Field Note 7: TURNING MFI DIGITAL STRATEGIES INTO REALITY Overview We believe that this research can help guide and encourage the growing number of DFS There is growing worldwide consumer practitioners to get through the pain barrier demand for digital financial services, and and on the road to success, both within MFIs the clients of microfinance institutions in and elsewhere. emerging markets are no exception. For most MFIs, DFS is a completely new type of Choosing appropriate strategic business. While potentially offering benefits objectives and opportunities to provider and customers alike, DFS are far from the MFIs core areas of When an MFI decides to pursue a digital strategy, expertise and comfort zone. Well-run digital the first decision it must be clear about is “Why?” services can extend geographical outreach There must be a compelling business objective that the DFS can deliver and this must be backed up by a realistic and achievable business case. "There must be a compelling Common strategic objectives amongst the MFIs studied were: business objective that the digital strategy can deliver." 1. Using DFS to access more clients than can be reached by the existing infrastructure 2. Mobilization of deposits by making it and allow MFIs to scale up operations cost- easier for clients to save regularly effectively; they can facilitate a wider range of services and products; and they usually bring 3. Offering an extended range of services via efficiency improvements and cost savings for a digital channel the institution as a whole. The problem is that few MFIs have clear enough visibility of the 4. Improving operational efficiencies and options and implications of digital strategies reducing costs by digitizing processes to readily determine which is best suited to their particular circumstances. Meanwhile 5. Converting the existing client base to DFS they are being pushed towards digitization to improve the customer experience by the enthusiasm of industry experts and the threat of being left behind. In the study, the MFIs initial rationale for digitization tended to have two main objectives: The encouraging news is that new research a) increased geographic presence and outreach indicates that a number of MFIs are starting to to new clients, particular in rural areas, and get to grips with the challenges of deploying b) while keeping the costs of this expansion low. DFS, and are on the path to success. IFC and the Most of them also considered growing their Mastercard Foundation conducted a four-year deposit portfolio as a key objective for the new MFI Longitudinal Study to chart the journey of channel. nine African MFI clients that are implementing new digital channels. This Field Note analyzes The most common choice for the MFIs was to the outcomes of that study in terms of the use DFS to deliver an agent strategy. The MFIs strategic plans and decisions the MFIs have with the longest running agent banking channel made while implementing digital channels, have been successful in attaining the original and draws conclusions and recommendations strategic goal of expanding with lower costs. that identify successful strategic approaches Agent banking has brought other cost savings and lessons learned along the way. Best too. According to the study data, transacting practices are reviewed, and some case studies at agents represents around 25 percent less in are used as illustrations.1 operational costs than conducting a branch transaction. Those with mature agent networks (greater than three years) significantly increased 1 This report is based on information collected from nine Sub-Saharan MFIs during four rounds of field visits 2014-2017: Cameroon – Advans: DRC – FINCA: Madagascar – Acces Banque / Microcred: Nigeria – AB Microfinance Bank / LAPO Microfinance Bank: Rwanda – Urwego Bank: Senegal – Microcred: Tanzania – Access Bank 2 their outreach, both in terms of clients and locations, as strategic goals, and some have started working without having to open many branches, obtaining on ways to enhance the customer experience. For significant cost-savings in the process. However, the example, two MFIs have developed specific nano- results for deposit mobilization thus far indicate that loan products for delivery only via agents. it took quite some time for any of the MFIs to see a significant increase in the size of deposit portfolios. Others have increased their agent service to include bill payments, transfers and mobile top-ups. Some After gaining experience in the implementation MFIs are currently developing their own internal of a digital channel, the MFIs in the study started capacity to better analyze transactional data to considering the notion of providing better customer improve agent performance and liquidity, and this service and better products through this channel way, indirectly improve customer experience. AT LAUNCH OVER TIME Increasing customer base Savings Increasingly indirect benefits Mobilization More products and services Higher operational efficiency Improve customer experience Figure 1: Evolution of the strategic DFS objectives over time amongst the nine MFIs participating in the study 3 Once the strategic approach and high level The size and location of the agent objectives were confirmed, the options to network deliver the strategy could be considered. As