<p>Prior to her current role as Vice President of Strategic Initiatives at Accion, Lauren was CFI&#8217;s Vice President of Strategy and Communications, engaging with CFI’s researchers to produce meaningful knowledge products in support of CFI’s strategy.</p>
<p>Lauren was previously Senior Director, Strategy and Portfolio Management at Marriott International, where she led strategic initiatives for the Digital Guest Experience program. Prior to this, she worked in inclusive finance for 15 years, focused on digital financial services and strategic communications. Lauren worked at CGAP for 12 years, most recently leading research and projects on digital finance innovations for the health and education sectors. Lauren also served as the Managing Editor of the FinDev Gateway and founder of the Gateway Academy, in addition to roles as a microenterprise consultant and researcher at an education nonprofit.</p>
<p>Lauren holds a bachelor’s degree in International Political Economy from the University of California, Berkeley, and a master’s degree in International Development from Johns Hopkins School of Advanced International Studies (SAIS).</p>


Vice President, Strategy and Communications

Lauren Braniff

Report

Accounting for about 90 percent of businesses and employing more than 50 percent of the labor force in some markets, micro, small, and medium enterprises (MSMEs) are the backbone of the economy. However, since the pandemic began, MSME owners have experienced severe crises and challenges to their businesses. To understand the impact of the pandemic on these businesses and households, CFI conducted a <a href="https://www.centerforfinancialinclusion.org/research/covid-19-and-msmes-data-and-analysis-to-understand-impact">longitudinal survey</a> of over 1,600 MSME owners from June 2020 to October 2021 over six waves, and conducted focus groups of 130 MSME owners from march to April 2022 in four countries — Colombia, India, Indonesia, and Nigeria.

This publication provides insights into how MSMEs have navigated challenges presented by the pandemic and what support they had available. It also presents lessons learned to help prepare for future crises, as well as recommendations for what inclusive finance stakeholders can prioritize to improve MSME resilience.

Preparing MSMEs for Future Crises: Lessons From COVID-19

Shradha Modi

Katia Huayta Zapata

Aeriel Emig

What's the scale of the pandemic's impact and how are MSMEs coping? Dive deeper into CFI’s data dashboards and analysis on Nigeria, Indonesia, Columbia, and India.

COVID-19 and MSMEs: Data and Analysis to Understand Impact

Brief

The Precarious State of MSMEs: Understanding the Impact of COVID-19  and Opportunities to Support their Recovery

Digitalization of financial services was already progressing rapidly. The pandemic has escalated both the pace of change and the urgency to protect consumers, especially those interacting with digital products for the first time. 

Blog Post

Two days ago, <a href="https://centerforfinancialinclusion.org/reimagining-inclusive-finance-with-women-in-mind/" target="_blank" rel="noopener noreferrer">we met Carla</a>, a woman in Tanzania with limited access to financial products that could help her save, plan, borrow, and make and receive payments. Now imagine that Carla’s husband became ill with COVID-19 and the market where she normally sells her vegetables has been shuttered by lockdowns to prevent spreading the virus. The family’s income has completely dried up. Carla is eligible for a government program which deposits funds directly into a mobile money account, but Carla has never used mobile money and is completely unfamiliar with the family’s new smartphone that’s registered in her husband’s name. This scenario is playing out around the world for many of the <a href="https://openknowledge.worldbank.org/handle/10986/33635" target="_blank" rel="noopener noreferrer">1.1 billion first-time recipients</a> of cash transfer payments in response to COVID-19. Who will help Carla figure out how to access the funds? Where can she go for help?

COVID-19 and its overwhelming impact on the health and livelihoods of people around the world has been the defining issue of 2020. Unexpected and unparalleled, the pandemic has been particularly devastating for low-income people already living on the brink of poverty. <a href="https://www.worldbank.org/en/news/press-release/2020/10/07/covid-19-to-add-as-many-as-150-million-extreme-poor-by-2021" target="_blank" rel="noopener noreferrer">The World Bank estimates</a> that COVID-19 is likely to push between 88 and 115 million people into extreme poverty, reversing the poverty reduction trend of recent decades.

