT) infrastructure. This limits their ability to
offer various products and services to financially excluded segments in the remote parts
of the country.

*Source: Bangladesh Microfinance Statistics, CDF, 2016-17

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Future competition from other players in the market
• Agent banking and mobile financial services (MFS) enable banks to offer small-ticket-size products and services with a high degree of
cost efficiency even in remote locations. Banks can invest in high-end technology for transactions, and the partnership with mobile
operators increases the possibility of technology integration in financial services. Thus, banks will compete intensively with MFIs for the
same set of customers. Due to their better image in the market, banks can wean away customers from MFIs.

• Providers of mobile financial services such as bKash, Rocket and SureCash are targeting customers through innovative financial products
and services. They are also active in making partnerships with other financial institutions, including banks, to provide financial products
such as savings and loan product to customers.

Lack of innovation by MFIs

• Most MFIs in Bangladesh are not innovating sufficiently. They are still conducting business using traditional approaches and
methodologies. This can hinder efforts to move from the current level to the next level of horizontal and vertical expansion.

• In Kenya, digital credit lenders have begun to displace microfinance (i.e. good borrowers taken over by digital credit lenders). There is
also severe impact on the microfinance portfolio, as a result of credit juggling. Digital credit providers will eventually cream off the
high value customers leaving the lower value, less profitable customers in more rural locations with the MFIs.

• The strategic issues for MFIs are to a) safeguard their gains and b) carefully and strategically build their path towards the next stage.

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What do MFIs need to do next?
• MFIs have a huge advantage over other players in that they have customer data, innate customer awareness and local understanding.
Over time, however, they have become complacent in moving ahead. In a changing landscape and context, they need to re-invent to
remain competitive and to serve their client base better. Improved IT infrastructure will help MFIs to improve their efficiency in terms
of microfinance operations and manage vast human resources and other support functions.
• Institutions cannot work in isolation in the financial sector. Collaboration and competition happen at the same time, and are inevitable.
In the area of IT, for example, to reap deep dividends in the future, MFIs have to plan now, as it takes time to understand the technology
and onboard it in a systematic way. Institutions with advanced technology have internal readiness for technology integration with other
partners in the market. This would enable MFIs to serve their customers better.

• Global experience suggests that MFIs have benefitted as a result of digital transformation.

What does this study aim to achieve?

This study aims to:

• Explore the various possibilities and scopes of digital transformation for MFIs in Bangladesh.
• Highlight the opportunities andchallenges for MFIs undertaking digital transformation including investment requirements, benefits,
preparation, and their willingness to adopt digitization to enable them to more effectively meet the financial needs of low-income
people, business owners, women and micro-merchants.

• Generate recommendations for MFIs on the digital transformation approach.

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 Key research objectives

1 2 3 4
Understand the current Identify the challenges that Identify possible future digitaltransformation Identify the key
status of digitization of MFIs face options for MFIs: regulatory gaps and
MFIs in Bangladesh
policy recommendations
• Key benefits and business opportunities for for policymakers to
MFIs that adopt the respective digital
option drive digital
transformation of MFIs
• Key constraints in adopting the digital
option
• Approach of the MFIs in adopting the digital
option
• Willingness and preparedness of MFIs
• Costing or pricing of digital options

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A mixed-methods approach formed the basis of the research
Research Tools Sample Profiling
Classification of Surveyed MFIs
Quantitative In-depth Focus Group
Survey Interviews Discussions

Microfinance
Institutions

Technology
Service
Providers

Customers 30 customers Portfolio Distribution

Tool used for respective Tool not used for respective

stakeholder stakeholder

We also bring out global experiences in digital transformation:

• MFIs from India and Kenya
• Independent digital transformation and FinTech consultants

*7 MFIs – BURO, BEES, Rural Reconstruction Foundation, Sajida Foundation, Samakal Samaj Unnayan Sangstha, Daridra Bimochon Shangstha (DBS), GUK
** 9 MFIs - ASA, BRAC, TMSS, Shakti Foundation for Disadvantaged Women, RIC, MSS, GUP, AUP, Ambala Foundation

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 In-depth interviews included nine MFIs of Bangladesh.
• Top 10 MFIs —ASA, BRAC, TMSS, Shakti Foundation for Disadvantaged Women Research involved a cross-representative
• Top 11 to Top 25 MFIs — RIC, MSS selection of MFIs to ensure that MFIs
represent the microfinance sector in
• Rest of MFIs — GUP,AUP,Ambala Foundation Bangladesh.

In-depth interviews included two Indian MFIs and

international consultants.
• One large MFI — Sonata Finance Private Limited
• One mid-size MFI — Margdarshak Financial Services Limited
• Kenyan Microfinance Consultant
• Indian FinTech Consultant

The quantitative survey included seven MFIs of Bangladesh.

• Top 10 MFIs — BURO
• Top 11 to Top 25 MFIs — BEES, Rural Reconstruction Foundation, Sajida Foundation
• Rest of MFIs — Samakal Samaj Unnayan Sangstha, Daridra Bimochon Shangstha (DBS), GUK

Focus group discussions were conducted with clients of two MFIs.

• BRAC
• Shakti Foundation

*Source: Bangladesh Microfinance Statistics, CDF, 2016-17

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Key regulatory highlights for MFIs
Mobile financial services regulations with regard to MFI:
• According to MFS regulations of 2018, NGO-MFIs are eligible for engagement as distributors, super agents and retail agents and
field-level service delivery agents of MFS providers. This allows them to operate in any geographical location in Bangladesh.
• MFS providers can act as agents of NGO-MFIs to disburse microfinance loans and accept repayments..
• MFIs can partner with banks to set up an MFS entity with at least 51% of the share held by the bank.
• The cash withdrawal limit from mobile account is low. According to MFS regulations as of 2018, “for any cash in transaction in a certain
a/c, not more than BDT 5,000 can be withdrawn from that a/c within next 24 hours.”

MFIs are not a part of the payment system.

• MFI clients cannot send or receive money to/from their relatives or other persons having savings accounts in banks and other financial
institutions.

The MRA does not have IT policy or guideline forMFIs.

• Microcredit Regulatory Authority (MRA) regulations are silent on guidelines related to technology such as type of technology, data
protection, cybersecurity, disaster recovery plan, etc. that would be maintained by MFIs.

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 MFIs can offer range of loan and savings products.
• MFIs can provide loan products such as group loans and microenterprise loans for various purposes. However, the size of the
microenterprise loan can not be greater than half the size of total loan portfolio at any given time.
• MFIs can offer savings products such as compulsory deposit, voluntary deposit and term deposit. The total deposit balance of MFI
can not exceed 80% of the principal loan outstanding at any given time.

Agent banking:
• MFIs can become Master Agent of the bank and offer agent banking services to customers.
• As Master Agents, MFIs can open bank accounts and will be responsible for all works done by their authorised representative(s).
• Agent outlets of MFIs will ensure appropriate banking services to their customers.

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Initiatives of the Government of Bangladesh and Bangladesh Bank
have helped enhance the digital infrastructure of the country
Digital FinancialServices SmartNational Mobile financial Payment system
Agent banking
(DFS) Lab Identity services

• DFS is a joint initiative • The Government of Bangla- • According to Bangla- • Bangladesh Bank has
desh, along with the
• Bangladesh Bank drafted
of Bangladesh Bank and desh Bank (Annual prudential guidelines on established payment
the a2i programme of Election Commission, has systems with a long-term
Report 2016– 17), new agent banking in 2017 to
the Prime Minister’s been working towards strategy. The bank’s
financial instruments increase access to the
Office,Bangladesh. scaling up the outreach of Payment Systems Depart-
based on information unbanked and under-
Smart National ID cards ment (PSD) has been
• It aims to play a and communication served population.
(NID) in Bangladesh. working for the develop-
technology (mobile
catalyticrole in the Bangladesh Bank plans to • 17 banks have received
development of low- banking) have ment of country’s payment
utilize the NID to identify approval for agent
cost, interoperable changed the systems since 2006.
individual and update all banking services. The
digital payment landscape of
types of account opening number of bank agent • Bangladesh Bank has
systems, particularly in financial services.
requirements. outlets as of March 2018, introduced electronic funds
underserved rural 2017 was 5,791 catering
areas. • Financial institutions can • MFS has generated transfer, real-time gross
opportunities for the to a client base of 2.02 settlement, mobile
benefit from using the NID,
• It fosters innovation a poorto access these million. The total financial services, e-
as this will support them to
range of pro-poor services in both rural balance of these commerce, m-commerce,
verify individual identity
financial products and and urban areas. accounts was $322 national payment switch,
while performing financial
services. million in March 2018. and a legal and regulatory
transactions.
framework.
• The Election Commission
target is to distribute 90
million NID cards by
December 2018.

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 Bangladesh digital infrastructure at a glance
Mobile phone penetration Status of MFS
18 banks permitted to offer MFS
87% Total SIM connections
66.74 million registered clients
51% Unique mobilesubscribers
862,103 agents operational
21% Unique mobile internetsubscribers 31.45 million live accounts
59 6,865,612 average daily MFS
Banks in Bangladesh transactions

10,135
Status of agentbanking
Status of financial inclusion ATMs

50% Adults (aged over 15 years) remain unbanked 17 banks with agent banking services

30% Gender gap in account ownership 5,791 agents operational

2.02 million active accounts

Sources: Findex 2017, Bangladesh Bank, Intermedia, GSMA

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Digital financial services ecosystem is emerging in Bangladesh

Note: Bangladesh Bank has issued regulations titled "Bangladesh Mobile Financial Services (MFS) Regulations, 2018".
The new regulations will replace the previously issued "Guidelines on Mobile Financial Services for the Banks".

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Chapter 2

Current state of digitization

and willingness to transform
in MFIs in Bangladesh

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The majority of the surveyed MFIs have migrated to a web-based
real-time loan management system (LMS) and centralized database

75% 81%
of the surveyed MFIs are using a real-time, web- of the surveyed MFIs are using a loan
based loan management system with a centralized management system provided by a third-
database party service provider

• The LMS solutions used by most MFIs are those developed by

• Almost all the surveyed MFIs, except a few large ones third-party service providers such as Datasoft, Grameen Com-
(ASA, BRAC, Sajida Foundation), are using a web-based munications and Benchmark. However, some of the large MFIs
and real-time loan management system with a such as ASA and Shakti Foundation have developed in-house
centralized database. BRAC and ASA aim to achieve LMS due to the following reasons:
100% migration of their branches to a centralized • MFI is able to obtain desired changes in the software
database by June 2019. in a cost-effective manner.
• MFI plans to sell its software to other mid-size and
• Loan management system solutions used by most MFIs small MFIs.
have an MIS dashboard. The MIS is able to automatically • Most of the large and mid-size MFIs showed reluctance to keep
pull data from other applications, such as the financial their data on the cloud on servers external to the organization.
Yet they do not have adequate systems in place for data
information system and human resource information
backup, data security and disaster recovery. MFIs whose man-
system. However, the MIS does not generate a graphical agement teams have exposure and awareness about the
dashboard* in approximately 50% of the surveyed MFIs. benefits of cloud backup solutions have initiated discussions
with the solution providers in this regard.

Note: *A graphical dashboard helps management to understand and analyse the issues through data visualizationand therefore helps them make faster decisions.

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Only a few of the surveyed MFIs have started implementing digital
field application (DFA) for loan origination and collection

18%
• At present, most MFIs have not deployed a DFA solution.

• Only 3 of the 16 surveyed MFIs (BRAC, Rural Reconstruction Foundation and Sajida
of the surveyed MFIs have Foundation) have rolled out pilot tests to use DFA for loan origination in some of their
been implementing DFA branches.
• BRAC has implemented the DFA module for loan repayment across most of its branches.
Sajida Foundation also plans to merge its financial advisory app with the loan origination
app to provide their field officers with a single tool to manage both credit and saving
products.
• Nearly all surveyed MFIs showed a willingness to implement DFA for client registration,
loan application processing and collections — with the exception of a few smaller
institutions. Some MFIs have already initiated discussions with technology service
providers for DFA solutions.