mentioned above, most MFIs opted to launch Having decided to create a network of agents agent networks. In this case, the branch network to augment (or replace part of) the branch was supplemented by a network of retailers network, the next step was to consider where that could provide basic branch services. Agent these agents should be located and how many deployments were typically used to increase would be needed. deposit mobilization by existing clients, and reach new clients at lower cost than extending Agent Location: The most successful agent the branch network. The range of services networks were usually started near MFI permitted is governed by local regulation, and branches. The main reason was to facilitate the MFIs chose to provide some or all of them. agent liquidity management. The most difficult Deposits (cash in), typically for loan repayments aspect of managing agents is ensuring that they or savings, and withdrawals (cash out) services have sufficient funds in their account to service were the normal minimum offering at launch. “cash- in” transactions, typically loan repayments Where permitted, some agents registered and bill payments; and sufficient cash to service new clients and others simply facilitated “cash-out” withdrawals. Liquidity is a particular account opening. issue for MFI agents because of the high amount deposited for loan repayments, which is not As the service matures, agents generally start balanced by withdrawal transactions. In the to offer other transactional services, both to study, consistently over 70 percent of agent supplement the agents’ income and increase transactions were deposits. Having a branch the MFI revenue. Over time, all the MFIs in the within a reasonable distance provides the agent study introduced funds transfer, and two added with a ready source of liquidity. Also, issues are to bill payment services. In addition, four provided be expected in the early days, and having agents digital services directly to the clients’ mobile close by means that these can be fixed quickly phone allowing them to offer a wider range of (and good relations maintained) before tackling services.2 Most MFIs that offer these services did the difficulties associated with managing agents so in a second phase after deploying the agent at a distance. channel. For MFIs currently piloting agent networks, implementing an agent banking channel is seen as the only way to expand. Agent networks are The most successful agent networks expected to replace the opening of new branches were usually started near MFI and existing branches may become a lite-branch, branches. with minimal staff and cash handling. This synergy between branches and agents demonstrates that even where there is a successful agent network, the MFI branches remain relevant. Indeed, one MFI found that the agent network increased transaction frequency as clients continued to use branches and, in addition, also did agent transactions. If the digital strategy is to convert existing clients, agent proximity to a branch is obvious. But even if the main focus is attracting new clients, proximity to branches provides a ready-made 2 In the study, mobile banking via an application or the USSD channel was introduced by Access Bank TZ, AB Microfinance Bank NIG, and FIN- CA DRC, and Microcred Senegal was in pilot. 4 customer base early on. It is important that agents Size of agent network: Many of the MFIs fell get a critical mass of business in the early days, or into the trap of wanting a large agent network they stop investing in the MFI business, diverting as quickly as possible to reassure management funds to other activities. This is particularly that the digitisation plan was being successfully a problem in markets where retailers already deployed. This tactic is usually a mistake and the provide agent services to other operators. Agents focus should be on active agents3. Inactive agents are astute in determining the most profitable ways are a cost rather than a source of revenue due to to invest their money. If they have limited funds wasted recruitment and POS device deployment to invest in liquidity they may choose to support resource; and there is reputational damage when only the most popular (and profitable) DFS, which clients have an unsatisfactory experience at these usually belong to the MNOs. An MFI in the study outlets. The median agent activity in this study was that had exactly this problem found that focusing just 60 percent in the second quarter of 2017, but on the quality of service provided by those agents still higher than the global average for all DFS that they could recruit helped greatly in mitigating providers at 51.4 percent, which was encouraging4. lower agent numbers. However, two MFIs in the study reported that less than 40 percent of their agents were active. Figure 2: Median number of active agents (as % of total agents) over the duration of this study 3 There are several definitions of active agents. The most commonly used is that agents should perform at least one money movement transaction per month to be considered active. 