With this new wave of economic uncertainty, governments have been quick to adopt cash transfer programs to help people cope with the impact of the pandemic. The World Bank reports that 340 cash transfer programs in 158 countries were initiated in response to COVID-19. Of those, 65 programs in 43 countries are new initiatives which are introducing benefits to 1.1 billion first-time cash transfer recipients.

The scale and speed at which these programs have been created and disbursed is unprecedented and has required governments to adapt their processes to get the funds out the door quickly and efficiently. Many have turned to digital channels. On the one hand, this presents an <a href="https://www.cgap.org/blog/can-emergency-cash-transfers-lead-financial-inclusion">opportunity for onboarding</a> customers to the digital finance ecosystem. On the other, it poses significant challenges for customers who are unfamiliar with the system that stands between them and the funds that they desperately need during these challenging times. If something goes wrong when trying to access the funds, whom can they turn to? If they can’t locate any cash-out locations due to lockdowns, how can they access the funds? If someone thinks they are eligible but has not been enrolled, whom do they contact?

During the course of Financial Inclusion Week, we asked participants to share what they’re seeing with regard to emerging consumer protection risks in light of COVID-19. Here’s a sample of what we heard:
<ul>
 	<li>Most respondents believe the rapid digitization of cash transfers presents increased risks for customers</li>
 	<li>Fraud by staff or agents was the most commonly cited type of risk observed, followed by excessive fees and poor data protection and security</li>
 	<li>Respondents would like to see better mechanisms for supervisors to monitor misconduct, and more consumer awareness and capability trainings by providers</li>
</ul>
Have you experienced similar risks where you live or work? <a href="https://app.sli.do/event/oqxdkouf/embed/polls/c12f34ed-3a47-4023-96fe-73f15cb5a722" target="_blank" rel="noopener noreferrer">We are collecting global examples of risks</a> through an ongoing survey and invite you to help us uncover specific instances we should explore as part of our ongoing research on this topic.
<h2>Looking Ahead</h2>
Beyond the specific and urgent issues related to the proliferation of cash transfer payments, we must continue to reimagine the paradigms that will enable improved consumer protection in a digital age. Supervision Technology, or SupTech, for example, is changing the interaction between customers, financial service providers, and supervisors by providing direct communications channels between customers and supervisors. In the Philippines, the central bank is piloting a <a href="https://www.marketscreener.com/news/latest/Moving-from-Crisis-to-a-Stronger-Tech-driven-More-Inclusive-Philippines--31488613/" target="_blank" rel="noopener noreferrer">chatbot</a> named BOB, or BSP Online Buddy, to handle customer concerns sent by SMS, Facebook Messenger, and online chat. This type of direct connection between customers and supervisors can strengthen monitoring systems and help track the customer experience and where protections are needed. Just as we continue to monitor new consumer risks related to the digitization of financial products, we must also continue to research, test, and advocate for innovative approaches to monitoring market conduct.
<blockquote>Just as we continue to monitor new consumer risks related to the digitization of financial products, we must also continue to research, test, and advocate for innovative approaches to monitoring market conduct.</blockquote>
At the end of 2019, when CFI began to <a href="https://centerforfinancialinclusion.org/new-decade-new-focus-areas-cfis-role-in-an-evolving-space/" target="_blank" rel="noopener noreferrer">consider the future</a> of our consumer protection agenda, we never imagined the world that we now find ourselves in. Yet the questions being raised in this context are not new ones. As we collectively work to expand access and usage of financial services that we know can improve lives, how do we do so in a way that sufficiently protects vulnerable customers? The evolution toward digital channels has been underway for many years, already requiring that we reassess the next wave of priority research topics, yet the rapid expansion of digitized cash transfer payments and the rapidly changing context of the pandemic has propelled this effort and made the work even more urgent.

As <a href="https://pheedloop.com/fiw2020/virtual/" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> draws to a close today, we hope the conversations held, the connections formed, and the knowledge gained will be put to productive use as we continue to advance inclusive finance in a way that has consumers best interests in mind at every step.


