How Microfinance Institutions Can Integrate Fintech

By Michael Schlein

How Microfinance Institutions Can Integrate Fintech

Latin America pioneered commercial microfinance, leads the world in inclusive financial regulation, and has fewer financially excluded people than anywhere else on earth. Despite that, half of Latin American adults still lack a bank account.

That’s why RED Accion is so important. The network represents the world’s leading Latin American microfinance institutions (MFIs). Our 22 members work in more than a dozen countries and collectively serve over 4 million clients and strive to improve and expand the industry to ultimately help more people and businesses benefit from the world’s financial sector.

How MFIs can go digital

During the last RED Accion meeting, members discussed the best ways to integrate fintech into their banking operations and use these new solutions to accelerate financial inclusion.

Many RED Accion members are already pursuing fintech: at the meeting, RED members Gentera, Banco Estado Microempresa, and MiBanco discussed the rationale behind their digital strategies. Banco Delta and Sogesol belong to Finconecta, an Inter-American Development Bank initiative that connects financial service providers with fintech startups. Banco Estado Microempresa has led inclusive fintech hackathons.

And while the entire group understands fintech’s importance, RED Accion’s members still grapple with the best way to go digital. Sometimes they launch ad hoc projects without first having a coherent digital strategy. MFIs need to create a coherent vision that integrates all fintech initiatives and consider how to provide adequate operational, technical, legal, and staffing support. Today, MFI loan officers spend 25% of their time traveling to visit clients, and 80% of transactions occur in brick-and-mortar branches. Fintech could help us find new ways to improve the reach, speed and efficiency of MFIs everywhere.

The advantage MFIs have (and what fintech doesn’t)

Even in an increasingly digital world, MFIs still have some considerable advantages over fintech. Their most important asset is the relationships that loan officers have with their clients. We’ve yet to find a way to digitize the personal knowledge that loan officers have about their clients. While we may never replace those human insights, we need share and analyze the business intelligence that loan officers cultivate: MFIs need to learn from their staff to create products tailored to client need. Likewise, as MFIs develop fintech solutions, they must find some way to recreate — or recognize — the important, personal connections clients have with individual staff.

At the meeting, one of our partners said that “personalized service” — giving the client the right product at the right time — represented the “future of microfinance.” Rather than rely on high-touch, manual processes to design new products, MFIs should leverage the data they already have to cut costs, improve operations, and design higher-quality products that clients want.

Capturing staff’s impressions and designing better products isn’t a technological challenge — it’s a management challenge. MFIs need to provide staff with the means to share what they’ve learned with one another, capture those lessons, and use them as the basis for new products.

Going forward

These conversations are only getting started. Fintech itself is still in its infancy, so we’ll continue to discuss how to best use new technologies to help build a financial sector that works for everyone. RED Accion members are committed to maintaining Latin America’s status as a financial inclusion leader, and we’ll continue working with them to embrace innovation to create a financially inclusive world.

We’ll meet together once again in September to celebrate the 25th anniversary of RED member FAMA and focus again on how MFIs can develop fintech strategies.

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