4 GSMA 2015 State of the Industry Report: Mobile Money https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2016/11/ SOTIR_2015.pdf 5 Over the three years of this study, the median The number of active customers per active agent number of agents across all nine MFIs grew: was in a range from 50 to 150, with the median at 90 for all MFIs, in line with this hypothesis. • The median number of total agents grew by 14 percent per quarter whilst the median number of active agents grew by CASE STUDY 18 percent. Microcred Bank Madagascar • Overall, this means the proportion that Microcred Group is known as a credit-focused was active grew by around 1 percent per institution, targeting the SME market. In 2016 quarter. it focused its DFS strategic goals on minimizing the cost of extending its access to new deposits This suggests that the MFIs got better at by using agents in order to reduce the number recruiting and incentivizing quality agents of new branches needed to grow its reach; and over time, and that resources were allocated by offering clients new products and services more effectively. Further, MFIs got better at through the digital channel to make the agents consolidating the existing network, although profitable. Microcred Bank Madagascar was inactivity levels can be improved further. the first microfinance bank in the country to launch an agent network in early 2015. Deposit mobilization was the strategic driver. Despite regulatory approval for only four pilot agents, “A critical mass of agents is encouraged by the results and in the spirit of necessary for launch, but this can be the new strategy, MBM decided to extend to 400 agents by March 2016. The deployment quite small.” involved a number of strong features, such as user-friendly technology using agent tablets and biometric identity verification. Agent liquidity was augmented by an MNO wallet to A structured agent recruitment plan is necessary, allow agents to use the MNO agent network growing the number of agents with client for liquidity, turning a potential competitor into demand. This means that an average agent can an asset and ensuring that as far as possible expect a certain level of business and return on agents would be able to serve customers outside their investment in working capital. A critical banking hours. This strategic focus on creating a mass of agents is necessary for launch, but this large, high quality agent network was expected can be quite small, starting near branches and to deliver the required deposit mobilization. working outwards to other areas over time5. Two MFIs in the study started with fewer than 50 However, the central bank responded by insisting agents and are showing signs of success6. There that it must perform background checks on every is no hard rule about DFS agent numbers but agent; a process that significantly slowed down recent research7 suggests that for established the agent roll out. Later, the regulator required DFS, on average around 100 – 300 active clients that financial institutions intending to operate per agent gives a profitable agent network. an agent network should set up a Banking MFIs are expected to process relatively higher Operations Intermediary and apply for a license. transaction values, and liquidity constraints would suggest that the MFI client to agent ratio Because of this, the MBM agent network should be at the lower end of this range. This expansion had to be put on hold, and the seems to be the case - in this study the median launch of new agent-related services marketing transaction value was at US$117, about three activities postponed. times the average transaction amount of US$38 for MNOs providing DFS.8 9 5 Even the hugely successful Kenyan DFS, M-PESA, launched with less than 300 agents nationwide. 6 Both LAPO Nigeria and Advans Cameroon launched DFS with fewer than 50 agents 7 http://www.helix-institute.com/blog/benchmarking-customer-agent-ratios 8 Longitudinal study results from the second quarter of 2017 9 GSMA 2015 State of the Industry Report: Mobile Money (Usage) https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2016/11/SOTIR_2015.pdf 6 Further, MBM had to close 94 agents for being non- This strategic re-focus proved to be very successful. compliant with the new regulation. Meanwhile, Over the 15 months from the start of agent MBM created an intermediary organization and restrictions being imposed, MBM’s digital business applied for the required license. actually grew. Client transactions increased by over 50 percent in both volume and value. The result MBM treated this enforced pause in its agent of quality improvement activities was that total network expansion (and the enforced downsizing) transactions at agents grew by around 4 percent per as an opportunity to focus more on agent month even though the number of agents dropped quality. The DFS team used the time to ensure by nearly 25 percent. This also had the effect of full integration with the core business. Branches increasing the average revenue of the remaining were closely involved in agent operations and agents by around US$ 29 per month. This is an incentivized to redirect clients to them. Loan excellent demonstration of the importance of agent officers had targets for deposit mobilization and quality versus quantity, and how fewer strong agents agent usage. MBM designed a staff promotion can make a positive impact on business growth as a scheme involving the DFS. To extend and improve cost-effective alternative to recruiting and managing the client offering, a tailor-made “taka