COVID-19 Ushers in New Challenges for Consumer Protection

<h2>Moving Beyond Payments</h2>
<p>One of the most important ways providers can encourage more funds to stay in the system is to provide access to a range of financial services. While recent years have seen the growth of digital credit products offered directly by mobile money providers, the 2019 State of the Industry report notes that providers are increasingly partnering with financial institutions which can offer a wider range of services. For those services integrated with financial institutions, they are connected to an average of 13 banks.</p>
<p>This marks an important evolution of the market for several reasons. For individuals, it means those with a bank account can use mobile money services to seamlessly conduct transactions. For those without a bank account, it may open the door to an account and eventually to a range of products, from savings to credit and insurance. Partnerships with regulated financial institutions provide additional safeguards for customers, and result in better underwriting and risk mitigation for both customers and banks. A <a href="https://www.microsave.net/wp-content/uploads/2019/09/Digital-Credit-Kenya-Final-report.pdf" target="_blank" rel="noopener">MicroSave report</a> found that “non-performing loans in Kenya decreased by 20 percentage points for mobile money providers that had partnerships with banks.” Yet the research also showed that non-performing loans were still about three times higher for digital loans (16 percent) than traditional products (5 percent). Partnering with banks should help manage the potential for over-indebtedness, <a href="https://centerforfinancialinclusion.org/digital-credit-in-africa-are-nano-loans-safe-for-consumers/" target="_blank" rel="noopener">a well-noted risk of the nano-credit products</a> offered by many mobile money providers.</p>
<blockquote><p>Mobile money providers partnering with financial institutions has been a boon for both providers and customers.</p></blockquote>
<p>For mobile money providers, partnerships with banks and other companies appear to have been key to 60 percent of providers reporting a positive EBITDA in 2019. This growth in profitability comes at the same time that providers report a reduction in reliance on customer fees, from 80 percent in 2018 to 67 percent in 2019. In addition, 21 percent report that business fees are now driving a majority of their revenue. Providers are shifting to the <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2019/02/Embracing-payments-as-a-platform-for-the-future-of-mobile-money.pdf" target="_blank" rel="noopener">“payments as a platform” model</a>, whereby their networks are leveraged by a wide range of service providers and businesses. This diversification – as well as innovative products and services – will continue to be key to the viability of mobile money business models and has the potential to deliver enormous value to customers.</p>
<h2>We’re Not There Yet</h2>
<p>While I feel encouraged about the positive evolution of the sector, there are several areas that need continued attention. First, male users still dominate. To truly realize the opportunities posed by mobile money for low-income populations, we must do more to design and deliver services that resonate with and empower women. <a href="https://centerforfinancialinclusion.org/new-decade-new-focus-areas-cfis-role-in-an-evolving-space/" target="_blank" rel="noopener">Closing the gender gap in financial services</a> is a key component of CFI’s new strategy, so expect to hear more from us on this topic in the coming months.</p>
<p>Second, there is immense untapped potential in delivering a range of financial products over mobile money platforms, particularly in markets where P2P continues to dominate. <a href="https://www.inclusivefintech50.com/winners" target="_blank" rel="noopener">Fintech players offering a range of products and services</a> &#8212; from innovative health and agricultural insurance products to sanitation loans &#8212; are showing up in headlines around the world. Many of these startups are likely to suffer due to COVID-19, making the support of donors and investors even more critical. Be sure to follow the results of the 2020<a href="https://www.inclusivefintech50.com/" target="_blank" rel="noopener"> Inclusive Fintech 50</a> awards for a preview of the next wave of innovators, and insights into how previous winners are faring in light of COVID-19.</p>
<blockquote><p>Gender equality, support for innovation and data issues are areas that need continued attention in mobile money.</p></blockquote>
<p>Third, <a href="https://www.centerforfinancialinclusion.org/series/data-protection-financial-inclusion-why-it-matters" target="_blank" rel="noopener">data localization, transparency, and privacy</a> are topics of growing importance that will affect how much control customers have over their financial well-being. CFI will also be diving more deeply into these issues going forward to help ensure that as we take steps toward data regulation, customer needs and protections remain at the forefront.</p>
<p>While COVID-19 is having devastating impacts on economies and livelihoods around the world, the strong growth of mobile money in recent years may provide the foundation for a new round of innovation and advancement in access to and usage of digital financial services. Financial service providers, regulators, policymakers, and funders must collectively work to address pervasive challenges in financial inclusion to help realize its potential to transform lives, now more than ever.</p>


We recap key takeaways from the report as well as steps that must be taken to leverage the growth of mobile money to help mitigate the impact of the pandemic on both individuals and businesses.

