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Richard Greenberg is a Managing Director of the Social Enterprise Finance group at U.S. International Development Finance Corporation (DFC, formerly OPIC). The group leads DFC efforts to place capital in highly impactful and innovative enterprises and funds.

Like other development finance institutions, DFC – which has prioritized inclusive finance for decades to address critical challenges facing the developing world – has been hard at work supporting immediate and longer-term needs of MFIs and other actors so they can continue supporting base-of-pyramid clients during the COVID-19 crisis. In this interview with CFI, Greenberg discusses collaboration with other DFIs, DFC’s social impact initiatives that support its development goals, digitization during the pandemic, and more.
<h3>In April’s COVID-related joint <a href="https://www.dfc.gov/media/press-releases/development-finance-institutions-join-forces-respond-covid-19-developing" target="_blank" rel="noopener noreferrer">statement</a>, the <a href="https://www.dfc.gov/media/opic-press-releases/opic-signs-mou-establishing-dfi-alliance-key-allies" target="_blank" rel="noopener noreferrer">DFI Alliance</a> highlighted that its DFI members would work to address not only current liquidity issues in the financial sector, but also other measures related to essential business activities. How have you collaborated on your inclusive finance objectives since that announcement? Has there been any other inter-DFI coordination? What more could be done in this regard?</h3>
There have been extensive conversations to collaborate and coordinate with other DFIs to ensure we’re deploying our capital as efficiently as possible given the significant impacts of the crisis. The crisis has generated tremendous demand for capital from DFC and other DFIs. Since we are long-term lenders focused on our missions, in times like these, DFIs become even more important in addressing market gaps.
<blockquote>In times like these, DFIs become even more important in addressing market gaps.</blockquote>
Many of the projects that we’re looking at involve multiple DFIs. Sometimes that’s a challenge because our level of participation, our products, our policies and our risk-return requirements may all be slightly different, but these diverse strengths and capabilities are also what make our collaboration so powerful. Our goal is to make sure we can accommodate—and leverage—the differences there may be to arrive at the financing package that best supports the developmental impact we’re seeking.

We have also recently announced that DFIs have collectively <a href="https://www.dfc.gov/media/press-releases/2x-challenge-drives-groundbreaking-45-billion-women-developing-countries" target="_blank" rel="noopener noreferrer">catalyzed $4.5 billion in investment financing</a> to support women through the <a href="https://www.2xchallenge.org/" target="_blank" rel="noopener noreferrer">2X Challenge</a>, surpassing the initial goal of $3 billion. Building on DFC’s <a href="https://www.dfc.gov/our-work/2x-womens-initiative" target="_blank" rel="noopener noreferrer">2X Women’s Initiative</a>, launched in 2018, we encouraged our counterparts from G7 countries to accept the 2X Challenge by prioritizing investments in women. And it’s not just G7 countries: 15 total countries have joined to date.

Another aspect of our collaboration is discussions with DFIs and other investment partners to share market and institutional response information. One of those groups that we have joined is being led by CGAP.
<h3><strong>In addition to the recently <a href="https://yourstory.com/2020/06/funding-alert-northern-arc-us-international-development-finance-corporation" target="_blank" rel="noopener noreferrer">announced</a> $50 million of debt financing for Northern Arc, has DFC provided direct assistance to institutions support base-of-pyramid clients during these difficult times? Could you tell us a bit more about how the Northern Arc support came to pass?</strong></h3>
We’ve had a long-standing relationship with the senior management of Northern Arc (formerly IFMR Trust). They are a pioneer and a leader in wholesale finance in India. They have tremendous expertise and knowledge of the market. The proceeds of our loan to Northern Arc will be used to expand its loan portfolio in areas of importance to DFC, such as women’s economic empowerment, food security, and the WASH sector.
<blockquote>Our goal is be as responsive as we can to what the market needs at this unique time.</blockquote>
Our goal is be as responsive as we can to what the market needs at this unique time, working with established and new clients. For clients that we have previously worked with, we’ve been able to move projects forward especially quickly throughout the crisis. For example, in India, we have closed and disbursed funds to two clients, including <a href="https://www.dfc.gov/investment-story/improving-access-quality-education-india" target="_blank" rel="noopener noreferrer">Varthana</a>, an education finance company that serves low-income families, and <a href="https://yourstory.com/2020/05/funding-alert-caspian-debt-investment-from-dfc" target="_blank" rel="noopener noreferrer">Caspian</a>, an income fund manager that lends to SMEs. The debt <a href="https://economictimes.indiatimes.com/wealth/save/sbi-loan-emi-moratorium-extended-here-are-all-the-details/articleshow/76087915.cms" target="_blank" rel="noopener noreferrer">moratorium</a> in India certainly created additional risk and complexity, but the quality of these entities and the strong relationships we had with them enabled us to keep moving forward.