lona” nano- a larger network with associated costs. Agents loan product based on an automated-credit accounted for 52 percent of all transactions by early scoring was introduced, distributed only via 2017, and MBM is now moving to a model where the existing agent outlets. agent network will be the primary channel. Intervention of regulator 60 450 Transaction volume in 1000 400 50 350 Number of agents 40 300 250 30 200 20 150 10 100 50 - 0 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 Jan 16 Feb 16 Mar 16 Apr 16 May 16 Jun 16 Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Agent transaction volume Number of agents Number of active agents Figure 3: MBM agent transaction volume and number of agents 7 Agent recruitment options MFIs that build successful agent networks involve their branches in the business plan. The types of outlets suitable for consideration as Branch members need to understand the agents may be specified by regulation to meet rationale for going digital. If they are to recruit certain minimum standards. The MFIs also have and manage local agents, this task must be requirements concerning the location, nature reflected in both the branch and personal of the business, adequate funding of the agent performance measures. They also need access account, and the shop assistant’s ability to to training and resources. Whatever the perform transactions and give clients assistance. approach to agent recruitment, the whole organization, and especially the branches, An MFI agent network study10 in DRC showed need to buy in to the digital strategy and that agents are generally most successful in support it rather than considering the agents densely populated, low-income areas that have to be competitors, a threat to jobs, or simply a lot of commercial activity, which matches irrelevant to their core business. well to urban MFI client locations. However, other factors were identified as being of great significance when selecting the agents most likely to be successful. Most striking was that statistically, female-run businesses significantly “Female agents significantly outperformed those run by men, performing outperformed male agents.” 12 percent more transactions per month on average. Transaction volume was higher with female agents consistently performing about 20 more deposits per month than men11, and women were rated higher overall for client Agent recruitment and management is time service in FINCA’s monthly monitoring scores. consuming and falls outside of most MFIs In addition, the study identified that service core competence. For these reasons, some providers (e.g. hairdressers and tailors) are organizations outsourced agent management generally more successful agents than retailers, to independent businesses to act as agent perhaps because agent activities involve the aggregators (sometimes called “super-agents”). provision of services. Women are often more Aggregators are responsible for recruiting new prevalent in the service sector, and this adds agents, training and provisioning them. The to the attractiveness of recruiting female run aggregators often performed administrative businesses as agents. tasks on the MFIs behalf, and assisted the agents with liquidity management. Aggregators can Age was also found to be significant in agent be particularly useful in areas where the MFI performance for both sexes, and this may be has no physical presence. However, they can associated with trust. In the DRC research, also be a significant expense so the cost/benefit older agents were significantly busier than calculation must be performed before deciding younger ones. For every year the agent age whether to use them. One option is to use increased, the number of cash-in transactions aggregators to build the agent network for a increased by roughly four. This data reinforces contracted period, but bring agent management the importance of focusing on agent quality. in-house once good working practices and Certain types of businesses and owner procedures have been established. characteristics lead to better agent networks, and recruitment strategies should target agents based on these features, rather than mass-market signup of any outlet that meets the basic regulatory requirements. 10 The Partnership for Financial Inclusion field note 5 “Women Make the Best DFS Agents” http://www.ifc.org/wps/wcm/connect/16fafca1- dbbc-4e0f-be83-4daf75aabadf/Field+Notes+5+-+Women+DFS+Agents.pdf?MOD=AJPERES 11 This result was statistically significant in all models, with robust standard errors 8 CASE STUDY Urwego Bank Rwanda Urwego Bank (formerly Urwego Opportunity Bank, Eventually, budget cuts rendered the aggregator or, UOB) is a Rwandan microfinance bank. In 2016 unaffordable, and without liquidity only a third of HOPE International, formerly a minority shareholder agents remained active. in Urwego, acquired a majority shareholding in the bank from Opportunity International. Inspired by In 2017, Urwego Bank began a restructuring process. social and commercial motives, in 2013 Urwego Given the high operating costs of using branches devised a strategy to increase financial access for the to reach remote and underserved populations underserved population to facilitate economic and in Rwanda, Urwego decided to more fully utilize social transformation by creating an agent network. its