Mobile financial services can increase the impact of microfinance organizations, but the story is more complicated than you might think

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In an attempt to deepen financial inclusion, microfinance organizations are introducing digital solutions to serve low-income households and small and medium-sized businesses. Mobile financial services and fintech solutions are particularly promising in Africa, where financial inclusion is only 43%, while mobile phone penetration is almost 90%. Such solutions are promising: in Kenya, for example, mobile financial services, especially mobile money, helped increase financial inclusion from 26.7% to 82.9% between 2006 and 2019.

Microfinance organizations have two goals: one is to increase financial inclusion, the other to be financially profitable or at least financially viable. Balancing these goals is not easy, as leadership must choose between prioritizing social impact over financial performance, and must consider changes that come over time, investments, environmental fluctuations, innovations, etc. So, as is common when pursuing dual, often contradictory goals, it is difficult to optimize both.

Still, the rewards are well worth it and innovations make this goal more achievable every day. Indeed, mobile money, fintech services and online banking have the potential to transform the microfinance sector in Africa, given their capacities to increase both financial performance and social impact. .

Benefits and costs associated with implementing mobile financial services

A recent research project from the University of Oxford shows that mobile financial services bring benefits to organizations implementing such tools. In fact, microfinance organizations see the most significant benefits in the ability of the organization to: (1) serve more clients; (2) better respond to customer demands; and (3) increase their financial strength.

At the same time, research further reveals that while the benefits of mobile financial services are many, microfinance organizations considering investing in various fintech solutions must consider the potentially high costs. The most daunting expenses include: (1) investing in the mobile technology background; (2) digital literacy training of existing staff; and (3) digital literacy training of clients (Figure 1).

Figure 1. Costs associated with implementing mobile financial services

Source: Varendh, Cécile. (2021). “Mobile-mission: Impact of technology on the priorities of social enterprise logics. “Academy of Management Acts. 2021.

Adoption of mobile financial services by microfinance organizations in sub-Saharan Africa

Oxford research also found that microfinance organizations’ investments in mobile financial services have the deepest penetration in East and Southern Africa, particularly Kenya, Zambia and Tanzania, followed by Uganda and South Africa (Figure 2).

Figure 2. Adoption of mobile financial services by microfinance organizations

Figure 2. Adoption of mobile financial services by microfinance organizations

Source: Varendh, Cecilia. (2021). ”Mobile-mission: impact of technology on the priorities of social enterprise logics.” Academy of Management Acts. 2021.

Beyond geography, the type of mobile financial services and fintech solutions implemented by microfinance organizations differs, as 83% of microfinance organizations surveyed offer mobile money transfers between accounts, 74% offer opportunities savings and deposit and 55% offer their customers a mobile loan application. (Figure 3).

Figure 3. Type of mobile financial services offered

Figure 3. Type of mobile financial services offered

Source: Varendh, Cecilia. (2021). ”Mobile-mission: impact of technology on the priorities of social enterprise logics.” Academy of Management Acts. 2021.

Partnerships are essential for the success of microfinance projects using mobile financial services and fintech

The study further shows that the majority of organizations investing in mobile financial services partner with other stakeholders, institutions or startups. In fact, 69 percent of the microfinance organizations surveyed partner with mobile network operators; 53% in partnership with a bank; and 43% partner with third-party agencies, mainly fintechs (Figure 4).

Figure 4. Different approaches of microfinance organizations when implementing mobile financial services

Figure 4. Different approaches of microfinance organizations when implementing mobile financial services

Source: Varendh, Cecilia. (2021). ”Mobile-mission: impact of technology on the priorities of social enterprise logics.” Academy of Management Acts. 2021.

What is the real impact of mobile financial services for microfinance organizations?

Oxford research modeled (using regression techniques, controlling for country and company specific heterogeneity as well as unobserved heterogeneity between years) how the investment in mobile financial services affects the two goals of microfinance organizations discussed above: depth of social reach and profitability.

Overall, the models show that investing in mobile financial services reduces the intensity of the social reach of microfinance organizations (represented by the average amount of loans from microfinance organizations per borrower) by 41.7%. The models further illustrate that the decrease in the intensity of social awareness is different between microfinance organizations depending on their legal status as a nonprofit or nonprofit. Specifically, research reveals that nonprofits decrease their social outreach intensity (again, represented by an organization’s average loan amount per borrower) by 36% after implementing mobile financial services. . Additionally, nonprofits experience lower financial performance (i.e. profits) associated with investing in mobile technology, with an average financial loss of 3%. On the other hand, for-profit microfinance organizations decrease their outreach intensity by 44%, while increasing their average financial performance by 20.4%.

Policy recommendations

The insights from this research should not be taken lightly: in short, it finds that it is much more complex and multifaceted for microfinance organizations to use mobile financial services and fintech solutions to increase their reach. social and financial strength than suggested by think tanks and other boards.

These findings, however, do not necessarily contradict the conclusions of these institutions: mobile technology has the technical capacity to help microfinance organizations increase financial inclusion. However, the complications faced by organizations in Africa when implementing mobile technologies or fintech solutions are numerous. These complications and difficulties include the need for substantial capital investments, the lack of confidence of low-income clients to use mobile technology for financial purposes, the need for microfinance organizations to invest in financial literacy programs. and digital, and low Wi-Fi penetration in remote areas. areas. Policymakers, fintechs, and edtech entrepreneurs should consider these implications to help microfinance organizations use mobile technology to increase both their financial strength and the intensity of their social outreach.

The Oxford study further highlights the importance of policy changes: to help microfinance organizations take full advantage of the implementation of mobile financial services, policies should promote digital financial education; facilitate and / or finance fintech solutions that are easily and financially accessible for microfinance organizations; strengthen and implement fraud prevention mechanisms and laws; and implement digital bank identification numbers.


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