• Senior management of most of the small-sized MFIs lack awareness and understanding of
DFA and have no future plans or strategy to move.

• MFIs who have rolled out pilot tests have opted for both offline and online functionality
in their DFA.

“The cost of implementing DFA is high. The cost of hardware such as a mobile phone or tablet will be too high for us. Purchasing it for all
the frontline field staff members will be a huge cost for MFIs.” --Senior management of a large MFI

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A few MFIs have rolled out pilot tests for cashless loan
disbursements and repayments, and savings collection
Cashless loan disbursement:
MFIs such as Sajida Foundation and Shakti Foundation have rolled out pilot tests for cashless
Only 19% loan disbursements in two ways:
• Mobile wallet: Disbursement of the loan amount in mobile wallets of customers
surveyed MFIs are doing a such as bKash or Rocket.
pilot test on cashless loan • Bank account: Partnership with a commercial bank such as Bank Asia to register
disbursement MFI branches as agent banking outlets. Loans are disbursed directly into the bank
account of clients.
Cashless disbursement* in mobile wallets suffered a setback after Bangladesh Bank issued
guidelines on daily and monthly transaction limits. For a customer making several visits to
a mobile banking agent or ATM to cash-out her loan from mobile wallet, this contributed
to a poor customer experience.

Only 19% Cashless loan repayment:

Only a few surveyed MFIs such as BRAC, BURO and Sajida Foundation have rolled out pilot
surveyed MFIs are doing a pilot
tests for cashless loan repayments through mobile wallets in some of their branches
test on cashless loan repayment
Savings:
BRAC and Sajida Foundation have rolled out pilot tests for savings collection through mobile
wallets in some of their branches.

* Note:Shakti Foundation introduced cashless disbursement in the mobile wallet.

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Other technology initiatives undertaken by MFIs

100% • All the surveyed MFIs have financial accounting software and it is integrated
with the loan management system.
surveyed MFIs have financial
accounting software
• Most of the large and mid-sized MFIs have HRIS software that contains payroll,
leave management, recruitment and performance management. For the most

81%
part, small-sized MFIs have not automated their HR system and do not have
HRIS.
surveyed MFIs have HRIS
software • Some of the large and mid-sized MFIs use asset management and/or inventory
management to manage their vast operations. Small MFIs do not have such appli-
cations.

38% • MFIs such as Bangladesh Extension Education Services (BEES), Rural Shakti
surveyed MFIs have other applications, Foundation send Reconstruction Foundation, Sajida Foundation and
such as inventory management and transaction-related SMS to clients (pilot stage).
asset management

Some of the large and mid-level MFIs are developing or planning to integrate all applications such as FAS,
HRIS and inventory management with LMS through a single sign-on facility.
Note:*Shakti Foundation introduced cashless disbursement in the mobile wallet

28 SHIFT
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MFIs are on a digital journey, and are yet to explore emerging technologies,
such as artificial intelligence-enabled tools and blockchain

30% of • Most MFIs lack awareness of the concept of digital credit. They doubt the relevance of digital
surveyed MFIs credit due to low literacy levels of clients.
showedinterest
in exploring • Some MFIs understand the potential of digital credit as a unique loan product to target
digital credit in unreached customers for micro-credit and micro-enterprises. MFIs such as BRAC have explored
future alternate lending to target new customer segments. These models are currently being piloted
in collaboration with FinTech or mobile financial service providers.

Alternate lending model: an example from BRAC

BRAC is conducting a pilot test on an alternate lending model. It is in a nascent stage at present. The MFI is targeting
customer segments that have requirements for micro credit. However, they cannot be served efficiently through tradi-
tional models. BRAC has joined with a start-up that provides business development support to entrepreneurs to sell their
products on Facebook. BRAC provides digital credit to these entrepreneurs through the technology platform supported
by the start-up company. The loans are sanctioned automatically using the algorithm developed by the start-up and
disbursed digitally in the bKash wallets of these entrepreneurs. BRAC receives repayment through the start-up from the
sale proceeds of these borrowers. BRAC’s management feels that digital credit is a powerful tool to come up with new
product lines to serve customer segments excluded from the traditional microfinance model.

“ If we ask customers to apply for loans through mobile apps or SMS, customers will tell us why are we harassing them.” —Senior Manager, TMSS

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 • Most MFIs do not have plans in the near future to explore emerging technologies such as
artificial intelligence enabled tools like credit-scoring, chat bots, robo-advisors and
77% Blockchain.
of surveyed MFIs
have no plans • Only a few large-scale MFIs (BRAC and Sajida Foundation) have been exploring usage of data
analytics and big data to develop credit-scoring and financial advisory models.
for AI
• Most of the surveyed MFIs either consider blockchain not relevant to the microfinance sector
or believe that it is too early to explore it, as they are unable to find a use-case in
Bangladesh. Most MFIs are not aware of the concept, functionality and use of blockchain.
• Discussion with technology service providers revealed that they do not have experience of
working on blockchain technology as it is a recent innovation. Moreover, the absence of a
regulatory framework for use of blockchain technology by financial institutions contributes to
the “wait and watch” stance of the MFIs.
• MFIs need to keep up with innovations such as blockchain and artificial intelligence, or else
they will have to catch up.

“As of date, there is no use-case for blockchain for bank and MFIs. Therefore, do not see any takers for blockchain technology in Bangladesh in the near
future.” — CEO, Data Edge

30 SHIFT
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Chapter 3 osh
GGhhosh
o
n b b
Pro no
ACC/ / Pro
R
B A
to: : BR
PPhhooto

Current Challenges Faced

by MFIs
This chapter highlights the common challenges faced by MFIsin Bangladesh.
Chapter 4 explores how various digital options can help MFIs overcome their
internal and external challenges and remain relevant infuture.

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MFIs face several operational challenges that lead to inefficiencies
and high costs.
Centre meeting has Gaps in the existing
Cash management Documentation level
become collection technology
poses a challenge is high
meeting

• Usually, centre meetings* take an • Cash management is a human- • The majority of MFIs continue to • Significant enhancement in
hour or two to complete. These intensive activity in microfi- capture client information through the existing technology is
meetings have changed over nance programmes. Operations paper-based forms which are then
needed for data encryption,
time, and are now merely ranging from disbursements to fed into an MIS solution either at MFI
version control, change
collection meetings as members branches or at a centralized data-
repayment collections are management process,
repay their loan installment and entry hub.
conducted in physical cash. backup process and avail-
immediately walk away. There is • Clients have to submit a number of
This results in low productiv- ability of disaster recovery
little if any discussion among documents to apply for a loan, e.g.
ity, leakages, fraud and other site.
members on relevant issues. identity proof, address proof,
Attendance is also low during the operational risks. There is also
photographs of self, spouse and
centre meetings. It can be a huge risk to the lives of staff guarantors. Business loans require
inferred that members do not see members who manage cash in proof of business, ownership of
much value in attending centre bulk quantities, which makes house or business premises, etc.
meeting apart from making loan them targets of armed • High documentation requirements
repayment and applying for the robbery. result in high turn-around-time for
next loan. loan disbursement and also lead to
high cost of stationery, storage and
• * Borrowers are organized into small transportation that increase opera-
groups, with several groups per centre tional costs.
“One of the challenges with the in-house IT teams of the MFIs is that they start developing a software or application without a holistic understanding of
benefits and challenges of the new system. ” ― General Manager, BRACMicrofinance

32 SHIFT
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Technology constraints further limit their growth

Cybersecurity is low High operational cost for MFI Gaps in the existing technology

• Most of the MFIs that maintain their own • Historically, microfinance field operations • Significant enhancement in the existing
data centre do not have a disaster recovery have been human intensive, making it technology is needed for data encryption,
centre. They usually maintain data backup inefficient and prone to redundancies. This version control, change management
at the data centre,which is located on the limits the MFIs’ ability to scale-up and makes process, backup process and availability of
same premises. In case of disaster or any them vulnerable to sub-optimal service, risks disaster recovery site.
unforeseen situations, these MFIs run the and fraud.
risk of losing their entire database.

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Regulatory limitations have impeded the digital transformation of
MFIs
Multiple borrowing and Lack of access to national Low cash withdrawal MFIs are not a part of
over indebtedness identity database limit at the agent point payment system
(MFS)

• According to a study by Khalily • MFIs do not have access to the NID • According to MFS regulations as of • MFI clients are not able to get full
and Faridi (2011), around 31% of database to help them check the 2018, “for any cash in transaction benefits of products offered by
individual MFI members reported authenticity of clients information in a certain a/c, not more than MFIs, as in savings products, for
multiple memberships in 2009. and reduce fraudulent activities. BDT 5,000 can be withdrawn from example, as MFIs cannot partici-
The trend of multiple member- that a/c within next 24 hours.” pate in payment systems of the
ships has been increasing over the • This often leads to a poor country like banks do.
years. selection of members. • This limit poses a huge challenge
for MFIs who plan to make use of • FinTech could become a potential
• Bangladesh does not have a credit MFS channel for loan disburse- threat in future.
bureau for MFIs, which has also ments, as many clients want to
aggravated risks of over- indebt- withdraw the loan amount on the
edness. same day.

• MFS loan repayment transaction

charges are high. The customer
has to pay transaction fee up to
2% of the transaction amount.

34 SHIFT
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 osh
b Gh
ono
C / Pr
RA
Chapter 4 Pho
to:
B

Imperatives for Digital

Transformation

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Digital transformation is essential for MFIs to remain competitive
and better serve their clients
MFIs have an edge over new digital entrants in terms of stronger connection with customers, innate customer awareness and human
touch. MFIs also have an advantage as they operate within a defined regulatory environment, which though fraught with
limitations, has enabled their growth in the last several years. If they transform digitally, they have a high chance of retaining or
even enhancing their market share and coping with their challenges. Digital transformation is no longer an option for the
microfinance industry if they do not wish to become obsolete.
MFIs can undertake digital transformation in four ways

Digitize product and business models

1 2
Digitize processes
Digitizing a number of repetitive Digitization for fostering innovation
and low-risk processes across products

Digitize engagement with people Digitize channels

Technology can increase Leverage technology to digitize
connectivity with customers and
employees
4 3 traditional distribution channels

36 SHIFT
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FINANCE TRANSFORMATIONS
Future digital option (suggested) Pillar for digital transformation Challenges it aims to solve

Staff efficiency, turnaround time,

Digital field application Customer engagement operational expenses, documentation
process, client turnover

• Cashless loan repayment Cash management, operational expenses,

staff fraud
• Cashless loan disbursement Process and channels
• Cloud database management Cybersecurity

Competition from FinTech, Operational

• Digital credit expenses, new/unreached client segments
Product and business model
• Core banking system
MFI clients are not able to get full benefits of
savings product

Artifical intelligence Operational expenses, client turnover, credit

Process and customer
underwriting through credit scoring model
engagement

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 Chapter 5
Future Digital Options
Option 1—Digital Field Application
Option 2—Cashless Disbursement
Option 3—Cashless Repayment
Option 4—Outsourced Database Management
Option5— Core Banking Solutions
Option 6—Digital
6—Digital Credit
Option 7—Artificial Intelligence

38 SHIFT
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 osh
b Gh
ono
/ Pr
AC
to: BR
Pho

Chapter 5
Option 1—Digital Field Application

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DFA overview
Digital field applications (DFAs) are designed to digitize the workflow. A DFA can be used to support activities such as savings mobilization, social impact
measurement and insurance coverage, with their initial usage focused on credit offerings.
DFA solutions comprise: DFA overview
(i) A front-end data capturing application that runs on
tablets and/or mobile phones;
(ii) Back-end database hosted on web-servers. The mobile
application is usually built on the Android mobile
operating system.