existing investment in mHose and drive an The network would also reduce the need for loan increasing amount of lower value transactions officers to engage in cash handling; thus reducing through the agent network. Urwego is using security and operational risks. An agent banking lessons learned through years of operating mHose channel branded mHose subsequently launched to to reinvigorate the delivery channel, strengthen remove cash handling from loan officers, recruit new its operations, reduce costs, and rehabilitate the customers and drive efficiency. bank to a profitable position that is aligned with the shareholders’ dual bottom line of sustainability Urwego’s digital initiative was challenged as and mission achievement. With this in mind, the its agent network was strategically separate agent strategy has had a new makeover, which from the branches and the loan officers, whilst has included changing the reporting lines so that the objectives of the digital strategy focused on agent managers sit within the branches, and that efficiency gains from these two areas. Neither all branch staff have new KPIs to support the agent the branches nor the field staff were involved network. in the creation and management of the agent network. An outsourced super-agent (aggregator) New over-the-counter fee structures are being was enlisted to recruit agents, and this proved implemented to incentivize usage of the agents to be successful in urban areas. However, the rather than branches for lower value transactions, aggregator was poorly equipped to deal with and the agents have been rebranded to better align the challenges in rural areas where digital and with the bank and branch branding to improve the financial literacy is lower and where the cost of customer experience. Urwego will use the agent recruiting and training agents was substantially network to expand in rural areas; in underserved higher than expected. The strategy began to markets that are best suited for its products and falter.Because the agent channel was separate, approach. The goal of Urwego is that all group and even viewed as competitive to the branches, savings and loan transactions will be conducted additional resources could not be mobilized and through agents by the end of 2018; and that it will the aggregator was seen as too expensive to in turn see an expansion in its customer base and operate independently. return to profitability. 9 Agent business case: To attract retailers to Agent management: Once agents are become agents and invest in electronic funds operational, they need to be managed either and possibly in POS devices, they have to be by MFI representatives or aggregators. presented with a good business case. Small- Agents need daily statements for reconciliation scale entrepreneurs have many competing purposes and to manage liquidity, reports priorities and limited resources, so the MFI needs on commission earned, and a process to to convince them that agent activities are an access it. Processes are needed to ensure that attractive opportunity even if it may take some the outlets are properly merchandised with time to reach its potential. Easy access to liquidity agent signage and information; to collect and management is particularly important to the deliver documentation; to provide refresher agent business case, as agents typically wish training; to inform them of changes to the to commit the minimum amount to the agent service; and critically, agents need a responsive business and invest the rest in other ventures. supervisor and backup help-line they can call if The ability to manage cash and digital currency there is a problem. exchange quickly and efficiently means they can optimize the funds committed, providing a good agent service at minimal cost. “MFIs strategic objectives evolve over Over the three years of this study, the median quarterly commission per active agent grew time as they gain a more comprehensive from US$46.49 to US$53.25, growing at 3 view of the benefits of digitization.” percent per quarter. Even though the number of agents grew at a faster rate than active customers, there were still sufficient additional transactions taking place to provide each agent The Digital Financial Services team needs to with more revenue. This result is particularly maintain a strong understanding of agent encouraging because one of the MFIs reduced activities and performance. If an agent is its agent commission per transaction part way inactive or underperforming, this needs to be through the study. identified and resolved. There are also specific risks associated with agent services and these Combined with the quarterly net 3 percent must be monitored and managed. As the digital growth in active agents, this result shows that business grew, some MFIs chose to introduce there was an increased client demand for agent new services and these initiatives also had to be services that overtook the growth of the active managed by the DFS team. agent network. The question remains as to whether a quarterly income of US$53 is sufficient to provide a cost-effective return to agents. 