One billion mobile money accounts.

This is the headline figure that emerged from this year’s <a href="https://www.gsma.com/sotir/wp-content/uploads/2020/03/GSMA-State-of-the-Industry-Report-on-Mobile-Money-2019-Full-Report.pdf" target="_blank" rel="noopener noreferrer">State of the Industry Report on Mobile Money</a> by GSMA. The growth in mobile money accounts is indeed remarkable. But beyond this number, the report tells the story of an evolving industry, marked by significant advances in volume of activity, types of transactions, people using the services, and emerging business models.

Based on the current trajectory, mobile money accounts are on pace to generate $1 trillion in annual transactions by 2023. Will COVID-19 derail this progress? Or will the pandemic demonstrate the power of mobile money, and further fortify the critical role mobile money plays in low- and middle-income countries (LMICs)?
<h2>The Digital Ecosystem Comes to Life</h2>
Ever since mobile money emerged in the mid-2000s, businesses, researchers, and those working to advance inclusive finance have talked about how to get more money to stay in the system (see examples <a href="https://www.cgap.org/blog/m-pesa-replacing-cash-kenya">here</a> and <a href="https://www.cgap.org/blog/mobile-money-10-things-you-need-know">here</a>). If funds stay in the mobile money ecosystem, the complexity and inherit cost of cashing in and out in remote areas is diminished and users can benefit from other products and services beyond money transfer. In the early days, most people put money in for the sole purpose of someone else taking it out. That story seems to finally be changing (at least in some markets) as we now see a higher value circulating than exiting the global mobile money ecosystem ($22 billion vs $18 billion). Further, we also now see more digital transactions than cash-based transactions, indicating that people are leaving money in their digital wallets and using those funds to make digital transactions.

The report points to a few reasons for this shift. First, digital payments are quickly becoming a routine part of people’s lives. Taxis, schools, shopkeepers, and even governments increasingly <a href="https://www.betterthancash.org/tools-research/reports/opportunities-of-digitizing-payments">accept mobile money payments</a>, so the need to take cash out of the system to conduct daily transactions is lessening. Second, the industry is finding ways to make it easier for people to make those routine transactions, such as QR codes and overdraft coverage. For example, the report cites that merchants using QR codes transact three times more in value than those without. And third, mobile money providers are offering value-added tools to help micro and small enterprises not only better manage digital payments but also other business functions, such as inventory management and accounting.
<blockquote>The evolution toward a digital ecosystem is uneven worldwide.</blockquote>
That said, this evolution toward a digital ecosystem is not necessarily seen evenly throughout the world. Latin America and the Caribbean saw a decline in active accounts and transaction volume in 2019. And while South Asia has a high overall number of registered accounts, the percent of active accounts in the region is the lowest in the world. In India and Bangladesh, a survey of adults with a SIM card but no mobile money account found that their primary reasons for not using mobile money include a preference for cash and a high number of alternate ways to transfer money.

Sub-Saharan Africa, by contrast, has the highest percentage of active accounts at 50 percent (see graph below). In Mozambique, the same survey found that literacy and skills were the biggest obstacle to mobile money usage rather than a preference for cash. It’s clear that the evolution of mobile money is context specific and the trajectory will not look the same everywhere. But in many parts of the world, more is needed to develop the ecosystem in a way that provides value to the user, either by providing a service that beats the alternative options (e.g. faster, more convenient, less expensive) or offers new services not available via other channels (e.g. digital credit, value-added services for MSMEs, insurance, etc.).


Lauren Braniff

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