BR Research recently sat down with Andree Simon, President and CEO of FINCA Impact Finance to discuss emerging trends in microfinance as well as the launch of its new mobile wallet SimSim in Pakistan. Previously, Ms. Simon served as VP and COO of FINCA International, returning to FINCA after serving for several years as President and COO of Women for Women International, a humanitarian organization dedicated to financial, educational, and interpersonal support of women survivors of war, poverty and injustice. She earned an undergraduate degree in International Relations from the University of Virginia, an M.A. from The Johns Hopkins University School of Advanced International Studies, and an M.B.A. in Finance from the University of Pennsylvania’s Wharton School.
BR Research: Please tell us about FINCAs global operations and the philosophy behind the organisation.
Andree Simon: FINCA was started as a non-profit organisation around 35 years ago. The premise behind its creation at that time was to provide financial access to those people who never had it and to do it in a financially sustainable way. Not many people believed at the time that it could be commercially viable. FINCA has continued down that trajectory for a very long time as one of the leading microfinance institutions. We now have operations in 21 countries around the world. FINCA has learnt like a fintech organisation to change itself many times over because the landscape for financial services has evolved tremendously.
The dream of financial inclusion has been slowed by the fact that microfinance depended for a very long time on feet to meet the clients. As our clients work for the most part in rural areas, you need lots of feet in order to have lots of clients. So there were limitations to the ability of microfinance to really achieve financial inclusion. Even though we knew that financially it worked, it was a very expensive delivery model.
Previously it only used to be the largest commercial institutions that really had the ability to grow and reach out to more and more people. Now, with products such as the SimSim mobile wallet application introduced by FINCA, we have the ability to actually go to a village without sending officers to meet clients and educate them over mobile phones about the financial services that they are taking. The vast majority of the expense in microfinance organisations has been labour. It has also been challenging to be able to recruit people away from banks because there they get to work in a better environment as compared to visiting villages. You have to hire people, retain them, and then grow very fast in order to distribute your costs over a broader base. Bangladesh was one of the early leaders and has been extremely innovative but that scale question has been the biggest challenge for microfinance.
BRR: What has historically been your target clientele and how do you see the portfolio evolving in the future?
AS: We focus on business loans because historically FINCA has been very much focused on entrepreneurship and helping people create their own employment. Up until very recently we have not done any explicit consumer lending.
However, research has shown that one of the biggest values for microfinance for people is actually that it allows them to smooth their consumption. They could take a loan to deal with a family emergency or pay school fees and not have to sell a goat or shut a business to do that.
This is very valuable for people. In that vein, limiting ourselves to only businesses in the context of the global market doesn’t always make sense because sometimes people really do need consumption. There has also been a lot of research done by some of the new emerging fintech companies that shows that the majority of nano-credits are used by people for groceries or transportation or to fulfill other urgent needs. So we are looking to address that segment as well.
BRR: How do you compare the policy framework and market structure of microfinance in Pakistan to other regions where FINCA has been successful?
AS: Our markets have different dynamics and regulatory frameworks. Pakistan is very unique as well and has been a priority country for us. What creates an enormous amount of opportunity here is the strong business environment and the sound regulatory framework. There is also an incredibly talented workforce which doesn’t exist in a lot of places. The population density is obviously very high. I was just in Karachi and was a bit shocked to find out the estimates of the total population of Karachi. It is a country unto itself almost and is full of enterprise. I think everyone shares the excitement about what is happening in Pakistan and there are lots of people who are interested in investing in this market right now.
But at the same time the financial inclusion landscape in Pakistan is not what we would dream for it to be. People are not operating in the formal financial sector. The majority of people don’t have bank accounts which makes it very difficult for them to even conceive of a savings account and access to credit.
BRR: Please tell us a bit more about the SimSim mobile wallet and its impact on the local microfinance market.
AS: For us the point of SimSim is very aligned with what is happening more broadly across financial services. FINCA was a disruptor in its early days because no one believed it was even possible to go into these markets and serve people sustainably. Now we have an opportunity to disrupt again and the point of the disruption is to get as many people included in the formal financial sector as possible and to give them access to the resources that they were deprived of previously.
So SimSim does a lot of different things but the fundamental basis of offering people free transactions and payments is the biggest change in this marketplace. What we hope and believe is that it creates such a big benefit for people who are going to sign up for the SimSim mobile wallet, that they are going to be able to then engage and have these transactions for free. There will be lots of other partners interested in coming onto this platform and offering other kinds of services to our clients that they will find incredibly valuable.
The basic thing is having discounts at the merchants which a lot of people would like to have. It puts people into a virtual ecosystem of transactions that is incredibly convenient. For example, if you look at what has happened in America where there are places where it is virtually cashless at this point. That has created enormous benefit for businesses because cash is vulnerability for everyone. So being able to go towards a cashless environment as a business person and have an app that people can pay you through is actually very attractive.
There is a company called Sweetgreen in the United States which has gone completely cashless which has a mobile app that you can download in the shop and you cannot pay with cash. They have reduced their costs significantly and there are many other restaurants that are looking to follow the same model.
BRR: Microfinance is becoming increasingly digital and several institutions such as MFIs, banks, telecom companies are part of the ecosystem. How do you see these converging to address the gap in the digital space?
AS: There is still a big gap but it is closing very fast. The beauty of this technology is that you do not have to be a bank in order to enter that space. That is beautiful from a financial inclusion perspective but it also means MFIs need to run very fast. We have been working on our platform for change for some time and have made good investments along with cultivating relationships with some fantastic partners like FINJA.
Similarly, in East Africa FINCA has launched mobile financial services as well as agency banking which has been a radical transformation for us. People don’t need to go into a branch but instead they can go into any shop that has a POS system with a biometric thumb print and shop securely or do transactions. So the digital evolution is happening very quickly for us as an organisation. But not all organisations are moving as quickly.
BRR: FINCA’s loan processing is quite fast compared to the time taken by other institutions. How did you manage to bring down the lead time?
AS: We are very analytical about our business and although a lot of people think of us as a non-profit organisation, FINCA operates on commercial terms. We just have a different goal of focusing on the unbanked. When FINCA conducted an analysis on “the time to serve” some four years ago, we found out that it was the number one factor when it came to client satisfaction.
In some of our subsidiaries it was taking 22 days for a loan to get approved because we had a paper process. The applications themselves were not digitized and the steps were too slow. So we set a goal of a maximum of two-day turnaround. It is extraordinary what people can achieve when they really put their minds to something and on average now we have a two-day turnaround. FINCA has reduced the amount of paper in our system in some countries to almost zero except where the regulator requires the paper copy of the final contract. This also has an enormous impact on cost reduction.
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