60 51.93 50.73 50.18 53.25 46.49 46.20 44.92 33.97 40 32.60 32.09 20 0 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Median of study MFIs Growth trend Figure 4: Median quarterly agent commission over the study period 10 Agent technology: A common strategic consideration CASE STUDY is which POS device the agent should use and who Advans Cameroun pays for it. POS selection can determine the success or otherwise of the digital strategy. Conventional dedicated Created in 2007, Advans Cameroun, a microfinance POS devices can be disproportionately expensive institution, currently has around 66,000 clients and compared with the revenue and commission that they 12,000 loans outstanding that include over 3,000 will generate, and they also have technical limitations. group loans. The organization’s priority is to increase One MFI reported spending US$1,250 per agent device the savings deposit base, offer products close to and although the price has reduced recently, payback clients’ needs and embrace the development of on this technology must be several years. Another MFI alternative delivery channels. supplied cheaper, lower specification devices at under US$200 each. Smartphones and tablets are better In July 2016, Advans launched digital payment suited to the fast changing digital environment and collection by field staff and at the end of 2016, started are easier to update as technology changes. They can delivering its services through an agent network to be used to create digital forms, take photographs, and extend its footprint and gain new clients at low cost. are capable of transmitting digital documentation Advans’ innovative strategic approach is based instantly. Plug-in card or biometric readers and on market segmentation, resulting in a diverse Bluetooth printers can customize them to the agent portfolio, tailored to client needs. needs. However, an MFI using tablets reported paying around US$600 per agent POS, which seems extremely Advans’ internal agent ecosystem is based on expensive even with import duties. In many instances, a team of 27 “mobile collectors”. These Advans a personal computer or phone was used by agents at staff are responsible for visiting clients, who their own expense. It appears that many MFIs could have subscribed to the service, to collect cash benefit from more cost-effective device procurement. deposits on a daily basis using mobile devices New low-cost Android devices and tablets could be an to log transactions. Their role is similar to that attractive option for consideration. of traditional “susu” collectors, and the service supports a very common local practice, but making it formal and secure by digitalizing it. “Many MFIs could benefit from more In addition, since end 2016 Advans has developed cost-efficient device procurement.” an agent network structure that is unique and strongly focused on quality of service. The direct recruitment and management started with less than ten agents, growing, as the team gained agent management experience, to 41 agents a year later. Agents are responsible for their liquidity, and Most of the MFIs in the study provided POS devices in some cases benefit from the mobile collection to agents for free, but as dedicated devices are services, which facilitates cash management with expensive are considering making the agent pay a mobile collectors coming directly to the partner’s contribution towards the cost. Some already offer point of sale. The agent network offers cash loans for POS devices at preferential rates. Agents in, cash out, account to account transfers, and tend to expect the MFI to pay, given the unproven information inquiries. business case and the relatively low margins they can earn. Advans Cameroun also developed outlets, in both urban and rural areas, which are complementary to the agent ecosystem. Outlets do not handle cash. Instead, they direct clients to nearby agents for deposits and withdrawals. The personnel who operate these are responsible for client registration, loan processes, providing information about all Advans services, and other administrative tasks. A year after launch, Advans has nearly 4,000 customers subscribed to the mobile collection service, of which 80 percent are active, and about 3,000 clients using the agent network. Mobile collectors are responsible for a hefty 38 percent of 11 Implications the institutions’ deposits by number, but just All successful DFS implementations start 4 percent in volume. This suggests that the with a strong strategic understanding of the strategy of using this channel to increase clients’ benefits it should deliver to both the users and deposits frequency is working. Meanwhile, the the provider. Unfortunately, it is common for agent network accounts for 23 percent of the institutions to rush into deploying DFS with total number of deposits in the cities where they insufficient strategic planning. Sometimes are implemented, and 6 percent in volume. In this is due to internal pressure, sometimes a total, the number of deposits through mobile perceived competitive threat, or even external collectors and the agent network accounts pressure and encouragement catalyzed by for 47 percent of Advans Cameroun’s deposits, offers of funding. Few MFIs have the internal highly contributing to the total increase in resources, skills and experience to fully map out number of deposits of 62 percent over the past the implications of deploying digital services year. It therefore appears that the new channels upfront, and are advised to seek assistance from main