DFA attributes

Use of front-end device (mobile/tablet)

Both offline/online modes

Operational/field processes digitized

Document capture and upload facility

Minimal use of paper

Real-time update with Head Office and Branch

Source: Digital Field Applications: Case Study – Channels & Technology, Accion, 2015

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• Loan officers, branch managers and other field staff use front-end applications for lead generation and loan application processing
of prospective and existing clients.

• Several features in DFA are more effective if it is a real-time solution. As an additional feature, DFA also has offline data capture
capability. This allows information to be captured with no/poor data service and MFIs to serve their customers hassle-free.

DFA is widely used by MFIs in India Digitize operational or field processes

In India, with additional modules, the DFA back-end has also been
used for:

• Electronic Know Your Customer (e-KYC) verification

• Credit bureaus to track the loan history of thecustomer

The additional modules are connected to an MFI’s MIS through a

digital integration layer (API integration). Similarly, if required,
repayment details can also be captured using the DFAplatform.

A large number of MFIs (Cashpor, Margdarshak, Sambandh, Sonata

Finance, etc.) in India have been using DFA.

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DFA—Benefits and business opportunity for MFIs
MFI Client
Cost savings Efficiency improvement Other benefits

Reduction in data entry Digitization can lead to Client photographs and ID

effort potentially leading Reduced TAT automated credit scorecard copies not required with
to a reallocation of human development as all client digitized KYC
resources data available

Improved enforcement of
Reduced data entry Caseload improvement controls and policy (reduced
hardware - PC and fraud, portfolio at risk including Reduced loan TAT and
scanning equipment regulatory compliance for KYC improved customer
and credit bureau checks) experience

Increased geographic
coverage (loan officers can Options to use GPS data for Faster loan approval and
Reduced stationery and faster notification of loan
travel further due to both client and staff location
file storage rejection
decreased branch-visit monitoring
requirements)

Reduced transportation Potential for automated Additional data and Fewer follow-up visits
costs associated with decision with credit-scoring monitoring, i.e. social required to collect
multiple visits performance measurement missing application
collected at a lower cost documents

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 MFI
Cost savings Efficiency improvement Other benefits
Reduced need for multiple credit Credit bureau look-up in field reduces Support for loan officer training with
bureau look-ups the time spent with potential borrowers tools that assist with credit analysis
who don’t meet basic criteria

Stronger controls at the point of data- Loan officers feel technologically savvy
capture reduce the need for multiple and show pride in their work. The DFA
visits to clients often improves their working conditions
by requiring fewer visits to the branch
and less paper to carry.

Reduce the risk of client data in physical

forms loss due to natural calamities such
as flood, earthquake

Reduced risk of ghost accounts

SHIFT 43
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Risk involved in the adoption of DFA A lack of strategic direction,
lack of ability to understand
Making adoption proceed in a digital technologies and
structured manner and getting potential market disruptions
staff buy-in at all levels for
adoption of technology
Change management
Change management
Strategic
intent
There is a compatibility risk in
integratinga remote loan
Misuse of front-
Frontline staff members might origination system (RLOS) with
end device
mususe the front-end device (tablets/mobile LMS, especially in cases where
for their personal use. It would phone) Lack of the software vendor
require a high usage date compatibility implementing RLOS is different
plan, which would increase from the vendor who has
the operational cost to the already implemented LMS.
organization.
Lack of
resources
Lack of proper
SRS document
Lack of adequate budget
might delay the Lack of the software requirement
implementation of the DFA specification (SRS) document creates
doubts between service provider and
client (MFI)

44 SHIFT
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Risk mitigation to overcome risks in the adoption of DFA
Strategic objective and functional MFI can conduct exposure visit or
requirements of DFA should be identified in awareness workshop for MFIs to improve
close consultation with management, field their understanding of digital technology
staff, credit experts and options in the market.
risk analysts. Change management
Strategic
intent

Misuse of front- Formal document and agreement

Mobile device management end device needs to be developed with DFA
solution can be deployed to (tablets/mobile
solution provider specifying the
prevent misuse of front-end phone) Lack of detailed aspects related to
device and internet data by compatibility
integration before the development
the field staff. of solution. LMS solution provider
should also be consulted for
specifying the integration
Lack of
requirements.
resources
Lack of proper SRS
document
Detailed estimates of capital and
operational cost should be done
Detailed SRS document should be developed
before progressing with the
and provided to the DFA vendor to ensure
development of the DFA solution.
software meets both functional and
strategic requirements.

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Suggested approach for MFIs’ adoption of DFA
Key activities Details

The strategic objective of DFA should be identified by the management, field staff, credit
Strategic analysis
experts and risk analysts.
DFA should aim to improve the processes through the use of technology. The process mapping exer-
Business process map-
cise can help management decide if the required efficiency gains justify the investment in DFA.
ping
Handover of data entry responsibility from branch accountant or manager to field staff needs to be
carefully managed, making use of best practices of change management to get staff buy-in.
Create a data
collection plan
Identify champions within the field staff and work closely with them from the pilot stage to
Establish project man- rollout of the project. Appoint project managers who would coordinate within MFI and with
agement the vendor as well as report progress to the senior management team. Establish protocols for
protocols project governance, change management and escalation.
MFI should make a detailed analysis of the synchronization process in case it decides to work in
Cater for poor connec- both the modes, that is, offline and online mode.
tivity

Source: Digital Field Applications: Case Study – Channels & Technology, Accion, 2015

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 Key activities Details
Integration with LMS should be analyzed, designed and tested in consultation with the
Plan integration with LMS
software vendor that provided the LMS solution.
Data storage Management needs to analyze where and how to store data.

Cybersecurity Plan cybersecurity parameters in detail, such as the mobile device management
module, application and integration layer.
Vendor selection Give preference to the software provider who has a deep understanding of MFI operations.
Test whether the field staff members are able to capture data efficiently with the front-
Selection of front-end
device
end device.

Test whether the DFA application is working seamlessly on the front-end device such as
Software testing mobile or tablet.

Note: MFIs having LMS and centralized database that are real-time and web-based can leverage the benefits of DFA to its full potential.

Source: Digital Field Applications: Case Study – Channels & Technology, Accion, 2015

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 Software as a Service (SAAS) model (DFA)
Customization Monthly Mobile device
Support annual
Implementation Operating of software recurring management
Training cost maintenance
cost/set up system cost charges charges (MDM) -
charge
Optional
BDT 250,000 (US$ 2,963) to BDT BDT 12,000 to
750,000 (US$ 8,889) (negotiable) for a BDT 15,000
fixed number of client (branches/staff per person-
members. This needs to be paid to day
software vendor providing DFA solution.
Beyond the base license, which covers
a certain number of branches or staff Hardware
members, software vendor charges a cost Data centre hosting BDT 18,000 to 12–18% of the Around BDT
fixed cost for each incremental branch chargesfrom BDT BDT 25,000 annual payout 400,000
or user. Cost of one 50,000 to BDT per day of the monthly (US$ 4,740) to
smartphone/ 125,000 per month recurring BDT 600,000 (US$
Open source (OS Linux/Java/MySQL) at tabletranges for a fixed number Minimum 3 to charges 7,111) for base
no cost from BDT 7,000 of branches (base 4 days of number
to BDT 10,000 price) training
Oracle & Microsoft SQL will have Note: MDMrefers
license costs. This needs to be paid to to software that
the data centre in case data is hosted controls the
on the Cloud. usage of
Note: Set-up cost refers to the cost mobile/tablet
incurred by the vendor for installing or device by users
implementing the software application.

Source: Market intelligence

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Case: What do clients and employees have to say about BRAC’s
tablet journey?
BRAC started developing and pilot testing an android-based loan collection software in 2014 and officially launched it in2017.

Earlier process—manual data entry of New process―Data entry in tablet

collection

Key positive impact for the customers:

● Time savings: The time required to update the collection data of 20-25 members was reduced from two hours to 35 minutes.
● Instant update of data: Clients can view details of total loan installment, outstanding loan amount and savings information instantly without traveling to a branch. This has also
led to increased trust towards credit officers, as the customers can see their loan installment being credited in the tablet (menu in the tablet is also in Bangla).

Key positive impact on the staff:

● Reduction in workload: Credit officers simply scroll through a list of client names and input their installment amount; in the past, this required manual data entry for each
client and manual calculation using a calculator. Branch accountants save 4-5 minutes per client because they no longer need to enter collection data from collection sheets;
with the new software, data is automatically synced with branch accountants at the end of theday.
● Improved convenience: Branch managers use their tablet to access the data of all credit officers of their branch with a single click, and no longer need to carry several files
during monitoringvisits.
● Efficient credit decision making: In case of repeat loan customers, credit officers have access to customers' previous loan and savings transactions history with a single click,
which helps in calculating credit scores and advising loan amounts to customers.

Source: Focus Group Discussions with BRACcustomers

http://blog.brac.net/bracs-tablet-journey-revolutionizing-microfinance-operations-in-bangladesh/

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Case: Ujjivan achieved an increase in productivity of loan officers*

Country: India Total clients: 2.2 million

Regulatorystatus: Credit–only microfinance Loanportfolio: US $500million
Target clients: Individuallending DFAlaunch: May 2014
DFAprovider: Artoo

Primary objective of DFA: Impact

Reduce TAT for new loan and improve loan officerproductivity • TAT declined from 21 to 10 days for 68% of loans, and 38% of clients
Processes covered by DFA: received their loans within 7days.

The solution was designed to act as a customer relationship

management (CRM) tool helping Ujjivan manage all elements oftheir • Ujjivan benefited from a 134% increase in loan officer productivity,
customer interactions in the field and throughout salesprocess. which the management largely attributed to the DFA solution.
Client registration Decreased TAT allowed officers to serve more clients more
efficiently. Caseload per loan officer increased from 144 pre-DFA to
Loanapplication 337 post-DFA.
Businessanalysis
Credit bureauintegration • The cost of the DFA solution provided by Artoo was $237,017 in year
Social performance one; however, the increased revenues was $1,197,936 due to improve-
ment in efficiency andproductivity.
Reporting
Loan workflow
• Combining these costs and revenues, as a result of productivity
improvements, Artoo’s financial CRM solution generated a year-one
Solution overview: Android app paired with a web portal with ROI of $964,574 for Ujjivan.
both offline and online connectivityoption
Source: https://artoo.com/case-study-impact-of-digital-field-applications
Digital Field Applications: Case Study – Channels & Technology,Accion * Status of Ujjivan at the time of writing case study (September 2015)

50 SHIFT
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Case: A large MFI achieved a decline in TAT of loan disbursement

This decline in turnaround time is primarily due to three factors:

• Paperless process: The client needs to show only the original documents to the field officer. The field officer captures the photograph
of these documents and the client using his/her tablet.The client does not need to submit photocopies of documents and photographs.
• Digitization of loan application form at the front end: The field officer fills up the loan application form using a tablet. This means
that the field officer no longer needs to digitize the loan application at the branch office.
• Automation of credit bureau verification: The field officer can check the credit history of the potential client online, and then
processes the loans of only those clients whose credit history issatisfactory.

Improved TAT(days): Comparison of loan disbursement TAT

before and afterDFA implementation

Proposal Date CB Check Date Appraisal Date Office Order Date Disbursement Date

Before Implementation After implementation

The DFA brought down their average TAT from 15 days to 8 days, for an improvement of approximately 40%.

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Case: A large MFI increased staff productivity
Country: India ( EasternPart) Total clients: 767, 516
RegulatoryStatus: NBFC MFI Loanportfolio: US $150 million
Targetclients: Group lending DFAtype: Android-based mobileDFA

The research team for this study (MicroSave Consulting) analyzed the case-load of loan officers of five randomly
selected branches of an Odisha-based MFI, using data provided by the management.
From February to September 2016 the average loan applications processed in a month increased by 15%, up from
38.64 clients per loan officer to 44.28 (average level).

