> Posted by David Wager, Change Business Analyst, Credit Suisse
The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
This is the second in a series of several posts from this year’s Credit Suisse Virtual Volunteers, where research and insights across a variety of financial inclusion areas will be shared. The post begins:
What are fast-moving consumer goods (FMCG) companies, and what do they have to do with financial inclusion?
FMCG companies sell household and personal products – such as washing detergent, groceries, and toiletries – that are high in volume, low in profit, and normally purchased regularly. These products sell quickly and are relatively low in price. To sell them effectively, FMCG companies have distribution systems that penetrate nearly all parts of the community, including the base of the pyramid. Ensuring that their products are in the right place and appropriate to the consumers’ needs is pivotal to their success.
Financial service providers may be able to learn from the FMCG companies’ tactics and experience. What’s more, by leveraging their extensive networks and strong consumer knowledge, FMCG companies may themselves be able to advance financial inclusion in a way that is beneficial and scalable, providing services for the last mile.
The right product. FMCG companies realize that a variety of product options need to be offered to cater to different consumers. A good example of this is single-use packages for cleaning products. FMCG companies have realized that many lower-income consumers will purchase small packages although they may not be able or willing to pay for a larger box that would serve them for a longer time. In this instance, the product has been tailored to reflect the market. But while this lesson also applies to financial services, it does not always occur in practice. For example, as noted by Ali Ndiwalana of Grameen Foundation Uganda in a Grameen Foundation blog post, financial products have not been adequately adjusted for the market in western Uganda. Here the minimum amount required to open a bank account is the equivalent of $20, a sum accessible to few people. The FMCG companies in this area make their products available in smaller sizes, as small as a 16-cent sachet of the smallest quantity of cooking oil.
Backed by research. FMCG companies’ biggest strength is their ability to investigate their clients and understand client preferences. Procter & Gamble, for example, launched a concentrated, non-foaming detergent to consumers in Mexico. Marketers expected the product to do well because it was cheaper and took up less space. However, the product flopped. When investigating the reasons why, the research team learned that people did not think it was cleaning their clothes properly because of the lack of foam. The team modified the product and it started to sell once again. Financial services can apply the same learning research models to their provision of financial services.
Offered in the right place. FMCG companies can only sell their products if they are available where customers live and work. Extending their geographic reach means coming up with innovative ways to access customers. As mentioned on this blog a few weeks ago, Unilever is providing microfinance to its vendors in the Democratic Republic of Congo, so vendors can purchase bicycles for transporting Unilever goods. Unilever products penetrate the hardest-to-reach areas only reachable by bicycle while the vendors are provided with employment. The extension of microfinance by Unilever is mutually beneficial.
Their ability to reach and – more importantly – understand the customer means that FMCG companies are in a position to assist in and even provide microfinance services. As in the Unilever example, an opportunity exists for other companies to provide direct finance or support a MFI by leveraging their already extensive network. Extending this example, the same mutually beneficial arrangements may be replicated for other industries, like telecoms, dental care, and even cosmetics.
The network and customer knowledge possessed by the FMCG companies offers an accessible channel for a variety of basic financial services and products to be offered to a new group of people. To give you just the tip of the iceberg of the potential, approximately 12 percent of the world’s population lives in rural India. According to Nielsen estimates, this FMCG market could grow to $100 billion from its current level of $12 billion by 2025. As FMCG products increase their penetration, it could be a lost opportunity not to provide financial services, too.
For more information on Financial Inclusion 2020, sign up for project updates.
David Wager is a Change Business Analyst in the Investment Banking division at Credit Suisse, where he has contributed to the OTC Derivatives team since 2011. Prior to working at Credit Suisse David trained as a Technology Consultant with Deloitte where he focused on financial services. He holds a Master of Arts in Economic History from the University of Edinburgh.
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