impact is the increase of clients’ usage of industry experts until the knowledge base has accounts, while the core branches remain the been built. Investing in knowledge upfront is main channel for higher volume of deposits. likely to pay off in the longer run, as even small mistakes early on in a DFS deployment can have Following the successful launch of its agent large implications. Key strategic lessons for any network, Advans plans to expand the agent MFI entering this space are: network in rural areas throughout 2018, facilitating loan disbursements, repayments • The two most common strategic goals and general access to accounts. Advans offers for digitization of MFIs are to increase a successful agri-product through cooperatives deposit mobilization and to extend reach or directly to individuals, that takes into cost-effectively. Of these, the first to be account the seasonality of income. Advans has achieved amongst the studied sample was also successfully put in place the financing greater outreach, as agents supplement of value chain since 2016, which includes the branch infrastructure and provide the cocoa producers. MFIs service to a wider market. In this study, increased outreach, both in terms In a short time, Advans has demonstrated that of clients and locations, was significant it is possible to create significant participation in where the agents had been in operation a digital strategy based upon diversification and for over three years. fine-tuning channels to the needs of different customer segments. • Many MFIs have yet to meet the other key strategic objective of increasing their deposit holding, but those that have been operating agent networks for a while are starting to see signs of net growth. It is clear that for digital strategies to be successful it takes several years and the “Digital strategies that focus on high MFIs need to be patient. quality active agents, rather than high • MFIs strategic objectives evolve over time numbers of agents, are always the most as they gain a more comprehensive view successful.” of the benefits of digitization. Indirect sources of revenue such as improving operational efficiency, better customer experience, and offering a wider range of services, gain importance. 12 • It is essential to secure the whole • There are many approaches to implementing a organization’s understanding of, and buy-in to digital strategy. While the creation of an agent a digital strategy. Branches and regular staff network is the most common, others, such as need to be involved in agent management, making agents part of a segmented structure with appropriate personal performance tailored to the clients needs, such as Advans indicators to guide their engagement. If the Cameroun has done, can also be effective. MFI staff are not involved and supportive, particularly branch and field staff that have MFIs have industry-specific goals for their digital direct contact with clients, the DFS is likely to strategies, and in order to deliver them, they struggle. should focus on the activities that support these goals rather than thinking in terms of “cut down” • Using agents saves approximately 25 percent versions of the DFS offered by other (larger) of the operational costs associated with organizations, such as MNOs and commercial branch transactions. banks. The nature of an MFI business is quite different, as are the scale and the resources • When creating an agent network, it is more available. MFIs have the advantage of regular important to prioritize quality over quantity contact with their client base, via loan officers, - the most successful agent networks are not group meetings and in branches, where the necessarily the largest. Digital strategies that benefits and use cases relevant to the customers’ focus on high quality active agents, rather personal circumstances can be explained. than high numbers of agents, are always the most successful. This is well demonstrated The branches can be powerful assets in recruiting by the MBM case study, which showed that, and managing suitable agents, and an inclusive despite external factors that forced it to close internal approach is the key to ensuring that the 25 percent of its agent network, a strategic whole organization supports and promotes the decision to focus on agent quality meant that digital strategy. its DFS business continued to grow. There is a growing body of evidence about what characteristics to look for in a potential new agent to improve the chance of that agent being of high quality. 13 AUTHOR Susie Lonie is one of the creators of the M-PESA money transfer service in Kenya and Tanzania and an IFC consultant. She consults on digital financial services in emerging markets. In 2010 she was awarded “The Economist Innovation Award for Social and Economic Innovation” for her work. ACKNOWLEDGMENTS IFC and the Mastercard Foundation is grateful to all nine microfinance institutions for participating in the longitudinal study. Special thanks here to the three organizations contibuting case studies to this Field Note: Advans Cameroun, Microcred Bank Madagascar, and Urwego Bank. Julia Conrad, IFC Monitoring & Evaluation analyst, contributed to this Field Note. Contact the Publisher: Anna Koblanck AKoblanck@ifc.org +27(0) 11-731-3000 IFC, Sub-Saharan Africa 14 Fricker Road, Illovo, Johannesburg