A key benefit of DFA implementation is enhanced staff productivity, particularly of frontline field staff. DFA does this by:
• Reducing the two-step data entry process (data entry on the paper-based loan application form and then into MIS)
to a single-step process;
• Reducing instances of repeat visits to follow-up on clients’ incomplete KYC documents or information for
processing their loan application;

• Enabling quicker access to client’s data and credit history, which saves time for credit appraisal for both loan
officers and management (Credit Committees);

• Improving staff efficiency helps enhance the case load of field staff and overall through-put of a branch.

52 SHIFT
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 osh

Chapter 5 b Gh
ono
C / Pr
BRA
to:
Pho

Option 2—Cashless
Disbursement

SHIFT 53
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FINANCE TRANSFORMATIONS
Product—Cashless loan disbursement
Loan disbursement is done through a bank account or a mobile account to transform cash-dependent operations into cashless or
cash-lite operations.
MFI disburses the loan to customer bank account or agent banking account or mobile account.MFIs are facing huge challenges in disbursing loan to
mobile account of the customer. Hence, the process described here is only for a bank account.

Cashless attributes Cashless loan disbursement (bank account)

overview
Customer needs a bank account

MFI does a partnership with the bank

MFI needs to maintain an account with the bank

Client bank account get credited

Real-time transactional SMS to client

54 SHIFT
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Cashless loan disbursement—Key benefits and business
opportunity for MFI
Customer MFI

For customers, electronically depositing money into the MFI can reduce the risk of fraud committed by staff
bank account is safe. There is a risk to the life of the members.
customer if they take the loan disbursement amount in cash.

Discussion with customers revealed that they can MFI can reduce the risk of fraud committed by fake
withdraw the money according to their needs. customers.

It improves the efficiency of frontline field staff members.

Depositing the money into the bank account of customers Cash management is a hectic task for the branch staff
help them save money. members and reduces their efficiency.

Customers start using the digital channel. The MFI improves its customer service by offering to pay
the loan amount in the bank account.

SHIFT 55
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Risk involved in adoption of cashless loan disbursement
Discussion with financial institutions
revealed that instances of fake
Bank account penetration is low in national ID card are common in the
Bangladesh (30%). It is a challenge country. Customers who have forged
for the MFIs to disburse the loan into their national ID card will not be able
bank account of all MFI customers. Low bank account Some MFI to open a bank account.
penetration customers face
challenges opening
bank accounts
Customers face challenges in
using digital channels due to
Low financial
the low literacy level in Partnerships may lead to grievances
literacy
general and the low financial and doubts if the agreement between
literacy in particular. Partnership bank and MFI lacks clarity and
agreementwith detailing.
bank

Lack of
communication Any delay in crediting the bank account of
to customers
Delay in customers after loan disbursement process
Customer have to follow up with MFI crediting bank leads to customer dissatisfaction. Once the MFI
account updates a loan disbursement in its MIS, the
frontline field staff member to know
whether the amount has been credited system starts charging interest in spite of the
to their bankaccount. A lack of fact that the bank has not credited the
communication with the customer customer bank account.
might lead to customer dissatisfaction.

56 SHIFT
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Risk mitigation to overcome risks in the adoption of cashless loan
disbursement
The MFI can support its members in Access to the NID database may help MFIs
opening bank account. overcome the cases of fake KYC documents
Low bank account produced by customers.
Some MFI
penetration customers face
challenges opening
bank accounts
The MFI can develop digital
financial literacy programme
for its members. The training Low financial
Low financial programme can literacy
MFIs making any agreements with
cover aspects literacy banks should draft the contract in
such as withdrawal of money Partnership detail to avoid any ambiguity.
agreementwith
from bank, ATM and agent point,
bank
and usage of mobile wallet.

Lack of
communication
to customers
Delay in
crediting bank
The MFI can notify the members about the delay
The MFI may develop a system to send SMS account
in credit due to any technical issues at the bank
notification to its members on their mobile
end. The MFI should also make necessary changes
devices.
in its MIS to ensure that interest calculation starts
from the day the loan is actually disbursed into a
member’s bank account.

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MFI approach in adoption
MFIs can partner with banks and adopt two approaches:
Approach 1: Support members to open a bankaccount.

The MFI can support its members in opening a bank account by establishing a partnership with the bank for agent banking services:
• The MFI can become the master agent for agent banking services of a commercial bank.
• The MFI can utilize the existing agent banking network and digital channels of the partner bank.

Approach 2: Disburse loan into the client’s bank account.

• The MFI can engage in partnership with any commercial bank for doing loan disbursement in the bank account of members.
• Members are required to mention their bank account number in the loan application form. The MFI Head Office will mention the
account number in the disbursement sheet and upload it on the portal provided by the bank.

The MFI can support its members in opening a mobile account by engaging in partnership with mobile financial services providers;
however, it will be difficult for MFIs to disburse loans in the mobile account of customers unless there is a policy change on the
withdrawal limit.

Note: To upload the disbursement report on its MIS, the MFI should have a robust and flexible MIS. The MFI might be required to
develop an additional module to upload the disbursement report on its MIS.

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What clients say
Members responded positively to the option of using an agent
banking point.
• Members liked the fact that there will be no charges levied to
disburse loans at the agent banking point (home). (Note: Home
agent point refers to the agent point where client opened their
mobile account).

• Members liked that customer authentication requires a thumb

impression and not PIN. They think that the thumb impression-
based authentication is better and more secure than a PIN.
• They mentioned that no one can copy their thumb impression, unlike
a PIN number.

Agent banking penetration remains low.

• Most of the members remain unaware of the agent banking point and
services offered through it.
• As of August 31, 2017, the number of agent banking points for the
two banks with the majority of agent banking points are:
• DBBL – 1,480
• Bank Asia – 1,265

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Chapter 5
Option 3—Cashless Repayment

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Cashless loan repayment
The MFI encourages clients to repay loans through digital channels to transform cash-dependent operations into cashless or cash-lite
operations. The client deposits the loan repayment through their mobile account or bank account. Here, the process is described for loan
repayment through the MFS channel.

Cashless—Loan repayment through MFS channel

Cashless loan repayment attributes (MFS channel)

Customer needs an account (mobile account)

Clients can repay the loan by themselves

(self-initiated) or through an MFS agent

Frequency of centre meeting gets reduced

MFI needs to maintain a master account with MFS

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Cashless loan repayment—Key benefits and opportunities for MFIs
Client MFI

It is convenient for the client. The client can deposit the amount at MFIs can mitigate risks associated with cash management by adopting
their convenience. They can send the money from anywhere and at cashless loan repayment. For example, MFIs can reduce the risks of
any time on or before the due date of repayment. fraudulent activities committed by staff members.

The client has multiple options forpayment. Operational costs will be reduced as staff efficiency increases. The
number of centre meeting gets reduced.

The centre meeting can be used more effectively for education and
The client develops their knowledge, as the centre meeting is focused
social awareness among members.
on financial literacy and social awareness.

It is easy to collect money from those clients who have migrated to

another place.

Multiple repayment options strengthen the customer service

approach of the MFI.

Time saved in cash management can be used for business growth.

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Risk involved in the adoption of cashless loan repayment through MFS
channel
The MFS provider charges the client for loan repayment to
MFI through MFS channel. However, many MFI clients are
not ready to bear this charge.
Cost of
transaction

The client might commit mistakes while sending. The MFI needs to educate the members
MFI should be enlisted as a merchant. And, MFI Ease of Financial and agent points about how to make
should be added to the Pay Bill Menu of the MFS transaction literacy repayment transaction using the MFS
application. wallet.

Delinquency Delinquent clients who are willing to repay can

The MFI should ensure that it can update its MIS by MIS Update repay using MFS channel. They do not need to wait
uploading the collection report received from management
for the field officer to visit them in person and
microfinance service provider. It would be a collect the amount.
challenge for the MFIs if they had to update their MIS
manually.

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Risk mitigation to overcome risks in the adoption of cashless loan
repayment through MFS channel
The MFI may share the MFS transaction cost with the customers.
MFI can compensate for this cost with gains received from the Cost of
improved staff productivity. Transaction

The MFI may give printed collaterals, including The MFI needs to educate its members
Ease of Financial
detailed instructions on how to send money to and agents about how to make
transaction literacy
MFI merchant account using a mobile wallet, to repayment transaction using a mobile
their customers. wallet.

Delinquency Field staff can visit delinquent clients who have

The MFI can invest in developing an additional MIS update management failed to repay through their mobile wallet.
module to upload the repayment report on its
MIS. This will help the MFI avoid a manual
update.

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MFI process of adopting cashless loan repayment through MFS
channel

1. The MFI selects the MFS partner using 2. The MFI makes a partnership agreement with 3. The MFI designs the process of
various selection criteria, such as the the MFS provider that includes the model of loan repayment using the selected
number of agents, cost of the products the engagement and details regarding MFS channel.
offered by the MFS provider, reputation in grievance management, pricing, termination
the market, strategic alignment and clause, the role of the MFI and MFS provider
flexibility in their approach, among others. and other considerations.

4. The MFI trains its staff members and 5. The MFI selects the branches to conduct the
6. The MFI analyses the results of the
pilot test and rolls out the product
shares the training collateral with pilot test and communicates the same to its
them to avoid any doubts regarding MFS partner in advance. The branches should
policy and processes. be selected considering certain criteria, such
as availability of agents, geography, client
segment and products, among others.

Note: To upload the repayment report on its MIS, the MFI should have a robust and flexible MIS. The MFI might be required to
develop an additional module to upload the repayment report onits MIS.

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 Case: BRAC Microfinance―cashless savings collection
BRAC collects savings installments from its members through their mobilewallets.
■ For all new subscribers to the Deposit Premium Scheme (DPS), BRAC has made it
mandatory to make repayment through bKash instead of coming to an MFI branch to
make a cash deposit.
■ To facilitate the smooth transition from cash to the bKash wallet for deposit of saving
installments, BRAC assists its members to open a bKash wallet. BRAC also provides a
detailed instruction card to members in Bangla on how to send an amount to BRAC using
their bKash wallet. The transaction charges are borne by BRAC.

Feedback from customers

■ BRAC customers say that deposit through bKash is more convenient than going to the
MFI branch every month. They find it convenient to send money from their home and
they save on travel cost.
■ Currently, there are no charges on transactions. This has also motivated the members
to use bKash for deposit.
■ It has saved members from missing their deposit deadlines and the penalty charge of
BDT 100.
■ They follow the instructions card to send the money. Some customers find it difficult
to understand the instructions or lack confidence in making transactions through
wallet, and seek help from their family members.

Customers mentioned that they would not prefer want to use a mobile wallet as a
medium for loan disbursement due to the transaction limit and charges. Disbursement
Figure: Detailed instructions on how to send savings
in a bank account is still acceptable compared with a mobile wallet as they can with-
installment to BRAC using bKash provided by BRAC draw money from their loan easily in one transaction
toits customers.
Source: FDG with BRACCustomers

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What clients say about mobile bankingagents

Familiarity with What people like about

mobile banking agents mobile banking agents

• Members are quite familiar with mobile banking agents and use • Members reacted positively to the mobile banking agent points
them on a regular basis for either sending or receiving money, due to the following attributes: Proximity to the members’
or for both. Some of the group members mentioned that they house, past relationship with the agent, and agent’s reputation.
visit agents three or four times in a month.
• Most of the members like the agent points due to two major
• Members use mobile banking agent services to send MFI loan reasons:
installment payments to the centre leader or credit officer.
1. Agent points make it easy to receive or send money.
• Members said that they do OTC transactions for loan
repayments in specific situations, such as illness, a personal 2. Agent points saves opportunity cost in termsof:
visit to their native place or village, business tour or
emergency situation. • Proximity, as agent points are located close to
customers’houses
• No traffic and travelhassles
• Transportation expenses

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Option 4—Outsourced
Database Management

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Outsource database management to third-party (cloud)
An MFI runs the risk of data loss or mismanagement in case it manages the data in its own data centre. MFIs should maintain their database on
the cloud to ensure that it is professionally managed and secured.
Database management by third party

Salient features

Secured: Disaster recovery centre at a different

location

Professionally managed, quick, reliable,

intelligently-designed database

Cost-effectivepricing

Professionally secured: CCTV, fire control, water

leakage protection, humidity control, resilience
with failover options

24X7 availability (uninterrupted powersupply,

Internet, servers)

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Risk involved in outsourcing database management

Limited understanding: MFIs have a limited understanding of various modalities and pricing models relating to the outsourcing of database management to
third-party service providers. Hence, they are not comfortable doing it.

