IFC-Boulder Program: Strategic Response to Risk in Microfinance Markets, Nov 28 – Dec 2, 2016 in Washington, DC

Natasa Goronja, Boulder Institute and Momina Aijazuddin, IFC
26 Jul 2016


Digital financial services offer enormous opportunities for catalyzing greater financial inclusion for underserved populations. With new technologies, such as mobile money, micro insurance products, and electronic money, the costs at which service providers can offer and consumers can access financial services have decreased exponentially. Increasingly low costs and innovative methods by which to achieve last mile delivery of basic financial services has made reaching the World Bank and IFC’s goal of  Universal Financial Access by 2020 closer than before, and responsible finance is a cornerstone of that goal.

Untitled-1Today, the field of financial inclusion faces a contradiction that is true for many markets – many clients remain unbanked while several market pockets have become oversaturated and highly challenging.  New approaches that adapt responsible finance and risk management practices must be implemented to keep pace with the evolving digital financial services sector in order to ensure that anticipated gains in financial access are not negated by unmitigated risks to both institutions and their customers.

IFC and the Boulder Institute of Microfinance have partnered this year to launch a 5-day program, “Back to Boulder: Strategic Response to Risk in Microfinance Markets.” The inaugural program will bring together leaders from within and outside of the microfinance community, as well as international experts in leadership and change management. The program is structured to be highly interactive and features 20 experts in financial inclusion. Sessions will further provide insights into the complex nature of change leadership and how to remain pertinent in times of exponential challenges generated by disruptive technologies and market forces.

Participants will receive practical tools, cases, and experiences in 3 key areas:

  1. Risk Governance: How to identify macro-level risks in competitive markets, appropriate strategic responses, and the constructive and proactive role boards play in protecting the resiliency of their institutions.
  2. Enhanced Competitiveness: Skills needed to enhance impact and competitiveness by attracting, keeping and deepening relationships with clients through a renewed value proposition and successful business models.
  3. Managing for Shareholder Value: Computer simulation of the activities of a mid-sized commercial bank.

Back to Boulder will be held on Nov 28 to Dec 2, 2016, in Washington D.C. at the International Finance Corporation (IFC), a World Bank Group member.

For more information: pax_b2b@bouldermicrofinance.org. REGISTER HERE NOW ! 


Five Takeways for Digital Innovation

Lory Camba Opem
21 Jul 2016

china-2This year’s Seventh Annual Responsible Finance Forum (RFFVII) held in Xi’an, China maintained momentum on the topic of Responsible Financial Inclusion and Digital Innovation, with a focus on Asia. Building on prior years’ meetings in Perth (RFFV 2014) and Antalya (RFFVI 2015), this year’s Forum in China:

Here are five takeaways from this year’s Forum in Xi’an, more info can be found here:

1. For providers: responsible finance and risk management are integral especially in a digital world.  Comprehensive practices for responsible finance and risk management, should be implemented in line with the pace of digital transformation, and should be embedded in core operations, systems, policies of both traditional and digital financial services delivery. Providers with committed resources are doing this but more can be done: customer trust is fundamental to survival and growth, more so in digital finance, and in the post crisis context.

2. For regulators and policy: regulation needs to be proportionate to risks so as not to stifle innovation when scaling up financial inclusion. Steps are being taken that are unique to selected markets (UK, US, Malaysia, China), and more can be done in the context of risks against potential loss of funds, effective recourse, data privacy, security and fraud.   Regulatory steps include: KYC tiering for financial institutions that are using innovative technology; for P2Ps, regulatory sandboxes to help contain potential systemic risks.  Consumer initiatives such as US CFPB’s Project Catalyst are also seeking ways to find the balance between innovation and consumer protection.

3. For consumers: digital financial inclusion guidelines and principles can foster a more resilient marketplace. BTCA presented 8 areas which can support consumers and industry where regulation or supervision capacity remains weak and/or are in the making.  Leading providers see this as an ongoing journey that needs to align with business growth. The guidelines are part of a broader set of high level principles.