Data on external servers: MFIs are not comfortable about placing their business data on servers external to the organization. Also, application codes for LMS
and remote loan origination systems (RLOS) are at the risk of compromise.

Apprehension regarding data migration: MFIs are apprehensive of data migration processes as they might be too cumbersome. Some of them assume it will
pose a significant challenge to migrate data from an in-house data centre to the cloud.

Apprehension about getting locked with a third party: MFIs are apprehensive about getting locked into an agreement with a third-party partner that will
compromise their independence. MFIs are also concerned that they might not be able to migrate their data in the future.

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Risk mitigation to overcome risks in outsourcing database
management
Risk: Limited understanding
Risk mitigation: MFIs should have adequate understanding of various modalities and pricing models relating to the outsourcing of database management to
third-party service providers.

Risk: Data on external servers

Risk mitigation: MFIs can enter into a non-disclosure agreement (NDA) with third-party service providers. The NDA should have penal clauses and clearly mention
that the service provider cannot sell or share their data and programs to any entity. The MFI can also enter into a CoLo (Co-Location) arrangement with the service
provider, wherein the server belongs to the MFI. In addition, the MFI pays rent to the service provider for the rack space, power, cooling, firewall/security and
bandwidth (connectivity). MFIs can keep the server locked and retain the right to administer and maintain their server.

Risk: Apprehension regarding data migration

Risk mitigation: MFIs can restore the full database over the internet in a few hours depending on the bandwidth and the speed of connectivity. MFIs can also take
the backup on a hard disk and mirror that directly on the server provided by the data centre.

Risk: Apprehension about getting locked with a third party

Risk mitigation: MFIs should engage with a service provider with goodwill in the market. The contract with service provider should clearly address the exit strategy
and prohibit them from keeping any copy of the database without the permission of the MFI.

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 Advantages of outsourcing database management
Non-core operations of the business can be
outsourced to expert professional services
providers. In that regard, senior
management will have more time to focus
on the immediate business and Increased business focus Services can be on-demand and custom-
organizational goals. ized as per specific business requirements
of the MFI. Having their core expertise in
database management, service providers
can provide the best levels of reliability
Performance and performance (near-100% server
and reliability uptime, for example).

Since cloud database management is Security

their core business, compliance with and
various regulations and security stan- compliance
dards is very robust so as to not create
any instances of mismanagement of data
andreducing the risks of cyber-security
manifold. Protection of servers from
Services for database management being
natural calamities is also well taken care
Pricing customizable, MFIs can opt for SaaS model
of by the service provider as it entails a
wherein they use the ‘pay-as-you-go’ model. In
huge investment.
this way, they pay only for services they optfor,
from a wide range of services offered by the
service provider.

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MFI approach in outsourcing database management

Find out various options available onthe cloud

and pricing and select the best-fitsolution.

Find out the advantages and disadvantages of

moving to a third-party data centre vs.in-
house data centre.

Put every required detail in theservice-level

agreement to be shared with thevendor.

Decide which applications needs to be moved

(e.g. LMS, FIS, HRIS, inventory, payroll, etc.)
to the cloud.
An MFI that had its own data centre can rein
in cost efficiencies by removing or reducing IT
assets, and cost borne onstaffing.
The data centre should have a robust backup
system in event of natural disasters like a
flood, earthquake or other event.
An MFI that had its own data centre should
explore whether the service provider is opento
accept its existing ITassets.

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Typical data centre costs (in BDT)
Component Unit of Measurement Qty Unit price MRC
APP SERVER
vCPU Per core 4 300 1,200
Virtual Memory GB 32 400 12,800
Solid State Drive GB 250 9 2,250
DB Server
vCPU Per core 4 300 1,200
Virtual Memory GB 64 400 25,600
Solid State Drive GB 2,000 9 18,000
Additional components
Windows License OS-2016 8 280 2,240
Shared Firewall Per Unit 1 3000 3,000
Secure Socket Layer Virtual Private Network 760
Anti Virus Per VM 2 450 900
Public IP Per IP 2 300 600
Backup (CommVault) Per GB 18 On actuals
Grand total 68,550
One-time setup cost 20,000

Note: • vCPU stands for virtual CPU (Central Processing Unit)

• My SQL will be bundled with the above DB VM • GB stands for Gigabytes and is denoted for both Memory as well as Storage
• OS and DB Management will be charged extra ifrequired • OS stands for Operating System
• Taxes extra as required • IP stands for Internet Protocol (usually denoted as http://)
• VM stands for Virtual Machine

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Chapter 5
Option 5—Core Banking Solutions

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Core banking solution
Customers may access their bank account and perform basic transactions from any of the MFI’s branch offices.

CORE BANKING SOLUTION

Salient features

Reports give a holistic picture of theorganization

One stop solution for all the applications of financial

institution
The customer can avail banking services from any
of the bank branches or other channels

Versatile: It is able to handle any kind of financial

transactions
More evolved and robust

Multi-featured: Multiple products and ability to

connect with anyplatform

Capable of handling high transaction volumesacross

all channels

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Costing and pricing—Core banking solution

Implementation/setup cost

• $2 million to $3 million
Supportannual maintenance contract
• For 100 branches with 200,000 accounts, which includes
the hardware (production & disaster recovery), licenses,
OS, Oracle software and implementation
• Annual maintenance contract kicks-in after the warranty
period of 3-6 months
• Additional branch will cost $10,000
• Usually in the range of 12-16% of total base license cost

Training cost Customization cost

• Training involves training-of-trainers (ToT) @ $1,000 per • Customization depends on the nature of the change
day. asked by the client
• Training runs for two weeks to four weeks

• 10 ATMswith switch will cost $250,000 to $300,000

• Per ATM cost will be $10,000

Source: Market Intelligence

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 Core banking solution—Key advantages and opportunities

A core banking solution gives versatility to the

MFI to easily configure new products without
requiring any customization. Multiple liabilities
and asset products with various features and
differential interest rates could be defined.

2 3

The client can avail banking products The financial institution can integrate
and services through multiple channels their core banking solution with other
such as internet banking, mobile bank- systems or satellite applications without
ing, interactive voice response (IVR), any hassles. A core banking solution
ATMs, etc. The client does not need to enables seamless exchange of data and
visit the branch in person. file with other systems.

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 Risk involved in the adoption of a core banking solution
• Lack of adequate resources: A core banking solution is costly and requires a large investment. This will be a huge challenge for most MFIs, though this might be an
option for big MFIs.

• Cost overrun: The project may encounter challenges due to constraints or shortfall in thebudget.

• Lack of risk assessment: The organization does not conduct a proper risk assessment with regard to thefollowing:

• Whether the data centre should be in-house or on the cloud?

• Whether the organization should go for a license model or SaaS model?

• Lack of adequate training on core banking solutions: A lack of adequate training and training collateral to staff members poses a challenge for the institution in
the implementation of the solution.

• Roles and responsibilities are not defined: Financial fraud can take place when the roles and responsibilities of staff members are not defined properly.

• Lack of adequate planning to store back up: The organization does not make adequate plans for setting up a disaster recovery (DR) centre and off-site storage of
daily or incremental backup.

• Lack of proper service level agreement (SLA) with vendor: This results in delays in turnaround time of the project, and resolution of reported problems and issues.

• Lack of understanding of efforts involved in the migration of data from LMS to core banking solution: This might increase the project cost and turnaround-time
in the installation of the core banking solution.

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 Risk mitigation to overcome risks in adoption of core banking solution
• Lack of adequate resources: Only big MFIs might consider this as an option.

• Cost overrun: The organization should do proper evaluation of total project cost including software, hardware, implementation, integration, license, training and
other costs.

• Lack of risk assessment: The organization should conduct a proper risk assessment with regard to thefollowing:

• Whether the data centre should be in-house or on the cloud?

• Whether the organization should go for a license model or an SaaS model?

• Lack of adequate training on core banking solutions:The service level agreement between the MFI and the software vendor should have a component on Training of
Trainers (ToT).

• Roles and responsibilities are not defined: The organization is required to make a detailed plan to define the staff roles and then execute it. There should also be
a process to delete/deactivate user-IDs of staff members who leave the organization.

• Lack of adequate planning to store back-up: The organization should make adequate plans for setting up a disaster recovery centre and off-site storage of daily or
incremental backup.

• Lack of proper service level agreement (SLA) with vendor: The institution must have a proper and detailed SLA including escalation matrix, compensation clause,
grievance management, settlement of dispute (if any), etc.
• Lack of understanding of efforts involved in the migration of data from LMS to core banking solution: The responsibility for data migration must be specified
clearly to the vendor.

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The approach to adoption of a core banking solution
• Establish a digital strategy for the organization: The organization should develop a comprehensive digital strategy. Installation of
a digital solution (including a core banking solution) should be a part of a well-informed digital roadmap for the institution. Also,
the institution should consider the following while developingits digital strategy:
• Changes in the financial services landscape and regulatory norms on products and services
• Medium- to long-term aspirations of the financial institution
• Analysis of the risks associated with an in-house data centre as opposed to a third-party data centre
• Selection of pricing model: The CBS on SAAS model could bring down the capital expenditure drastically, however its pros and
cons should be analyzed diligently.
• Business continuity plan
• Backup and disaster recovery plan
• Define access control mechanisms
• Decide the products and services to be offered in the initial period and future

• Plan to install core banking solution: The MFI should plan to install a core banking solution only after getting awarded with a banking
license or MFI is allowed to become a part of the payment and remittance system. If the MFI is not able to provide the entire range of bank-
ing products and services to members, then investment may not justify the benefits of CBS.

• Core banking solution selection: Many banks make mistakes in the core banking system selection phase resulting in poor choices. Gartner
(2011) in its extensive research on CBS selection suggested eight key criteria for selection: functionality, flexibility, cost, viability, opera-
tional performance, programme management, partner management and customer references. The MFI needs to conduct vendor scoping
exercise after it has developed a business requirement document (BRD) or technical specifications document. The vendor needs to have
the capacity to serve in the country. A proper service-level agreement has to be achieved.

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• Budget estimation and management approval: Proper evaluation of software, hardware, implementation, integration, license, train-
ing, and other costs must be considered and approved. It is advisable to add a contingency amount of about 10-15% to meet project
overrun costs or unexpected expenses. The project manager should ensure that the required budget is available before the start of the
project.

• Install CBS: Operationalize the core banking solution as defined by the model selected (SaaS orotherwise).

• Software testing: The organization should conduct 'user acceptance' testing to check whether the solution is running as per the require-
ment.

• Regulatory approval: The organization should obtain the approval of the regulators before commencing operations.
• Data migration: The software vendor does data migration from the existing system to the core banking solution.

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Option 6—Digital Credit

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Digital credit—Overview
Digital credit is an avenue to provide short-term liquidity to cash-strapped vulnerable households and microenterprises. Digital lending is the process of offering
loans that are applied for, disbursed, and managedthrough digital channels, in which lenders use digitized data to inform credit decisions and build intelligent
customer engagement.

Digital credit attributes

Instant Mostly concentrated inKenya,

a growing trend across the
world
Digital credit customer journey

Remote Digital credit is often used to

finance day to day needs and
Automated emergency needs in Kenya

Source: Accion, Demystifying DigitalLending

Direct Sources of data

forcredit-scoring:
• Traditional bankdata
• Mobile phonedata
• Previous digitalloans
Collateral-free • Digital footprints
• Mobile money data

Source: CGAP, Digital Credit’s Evolving Landscape: 3 Things You Need to Know,2017

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Digital credit—Advantages and business opportunity for MFIs
Advantages in adoption of digital credit

Achieve business growth of the organization: The MFI would be able to serve new client segments, including customers who are cash-strapped and need an
instant loan on a short-term and collateral-freebasis.

Ready to compete with FinTechs: The MFI should not be complacent about potential competition from digital credit providers. The growth of digital credit is
likely to happen in Bangladesh as in other countries like Kenya and India. An MFI that offers such products can compete with emerging FinTechs and banks in
the future, or else they could becomeobsolete.

Product diversification and value-added services: Offering such products would help the MFI diversify its products, meet emerging needs and become a more
customer service-orientedorganization.

Reduce operational expenses: The digital credit involves minimal use of human resources and hence the operational expenses are expectedto be very
low.

Source: CGAP, Digital Credit’s Evolving Landscape: 3 Things You Need to Know,2017

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Possible partnership for MFIs to conduct digital credit

First option: Second option:

Partnership model for MFI Partnership model for MFI
MFI+MNO+Tech
MFI+MNO+MFS Firm+MFS
• MFI does underwriting processand
• MFI does the credit-scoring,
lend to customers
underwriting process and lends
• Technical firm does thecredit-
to customer.
• MFI should partner with MNOto scoring

provide data • MFI should partner with Mobile

• MFI should partner with MFS provider Network Operator (MNO)to

to provide mobile wallet tocustomers provide data

and leverages their agent channel for • MFI should partner with MFS provider

cash-in and cash-out to provide mobile wallet to

customers
• MFI leverages MFS agent channelfor
cash-in and cash-out

Source: CGAP, Digital Credit’s Evolving Landscape: 3 Things You Need to Know,2017

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MFI approach in adoption of digital credit
Define a baseline to understand the institution’s digital readiness (people, processes and systems) to understand
the time required for readiness before the actual launch of digital products.
Does the institution support a culture of innovation?
Assess and build digital readiness Do the staff have the required skills and capacity?
What will be the new incentive structure in the case of digital lending for staff?

Distinguish between the institution’s objective for digital lending and the value proposition for customers.
Set digital lending goals andobjectives
How does it align with the institution’s overall mission and strategy?
Distinguish between the pilot test and the long-term goal of digital lending products.

Who are the target segments?

What types of credit products?
Define channel strategy Determine the effectiveness of the current distribution network.
Assess the customer preferences for digital channels.
Identify sources of data.

Identify potential partners to Review competencies in the digital lending process, specifically the systems and skills required, and identify
supplement digital credit product business-critical areas of strength versus competency gaps or activities that could be outsourced to a specialized
partner or FinTech to expedite delivery.

In the early stages, the MFI can dedicate a separate unit that has sole responsibility as a standalone business
Set up separate unit to drive digital vertical to prepare for, pilot test, and implement digital lending with the intent to integrate the unit with the rest
lending of the credit vertical at a later stage.

Source: https://www.microfinancegateway.org/sites/default/files/publication_files/1123_digital_lending_r10_print_ready.pdf

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 Risk involved in the adoption of digital credit:
Lessons from Kenya
Lack of intent and belief Lack of appropriate scoring models
Sometimes, managers of financial services providers (FSP) Higher ticket size and lower interest rates for good
feel that digital lending “won’t work for our customers”. borrowers
They believe that their customers lack comfort with digital Cross-selling other products
channels, struggle with inconsistent connectivity, or prefer
face-to-face interactions with loan officers.

Poor customer targeting (attracting high risk Lack of collection strategies (human touch)
applicant pool) Behavioural nudges for collection
Higher annual percentage rates (APR)
(drive off good borrowers)
Push messages (unnecessary borrowing)

FinTech apps not running on low-end phones Poor product design and pricing
Lower-income segment Transaction fees, bank transfer charges,
per-payment penalty
Not disclosing critical terms and conditions,
unclear repayment schedule

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Risk mitigation to overcome risks in the adoption of digital credit

Risk: Lack of intent and belief Risk: Lack of appropriate scoring models
Risk mitigation: MFIs can review the approach taken by global Risk mitigation: Scoring models should be dynamic and
players providing digital credit. In addition, the MFI can pilot-tested before the roll out.
conduct market research that would help them understand their
target customers’ behaviour and preferences with regard to
the usage of digital channels. Findings from the research
would help MFIs develop a robust digital strategy and
implementation plan.

Risk: Poor customer targeting (attracting high Risk: Lack of collection strategies (human touch)
risk applicant pool) Risk mitigation: MFIs should have their own strategy to
Risk mitigation: Digital strategy should clearly specify the tackle delinquency and defaults.
target customer segments and their digital footprints.

Risk: FinTech apps not running on low-end

Risk: Poor product design and pricing
phones
Risk mitigation: MFIs can adopt technologies that work on Risk mitigation: MFIs can conduct market research to
low-end phones or help customers acquire smart phones design the product and price it appropriately.
through providing access to credit.

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Case: Tala, an online lender

Amy Stewart, Kathleen Yaworsky and Paul Lamont, of Accion, highlighted the emerging best practices, current trends, opportunities
and challenges of digital lending for FSPs in their “Demystifying Digital Lending” report. The following are their observations:

• “Tala is an online lender in Kenya offering mobile-based nano-loans via an Android application. After customers opt-in, Tala’s proprietary
algorithm scrapes approximately 10,000data points from the phone (including SMS, call records, locational data, etc.) to analyze and
scorecustomers.

• Tala’s customer engagement is completely digital; there are no physical branches or any in-personengagement.

• Tala’s customer engagement leverages customer data to provide a personalized financial experience via a sophisticated mobile
application and through social media channels like Facebook.

• Through the app, customers can manage all aspects of their account, including checking balances, making payments or accessing
support through an in-app messenger that promises a response within 24 hours. They can also track their customized ‘Tala credit
score’, set financial goals and use personal financialmanagement tools.”

Source: https://content.accion.org/wp-content/uploads/2018/09/1123_Digital-Lending_R10_Print_Ready-2.pdf

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Case: Zest Money—finance for assets, education, travel
• Established in 2015, headquartered in Bengaluru
• The core business idea of Zest Money is that of asset finance (fashion, home appliances, industrial equipment etc.), education finance and travel finance. It
operates on partner websites such as Amazon.in, flipkart.com, makemytrip.com, shape.edu.in and upgrad.com, among others.

Digital credit attribtes Product

Target segment Product attributes

Instant
Most of loans being
approved in less than Age profile Ticket Size Up to Interest rate
INR 2,00,000(approx. Interest @ 2.5% p.m.
a few hourse Open to perosn of all ages US$ 2,807) Processing Fee @ 2.5%
Down Payment @ 20%
Late Payment
Income bracket Promotion NR 500/Installment
Remote No income bracket; credit On product page as ‘Eligible
limit depends on income for Zest card less EMI’ Documents needed
Physical identification On payment page as ‘Zest
is not required EMI’ Aadhar, permanent account
USP/Tagline: number, signed NACH form,
(entirely paperless) Occupational bracket ‘Digital EMI without Credit monthly income and expenditure
Remote No occupational Card’ details, bank statements

limitation
People Physical evidence
Automated Support via
Process is completely Credit History help@zestmoney.in E-mail, SMS
No physical office
automated People with sronger
credit history have higher
credit limit
Source: The Key Attributes of Digital Credit
https://zestmoney.in/

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 Process to apply for theloan Repayment process

Customer to decide Customer to select the Complete the profile

Decide what you want
amongst the partner EMI plan that best and provide requisite Auto debit from bank
to purchase
websites where to buy suits him/her detail (new customer) account through
NACH mandate

Login to Zest Money Get account verified

and enter product and using e-KYC and net-
website details banking Contact customer care
to repay through other
payment modes
Complete the Returning customers can
documentation directly login and details
will be retrieved
Once approved
payment link will be
On approval get sent over email
Set-up automatic
Steps by customer payment vouchers for
repayment using NACH
Steps by organization
that website

Use vouchers to make Pay using debit card

Loan activated on or net-banking
the payment on the
approval
website

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Chapter 5

Option 7—Artificial Intelligence

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Artificial intelligence in microfinance
Artificial intelligence (AI) makes it possible for machines to learn from experience, adjust to new inputs and perform human-like tasks. Application of AI in the
microfinance industry can provide a major boost in operations and prepare MFIs for the data-driven future.

Salient Features of AIsolutions Artificial intelligence spectrum

Use of data-driven algorithms, such as Big

data, predictive dataanalytics

Dynamic in nature

AI uses machine learning to continuously

adapt to the data itreceives

Lower operational costs of implementing

AI technology
Source: Neota Logic

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Artificial intelligence in microfinance
AI can be applied in microfinance industries at multiple steps in the customerjourney.

Understandingor Customer experience

Awareness perceived Acquisition or access or grievance Loyalty and advocacy
understanding resolutions

Informed of p roduct Deciding on whether the

Customer being informedof Functions such as Using the schemes and customer wants repeat use
the product and its broad features tode an purchasing a scheme and availing supportor of the product and share
contours opinionabout the schemes credit approval assistance on usage ofthe experiences/feedback with
schemes others

AI-based technology solutions

Automated RoboAdvisors Automated credit appraisal Chat-bots for customer Automated wealth
personalized messaging model grievance management advice
Chatbots
Chatbots

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Artificial intelligence in microfinance—Chatbots
AI-based Chatbots are virtual assistants that can help customers transact or resolve their problems by having conversation with them. This automated conversational
interface uses natural language processing (NLP) to interact with clients in natural language by text or voice and use machine-learningalgorithms to improve over
time.

Salient features of chatbots

Virtual agent: Can be available24/7

Emotionally intelligent: Can infer customer

personality traits and deliver personalized
experience

Able to process large amounts of structured and

unstructureddata

Low interaction cost: Can handle large

customer segment simultaneously, location
agnostic, multilingual

Can be developed on existing platforms used

by users such as social media and SMS

Source: https://www.findevgateway.org/sites/default/files/publication_files/fibr_artificial_intelligence_final_may2018_1.pdf
https://dionhinchcliffe.com/2016/04/13/how-chatbots-and-artificial-intelligence-are-evolving-the-digitalsocial-experience/

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Application of chatbots by microfinance institutions
Chatbots can be applied in a number of ways in the microfinance industry.

Customer queries / Helping staffdeliver

Financial education Product advisory
Grievance resolution better services

• Chatbots can be used to make • Chatbots can be used to guide • Chatbots can be used as an • Chatbots can help the staff in
financial education content more customers towards the right products to additional medium by automation of some regular
personal and engaging. For meet their needs. customers to asktheir tasks, such as updating field
example, customers can
queries, through a channel visit records or providing handy
subscribe to topics such as • They can help customers to better that could be available to product information to address
budgeting and savings products, or understand financial services terms and them 24/7. customer queries efficiently.
receive notification regarding conditions such as pricing, repayment
their spending habits, loan terms,etc.
repayments and savings goals.
• In India, online insurance players such as
Policy bazaar and Easy Policy say that
• Example: Vision Fund
chatbots are enabling them to better
Microfinance in Myanmar
understand customers’ requirements and
partnered with ONOW and
help the customers choose the right
launched a chatbot platform
policy, at a fraction of the cost and with
called Mr. Finance to provide
a substantial increase in conversion
financial literacy to its
rates, compared to human agents doing
microfinance customers.
the same tasks.