4. Forging strategic partnerships across key players remain critical for traditional and digital institutions, consumer advocates, researchers, industry, regulation, policy — to advance responsible financial inclusion. Goldman Sachs-IFC partnership as well as GSMA emphasized the role of women in helping to scale financial inclusion; US CFBP highlighted consumer based research and innovation partnerships.

5. G20/Global Partnership for Financial Inclusion (GPFI) will continue to have a global leadership role, and the Responsible Finance Forum partners remained committed to evolve apace with the shifting digital landscape going forward. Stay tuned, RFF in 2017 is planned to be held in Germany.

Responsible Digital Payments: Reducing the risks that come with new opportunities

Beth Porter and Ros Grady
20 Jul 2016

This blog was originally posted for the Better than Cash Alliance site, by Beth Porter and Ros Grady.

It’s all at our fingertips. The possibility to make a payment. The delight of receiving one. From Peru to Rwanda to India, people, governments and businesses are increasingly making their payment transactions digitally, whether by mobile phone, by card or online.

Technology has opened up opportunities to save time and money and to increase the convenience and security of making transactions. But with these opportunities come new risks: Those who have been financially excluded or underserved—and who may also have low levels of technological capabilities—may be the most vulnerable.

In consultation with a broad range of government, industry, and civil society stakeholders, The Better Than Cash Alliance has developed the Responsible Digital Payments Guidelines to reduce some of the risks, especially for the most vulnerable. These Guidelines show what underserved clients expect from a digital payments market which treats them fairly and with respect. Consistently applied, they can build trust in and use of innovative payments services such as e-money transaction accounts, help meet financial inclusion goals, and build robust, sustainable markets that work for both clients and industry. They can serve as a critical tool for a world where there are still 2 billion unbanked adults, according to the 2014 Global Findex.

The Guidelines set out the key good practices that show respect for digital payment clients and provide practical examples of each. The good practices are below with further details here:

  1. Treat Clients Fairly
  2. Keep Client Funds Safe
  3. Ensure Product Transparency for Clients
  4. Design for Client Needs and Capability
  5. Support Client Access and Use Through Interoperability
  6. Take Responsibility for Providers of Client Services Across Value Chain
  7. Protect Client Data
  8. Provide Client Recourse

Responsible practices build trust and confidence in both acquiring and using innovative digital payment services. When designed well and linked to accounts, digital payments can contribute to greater financial inclusion particularly for underserved groups, including women who particularly value the convenience, privacy, and security of digital payments.

“Anything worth providing, is worth providing transparently,” says Dr. Bitange Ndemo, Former Permanent Secretary of Kenya’s Ministry of Information and Communication. “This is all the more important for people who may be making and receiving payments digitally for the first time. It is incumbent on providers to give people the full and clear information they need to make decisions that are right for them.”

Furthermore, broader uptake of responsibly provided digital payments can help bring more people and businesses into the formal economy.

As Mr. Dasgupta Kumar of bKash notes “We want our clients, who are mostly unbanked and new to digital payments, to feel that they are being respected and treated fairly and served with special care by our agents and service points.”

The Responsible Digital Payments Mapping, to be published in August, notes dozens of initiatives and/or standards or codes that address certain aspects of responsible digital finance. The Better Than Cash Alliance Responsible Digital Payments Guidelines draw on these in establishing guidelines that are provider and technology neutral and focus on the underserved market

To put the Guidelines into practice requires action by the providers of digital payments, and the engagement of policymakers and regulators, as well as the support of development partners to facilitate implementation. Given the pace of innovation, there is no doubt that these Guidelines will evolve over time. So we must test and learn, but we need to do so in ways that protect the client to the best of our ability with the information and experience we have. These Guidelines are intended to do just that.

The publication can be found here.

A Better System for Internal Complaint Handling

Stanislaw Zmitrowicz and Sérgio José de Mesquita Gomes
18 Jul 2016

Just like any product, there are times when financial services do not work as customers expected they would. In Doing Digital Finance Right, CGAP explored the most common complaints among digital financial services users, which include payment system downtime, keystroke errors, and agent surcharges for transacting.