Source: https://www.findevgateway.org/sites/default/files/publication_files/fibr_artificial_intelligence_final_may2018_1.pdf
https://dionhinchcliffe.com/2016/04/13/how-chatbots-and-artificial-intelligence-are-evolving-the-digitalsocial-experience/

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Artificial Intelligence in microfinance—Chatbots

Benefits of chatbots Anticipated challenges

Accessibility Relative immaturity of machine learning and data analysis

It is available 24/7 and can be accessed from anywhere. Mobile phone users, Chatbots are relatively new in terms of their use in the financial industry,
especially young generation find it more convenient to text their queries especially microfinance. Getting access to data to train chatbots to reply in a
way that is human will take at least fewyears
Better than Interactive Voice Response (IVR)
Customers can interact with chatbots in a normal conversational manner and
are not limited by predefined options and answers.

Technology partner
Efficiency and cost-saving Building a chatbot would require partnering with FinTechs who have invested in
Chatbots can be reliable and accurate in terms of providing information as developing chat algorithms in local languages and dialects and have the team in
compared to human staff. They can be effective in dealing with routine and place to continue to refine and iterate based on a MFI’s specific use-cases.
frequently asked questions and free the call centre staff to handle more
complicated issues.

Human customer service cannot be completely bypassed

Interactive tool for educating customers
Chatbots will not be able to completely fill the customer service gap and a
Chatbots can be interactive tools for educating customers by sharing
handover to a staff member who is capable of dealing with complex or
personalized messages as per the interest of customer in the form
non-outline issues still be required.
of text, stories, videos, etc.

Source: http://www.i2ifacility.org/insights/articles/to-bot-or-not?entity=news

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Case: Mr. Finance, a chatbot for microentrepreneurs
Casey Hynes writes in a Forbes article about Mr. Finance, a chatbot from Opportunities Now Myanmar that has been teaching
entrepreneurs in the country about money management.
Vision Fund Microfinance in Myanmar partnered with ONOW and launched a chatbot platform called Maung Sa Yin
Kaing or Mr. Finance in 2017.

The bot works through Facebook Messenger and offers microentrepreneurs short lessons on money management
and financial literacy. Customers do not want to use the internet to download bulky apps and do not want to
spend phone story memory for apps. Therefore, Facebook was chosen as the interactive channel for this bot as it
is the most-used site over the internet by people in Myanmar.

Users engage with Mr. Finance to read 'gamified' stories and fun interactive modules to improve their financial
understanding.

Key features

Message-basedconversations Always available Emotionally engaging

Ms. Hynes writes, “Mr. Finance’s content modules are organized

along a storyline, following an entrepreneur as she makes different
financial decisions along her journey. Users can also search for
information on financing and business best practices.

As the system learns more about each user’s goals, it can tailor its
content recommendations accordingly.

Mr. Finance even sends push notifications to remind users about

lessons and nudge them towards their goals. For example, an
entrepreneur who wants to set aside 500 kyat (US$ 0.33)* each day
might receive a notification before leaving work reminding her to
Gamified novel Business troubleshooting Timely reminders set the money aside.”
Source: https://www.forbes.com/sites/chynes/2017/06/08/meet-the-chatbot-thats-a-teacher-storyteller-financial-guru-for-myanmars-microentrepreneurs/#7d335b7d41a4
* MMK 1 = US dollar 0.00066) as of Feb 5, 2019

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Key considerations before building a chatbot
1. What problem does the chatbot solve? Examples: financial education, product suggestion, customer grievance
resolution, etc.

2. Is chatbot the best medium to achieve theoutcome? MFI should, for example, also weigh any other
conversational interfaces while selecting the best medium.
3. Do the end-customers have means such as phones and digital skills? Do they want to use a chatbot for this
purpose?
4. How will the chatbot go to the market, e.g. via existing messenger channels such as Facebook and WhatsApp,
or via a mobile app, or via the MFI’s website?

5. Is the chatbot reducing cost or increasing sales orboth? MFI should, for example, also analyze whether
chatbot is able to reduce the operational costs, customer turnover or increase sales.

6. What operations must the chatbot need to perform to be useful?

7. What level of conversational sophistication does the chatbot need in order to serve the customers? For
example, at what level would there be an escalation to a human agent?

8. What data does the chatbot need access to and where is itlocated? Example: the chatbot can be given
access to database containing information about products and services.
9. How can the successful interactions of the chatbot bemeasured?

10. Is the chatbot replacing any work that staff or other people are doing?

Source: https://www.accion.org/chatbots-for-financial-inclusion

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Artificial intelligence in microfinance—Credit risk assessment
Traditionally, financial institutions use their past knowledge and experience of financing micro-enterprises to carry
out credit assessments. This approach works fine as long as the financial institutions remain small in scale.
However, once they achieve scale, they are likely to face some challenges such as client selection, loan appraisal,
maintaining portfolio quality, etc.

Data-driven credit risk assessment tools can counter these challenges because of the following characteristics:

• Risk assessment with artificial intelligence makes the process dynamic. Machine learning models can be
updated on a regular basis to inform creditdecisions.

• The variables in the model for defining the assessment score can change based on the data trends, making
the process extremelyobjective.

• Based on the same data, the algorithm will dynamically assign weightages to variables that become more
credible and important in assigning a credit assessment score.

Source: “Artificial Intelligence: Practical Superpowers”, Microfinance Gateway publication

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Artificial intelligence in microfinance—Credit risk assessment

Benefits of the statistical credit-scoring tool Anticipated challenges

Effectiveness Data intensive

It predicts all possible determinants of customers’ repayment behaviour The financial institution needs to have a significant number of relevant
along with their relative contribution, thereby improving the overall data points to be able to apply artificial intelligencefunctions.
effectiveness of the credit appraisalprocess.
Technology partner
Efficiency Application of artificial intelligence software requires technical know-
The scorecard is typically bias-free and enhances the efficiency of the how. The financial institution will have to partner with a technology firm
appraisal process. for the solution. Striking a synergy with the AI solution and the financial
institution’s functions is key.
Accuracy
Statistical credit-scoring ensures more accurate assessment of Human judgement
applicants, thereby potentially reducing PAR and improving portfolio AI solutions will make the financial institutions processes scientific.
quality. However, more often these decisions will have to be supplemented with
human judgement and subjectivity, to arrive at an appropriate decision
such as lending, product offering and resolution of customer grievances.

Source: “Artificial Intelligence: Practical Superpowers”, Microfinance Gateway publication

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Case: The Lenddo score, an AI-based algorithm
Using artificial intelligence-based algorithms for credit risk assessments is among the most popular use cases currently employed
in the African financial services market.

Lenddo-EFL, a leading technology firm, provides credit-scoring and identity verification

technology. They work with B2B clients to score potential customers based on a mix of
traditional data and non-traditionaldata.

Lenddo’s machine learning algorithms analyse up to 12,000 variables for a particular

candidate, to assess credit worthiness. The algorithm takes into account financial
transactions as well as highly predictive behavioural data points to predict if the candidate
poses a delinquencyrisk.

This optimizes the credit appraisal process, to ensure the lender has all relevant data
points for decision making.

AI-based risk assessment solutions are highly effective considering thin-file

customers. In case of insufficient business or financial history data,
alternative data through the digital footprint can be analysed to assess
creditworthiness.

Financial institutions using this solution have recorded processing of up to

50% more credit applicants, and also reduced the default levels.

Source: https://www.lenddo.com

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Artificial intelligence in microfinance—Robo advisor
Self-learning artificial intelligence algorithms can administer profiling questionnaires, analyse results and perform specific functions.
With a combination of natural language processing and machine learning, artificial intelligence algorithms can take the raw
conversational data derived from customer interactions and adapt responses and financial advise for a customized user experience.

These tools can also be programmed with data from past clients to identify trends and patterns in product choices, expenditure and
deposits, based on the monthly average balance (MAB). These insights can then be used for developing customized product bundles
and wealth management advice.

Customized product marketing

Robo advisors can be used One-on-one product inquiries

for selected customer

interactions, such as: Personal financial management tools

Aid sales agents to pitch customized products

Source: Expansion of Robo-Advisory in Wealth Management,Deloitte

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Case: Abe AI, banking powered by artificial intelligence

Abe AI, based in the United States, has partnered with Absa Bank, a South
African subsidiary of Barclays, to understand how to intervene early and
guide customers towards their financial goals.

The artificial intelligence-powered banking solution provides a

conversational solution for financial management. The solution utilizes
several machine learning financial algorithms to:

Predict a customer’s next purchase

Promote or automate savings
Provide overdraft protection
Predict cash flows

The algorithms are remodelled in real-time as new data is collected.

Eventually, Absa hopes to provide customers with nudges towards healthier
financial behaviour.

The product incorporates insights with money management tools, personal

financial education and community widgets.

Source: https://www.abe.ai/
“Artificial Intelligence: Practical Superpowers”, Microfinance Gateway publication

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 Key considerations for using AI solutions

1. Regulatory environment 2. Organizational capacity 3. Data quality

In order to achieve effective growth and Implementing Al solutions requires significant Any Al model’s prediction are directly
outreach, the following elements must be investment of time, resources and money. In tied to the data fed into the algorithm.
aligned with the business strategy: data storage some cases it may even need organizational Thus, the results are as good as the data
and localization norms, enabling environment restructuring. This needs clear intent and input. Incomplete, irrelevant and biased
for FinTech such as incubators, and accelerator understanding of organizational capacity, data can lead to incorrect predictions.
programmes to boost the use of technology at a before steps are taken towards these Data quality therefore is key to getting Al
larger level. solutions. right.

4. Customer protection 5. Customer trust

Al and machine learning models are data In order to maintain the robustness of Al models,
intensive. This data comes from the end firms must regularly update customer data
customer. It is therefore imperative to install points. For this, they need to earn the trust of
checks and balances in the organizational customers. This becomes more crucial for finan-
systems to ensure complete data privacy and cial data, as individuals are more sensitive about
it.
customer protection. Country-specific norms
also become key consideration.

Adapted from—“Artificial Intelligence: Practical Superpowers”, Microfinance Gateway publication

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Approach to AI implementation
Why AI?
Implementation of any new technology must be a deliberate and thought- Technology integration
through process to achieve the desired impact. The foremost step towards AI solutions are dynamic and need to be updated regularly, with
implementing AI is to ask two questions: Who will this AI affect? What problem relevant data. This will require procedural modifications, to assimilate
will this AI solve? the new technology into operations and other functions within the
organization. Further, existing operational and product processes will
Status of data have to be re-aligned with the new technology.
Data is at the foundation of AI solutions. It is therefore important to assess the
level of readiness with respect to data collection, storage and format. Is there
a clear understanding of what data needs to be captured? what already exists? Skill development
and what would be the analysis framework for the data captured? Answering The AI solution will analyse large amounts of data to give out predictive
these questions will require a clear understanding of the end customer. information. The team utilizing this information will need to develop
evidence-based thinking. The algorithm will learn and adapt. The team
interacting with the technology will thus need to understand how it
Institutional readiness works, trust its analysis, and apply learnings from the predictive
Transition to technology-based solutions may require organizational patterns into the decision-making process.
restructuring. Further, in order to prepare for a new technology integration, the
firm must have an understanding of the status quo. This will help anticipate
challenges in the transition and also identify strengths on which to build. Roll-out and feedback
With this set-up, the technology-enabled product can now be rolled out
for pilot testing among a selected segment of customers. It is important
Collaboration to have continuous monitoring and evaluation of the product, to
AI and machine learning solutions are highly technical in nature. Often, understand if it is meeting the stated goal. In the case of front-end
financial institutions may not have the expertise and/or the bandwidth to develop technology being modified by AI implementation, reception by the
and implement such solutions in-house. The implementing organization must then customer segment is also crucial.
look for active collaboration with technology firms specializing in AI solutions.
Partnerships with technology partners must be built on a clear and thorough
understanding of the end goal, in order to form operational synergies.

Adapted from—“Artificial Intelligence: Practical Superpowers”, Microfinance Gateway publication

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How MFIs should go about adopting digital solution
Each MFI should formulate their own digital strategy before commencing implementation.
As part of the strategy there is need to:
Understand the demand for digital financial services, and leverage the institution’s position to establish itself as an innovative market leader in this area.
Leverage digitalization to increase revenues and decrease operational costs.
Have a high-level roadmap on the way forward to achieve objectives, with clear prioritization of the areas that need to be digitized first.

The strategy development framework is as follows:

Develop an
Define rational Define objective Identify actions implementation
roadmap

Why is this strategy What is the desired What needs to be Which areas will be
being developed? outcome? done to make the affected? Who
strategy a success? needs to do what?

The key steps to development of strategy are as follows:

Assess situational context (assessment of external environment, institutional readiness, customer value proposition)
Identify strategic objectives for digital transformation that fit with the organization
Formulate strategic plan (technology, distribution, key partners, cost structure, revenue, pilot testing and roll out)

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Chapter 6

Regulatory Gaps and

Policy Recommendations

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 Regulatory gaps and policy recommendations
Opportunity Current status Way forward

Short term: Medium term:

Investigate how NID access could • Pilot NID accesswith
happen with MFIs, i.e. what is required, a few MFIs
Access to the NID database would enable how to go about it, technical • Learn from pilot
MFIs do not have access to the specifications.
MFIs to authenticate clients and reduce • Develop a roadmap
NID database. Consequently,
fraudulent/ghost clients as well as benefit for all MFIs to have
client verification is difficult,
the regulators in their efforts to ensure Organize a consultative process access to NIDdata
and fraudulent cases may
identification of all. between the Microcredit Regulatory
occur.
Authority (MRA) and Election Approach:
Commission (regulatorybody for NID) Collaborative effort
to support MFIs in NID data access. between MRA and NID

Short term: Long term:

• Assess the sector’s suitability for Introduce gradual
Integration of MFIs into a payment system MFIs are not yet part of integration with payment systems integration starting with
would benefit their clients with access to a payment systems. • Develop a roadmap for integration low-hanging fruit
broader range of financial products, such as Consequently, MFI clients do • Develop an MFI sector strategy for
savings, and consequently support the not fully benefit from all payment system integration Approach:
financial inclusion agenda in Bangladesh. financial services. • Hold consultations with Bangladesh Collaborative effort
Bank and MRA to see howintegration between MRA and
may be possible Bangladesh Bank

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 Opportunity Current status Way forward

Short to medium term:

An increase in the cash withdrawal limit in
According to MFS regulation Bangladesh Bank should assess the Approach:
mobile accounts would enable MFI clients
2018, for any cash risksof increasing the cash withdrawal Bangladesh Bank can
to withdraw the entire loan amount on the
intransaction in a certain limitusing mobile accounts. increase the cash
same day. It would help MFIs to disburse
account, not more than BDT withdrawal limit step-
the loan into customer’s mobile account
5,000 can be withdrawn Bangladesh Bank should take adequate by-step and assess the
and transform their cash dependent
from that account within next risk mitigation measures before risks every time.
operations into cashless or cash-lite.
24 hours. increasing the cash withdrawal limit.

Short term: Approach:

Regulator should make it clear who would Responsibility to bear MRA should conduct a consultative MRA can approach
bear the transaction charges for loan transaction charges for loan workshop with MFIs to understand their Bangladesh Bank after
repayments made by clients through MFS repayments made by clients views. having conducted the
agents. through MFS agents is not clear. consultative workshop.

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 Responsible
Regulatory challenges Policy How to adopt regulator
recommendations

A specific IT guideline including the MRA does not have an IT policy or Short to medium term: Approach:
data security standard, data guideline for MFIs. MRA should draft standard IT MRA should seek the opinions
protection, business continuity practices for large, medium and of MFIs and experts through a
standard and cybersecurity, among small MFIs. consultative workshop.
others, would enable MFIs to
implement standard IT practices.

A clear guideline on the requirement of There is no policy for MFIs to Short to medium term: Approach:
maintaining a disaster recovery centre maintain a disaster recovery MRA should draft a policy and MRA should seek the opinions
would help MFIs who want to maintain centre. Most of the surveyed MFIs seek stakeholders’ opinions. of MFIs and experts through a
their own data centre implement who have in-house data centres do consultative workshop.
standard practices. not maintain a disaster recovery
centre.

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 osh
ANNEX AC
/ Pr
ono
b Gh

to: BR
Pho

Annex 1: Cases on various

digital options

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Case: Money View, an app for digital credit
• Established in 2014, head quartered in Bengaluru
• Core business idea: App-based platform for personal loans (it only facilitates the process of lending and repayment of the loans)

Digital credit attributes Product

Target segment Product attributes

Instant
Loan is disbursed in Ticket size Interest rate
Age profile Min: INR 10,000 Algorithm-based interest
just a few hours. (US$ 139) rates
Open to person of all ages
Max: INR 500,000 Interest rate: 16%+
(US$ 6,989) Processing fees: 2%+

Income bracket
Remote Monthly in-hand salary Documents needed
Promotion
Physical identification Salaried: Rs.15,000 Facebook, Twitter, Linkedin Aadhaar card, current address
is not required USP/Tagline: proof, bank statement (salary
Self-employed: Rs.25,000 Get a loan with your phone account) three months
(entirely Paperless) If self-employed, with need
Occupational bracket ITR verification form for
No occupational last two years
limitation
People Physical evidence
Automated Support via
Proscess in completely Credit history loans@moneyview.in
E-mail, SMS & app
A minimum CIBIL Score of +91 9972377893 notification
automated No physical office
650 is required to get the
loan
Source: https://moneyview.in/

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 Process to apply the loan Repayment process

Download and install Complete and submit Update all the Document verification
the money view app the loan application required documents and assessment of Auto debit from bank
from app store through the app through the app credit worthiness account through
NACH (ECS) mandate

Update a signed copy

of NACH (ECS)
mandate If sufficient balance is
not in the account, three
days grace allowed.
On receipt of the
same, loan agreement
is sent on app
During grace period
customer can request
Review and approve payment through app
Steps by Customer
the loan agreement
Steps by organization

If auto debit is not

Disbursement within activated, payment to
few hours be made through app

Source: https://moneyview.in/

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Case: Lendingkart, an app for digital credit
• Established in 2014, headquartered inGurugram
• Core business idea: Small business loans, without collateral and minimum documentation

Digital credit attributes Product

Target segment Product attributes

Not instant
Takes 24+ hours to Ticket Size
get approved
Age profile Min: INR 50,000 Interest rate
Algorithm-based interest
Minimum business existence (US$ 699)
Max: INR 10,000,000 rates
is 6 months Interest rate: 18%+
(US$ 139,783)
Processing fees: 2%
Income bracket
Remote Annual turnover at least Documents needed
Promotion
Physical INR 600,000 (US$ 8387) Facebook, Twitter, LinkedIn Address proof, identity proof,
identification is not USP/Tagline: business existence proof, copy
‘Think Cash, Think of income tax return (two
required (entirely Occupational bracket years) and bank statement (six
Lendingkart Group!’
paperless) months)
No occupational
limitation
People Physical Evidence
Automated Support via E-mail, SMS & App
Process is Credit history info@lendingkart.com notification
completely A minimum CIBIL Score of 0124-3864889 No physical office
automated 700 is required to get the
loan

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 Process to apply for the loan Repayment process

Download and install

the Lendingkart app
from the app store
Customer to fill the Upload the requisite Credit evaluation
requisite details in the documents through and document
form Auto debit from bank
Alternatively, sign-up
website/app verification account through
from the Lendingkart NACH (ECS) mandate
website

Approve the loan

agreement Repayment through
website and app

Steps by customer

Steps by organization
Disbursement within
24 hours into bank Select from one of the
account available payment
modes and pay

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Case: Sajida Foundation, a financial advisory app
Arishul Amin of BFA writes in NextBillion about the Android-based Financial Advisory Services (FAS) app that it developed for Sajida
Foundation in Bangladesh. The FAS app helps field officers identify “super savers” and provides officers with useful simulation tools.
Mr. Amin writes in his NextBillion post about the FAS app,
Identifying supersavers which was piloted in two branches and is now being
deployed to other branches.

“The centre summary, like a dashboard in the app, displays

a list of all the members in that centre, along with the
status of any current loans and savings (Figure 2). The app
categorizes clients into 1, 2 or 3 stars.
Three stars: Members with three stars have more than
BDT 10,000 in their voluntary savings account, and have
not withdrawn for more than a year. These “super savers”
are the primary targets for term accounts.

Two stars: Members with two stars have between BDT

5,000 and BDT 10,000 in voluntary savings, and have held
that balance for more than a year. They are secondary
targets, who may be engaged in a conversation about
long-term goals and term deposit accounts.

One star: These members have between BDT 4,000 and

Figure 1. Portfolio summary (Displays: Figure 2. Centre summary (Displays:
BDT 4,999, and have not withdrawn in more than a year.
outstanding loan balance, balances of three member -wise list with indicators for quality These clients are clearly savers, but have not yet achieved
savings accounts, PAR rate, number ofclients) of loan and savings, and length of the minimum balance for term deposits. Field officers
membership) coach them in considering their long-term goals and
encourage them to save the minimum level."

Source: https://nextbillion.net/cross-sell-done-well-how-one-finance-app-found-a-balance-between-digital-and-human-touch/

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 Mr. Amin continues in his post, “The Summary page allows field officers to quickly
identify members with three stars and 'good' loans, to efficiently zero-in on those
who may be interested in flipping from savings to termaccounts.

From the Summary page, clicking on any member takes the field officer to a page
with details on current and previous loans; balances of compulsory, voluntary and
term deposit savings; and the option to see more details such as choosing a new
savings goal tosimulate.

These client histories help officers as well as members, who appreciate being able
to see their entire portfolio at a glance. In addition, the stars seemed to have a
motivating effect for clients, which is an unexpected but welcomeside-effect."

The pilot test has shown positive results with an increase of

59% more savings in pilot branches in comparison with non-
pilot branches.

Target savings page

Sources: https://nextbillion.net/cross-sell-done-well-how-one-finance-app-found-a-balance-between-digital-and-human-touch/
and Sajida Foundation Annual Report 2017

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 osh
Gh
Annex 2: List of BRAC
/ Pr
ono
b

to:
people interviewed Pho

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List of people interviewed
Organization Name Designation Country
Ambala Foundation Ripa Khatun Deputy Manager, MIS Bangladesh
ASA Atanu Chatterjee Head of IT Bangladesh
AUP Muzibul Islam Faruque Executive Director Bangladesh

BRAC Shahed Shams Azad General Manager, Bangladesh

Microfinance program
Data edge Md. Asifuzzaman MD Bangladesh

GUP Md. Monzurul Islam Executive Director Bangladesh

MSS (Manabik Shahajya Md. Modabber Hossain Assistant Director Bangladesh

Sangstha)
MSS (Manabik Shahajya Md. Zakir Hossain Director Bangladesh
Sangstha)
Margdarshak Financial Yogendra Bharti Deputy Vice President India
Services Limited
RIC Md. Khairul Islam Sr. Officer (Automation) Bangladesh

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 Organization Name Designation Country
RIC Md. Rajib Hossain Assistant Manager – IT Bangladesh
department
Shakti Foundation Imran Ahmed Senior Director Bangladesh

Shakti Foundation Sabyasachi Roy Director (Head of IT) Bangladesh

Sonata Finance Private Akhilesh Kumar Singh Chief Financial Officer India
Limited
TMSS Md. Abdul Qader Deputy Executive Director Bangladesh

TMSS Md. Ali Hossain Finance Expert Bangladesh

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SHIFT
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