When any of these issues arise, customers will almost always turn to the financial service provider for help, whether it is a hotline, an agent or a local service center. CGAP research has shown that in their journey toward effective complaint resolution, customers face different barriers – such as distance to reach the nearest branch, lengthy queues and negligent staff – and that new technologies, such as SMS and messaging apps, can be a great solution to overcome them (see Recourse in Digital Financial Services: Opportunities for Innovation).

However, customers may become frustrated when they do not notice consistent improvement in product design or financial service providers’ procedures in handling complaints. How can providers improve their internal complaint handling systems? The system should be seen as a cycle with three phases, beginning with product design.

Complaint Handling Cycle

complaint%20handling%20cycleDuring product design, the financial service provider should calculate certain risks and implement controls for them. Since such controls are not flawless, providers should plan for some failures and detail how to remedy them (redress and compensation) in customer service manuals. These remedies can and should be a win-win, reducing the number of disputes for providers and providing quick resolution and fair compensation for customers. For example, a provider may charge customers for withdrawal transactions through automated fees, but an agent charges “extra” from a customer by demanding the fee in cash. The provider should plan for this risk, putting in place procedures to compensate the client and solve his or her individual problem. This is the first stage of the cycle.

Internal complaints handling systems should be integrated into a broader corporate governance context, contributing to the compliance and internal controls framework. Through complaint analysis, providers can identify emerging risks that were not evaluated during the product design phase. This classification and monitoring constitutes the second stage of the cycle. In the extra charge example, it is important for the provider to observe the problem recurrence and compare it with the expected recurrence planned at the product design phase. These nonevaluated risks – symptoms of deficient design or changes in the environment, such as regulatory framework or IT architecture – should be investigated.

In the third stage, providers can achieve a change in customer experience. Improvement proposals for product design or customer service procedures should be escalated to high-level management and tested for effectiveness before full implementation. In the extra charge example, if the provider discovers that the problem is with one specific agent, a solution – as simple as termination of the contract with this agent and search for another partner in the region – should be escalated to improve customer experience. It is also important to establish additional or improved internal controls to prevent the same problem from happening again.

Role of Supervisors

Supervisors should implement this integrated approach with a compliance and internal controls framework, as noted in Making Recourse Work for Base of the Pyramid Financial Consumers, to ensure that financial service providers have these mechanisms for complaints handling in place and present summary complaints data reports regularly to the financial regulator.

When designing regulatory reports, supervisors should consider each different stage of the internal complaints handling cycle and its main objective.

  • Individual complaints handling (first stage): The regulator should consider customer service accessibility and promptness of resolution procedure. Key indicators to be reported may include average hotline waiting time and calls dropped for a hotline, turnaround time, the downtime for an SMS-based or web-based complaint system and the number of complaints resolved (or not resolved) in the defined timeframe.
  • Complaint analysis (second stage): The regulator should consider receiving reports for market monitoring, including information like the number of complaints by product and issue or the volume of reversed transactions. The regulator may consider implementing standardized classifications to allow comparability between providers.
  • Solution process (third stage): The regulator should assess if the root causes of complaints are identified and addressed. This report may include the description of root causes, but also the proposed solutions and the stage of their implementation, which can indicate the level of commitment of high-level management in improving consumer experience. In Brazil, the Central Bank (Resolution 3,849) requires the financial services providers’ internal ombudsmen to report the improvement and corrective actions proposed to the financial service providers’ board of directors. Though the information is not publicized, it allows the supervisor to check if the inputs from complaints are generating solutions.

Other regulators are moving toward a more detailed and specific reporting according to their supervisory objectives. In Indonesia, for example, OJK (Circular 2/SEOJK.07/2014) determined that complaint reports should be forwarded every three months in three parts:

  • The number of complaints by product and issue (market monitoring)
  • The time elapsed for the final resolution of complaints received (individual complaints handling)
  • Causes identified for the complaint submitted by customers (solution process)

Effective complaint reporting, designed with elements from each stage, not only enables supervisors to monitor consumer risks, but also to ensure a successful internal complaint mechanism, from the customer’s individual problem solution to service improvement. Implementing this three-phase complaint handling mechanism, providers are able to self-correct their procedures, ensuring customers better service in response to their complaints.