These are just two examples among <a href="https://www.dfc.gov/media/press-releases/dfc-approves-1-billion-investments-global-development" target="_blank" rel="noopener noreferrer">many others</a> we are supporting in developing countries reeling from COVID-19, such as Banco Industrial in <a href="https://gt.usembassy.gov/dfc-approves-a-200-million-investment-for-guatemala/" target="_blank" rel="noopener noreferrer">Guatemala</a>, whose portfolio includes 30 percent women-owned or women-led businesses, Root Capital for farmers in Latin America and Africa, <a href="https://www.dfc.gov/investment-story/supporting-worlds-smallest-farmers" target="_blank" rel="noopener noreferrer">One Acre Fund</a> supporting farmers in Kenya, and a fund managed by <a href="https://www.dfc.gov/media/press-releases/dfc-approves-nearly-900-million-global-development-projects" target="_blank" rel="noopener noreferrer">WaterEquity</a>, which lends to MFIs to improve access to reliable and clean sources of water.
<h3><strong>What about coordinating with fund managers? What role have they played?</strong></h3>
We have relationships with many of the leading global microfinance fund managers. Some of them have expanded their investment strategy to include SMEs and other financial intermediaries. Shortly after the crisis began, we were contacted by many fund managers with ideas about how to address needs by expanding existing funds, creating new funds, or reorienting funds that were already raising capital but not yet launched.
<blockquote>There are a lot of questions related to the type of capital to be deployed, the timing, and demand versus supply in various markets.</blockquote>
We are working with several of them right now, making good progress on underwriting and collaboration with other DFIs and fund managers to put together the right kind of capital for these funds so they can quickly start to deploy it. Of course, in the context of the crisis, there are a lot of questions related to the type of capital to be deployed, the timing, and demand versus supply in various markets. The base case assumption for most is that there’s going to be significant liquidity needs in the near term, though that will likely vary significantly across markets.
<h3><strong>Geographically, DFC’s microfinance/inclusive finance activities have reached a <a href="https://www.dfc.gov/sites/default/files/2019-08/fy2019_cbj.pdf" target="_blank" rel="noopener noreferrer">diverse range</a> of countries and regions. Are there any countries or regions DFC has prioritized with regards to its support of inclusive finance during COVID? Are there issues unique to specific places, or are challenges mostly universal?</strong></h3>
In terms of regions, DFC is open for business across emerging markets. We focus on low-income and lower middle-income countries. Priority regions include Africa, Latin America and the Caribbean, and the Indo-Pacific.

There are different needs and challenges around the world. The strength and resilience of financial sector institutions and regulation varies considerably, as does extent of digitization which is so important at this time. Countries are getting hit very differently and we need to account for that.
<h3>Has the crisis altered DFC’s approach to funding social impact enterprises beyond microfinance?</h3>
DFC’s <a href="https://www.dfc.gov/what-we-offer-our-products/portfolio-impact" target="_blank" rel="noopener noreferrer">Portfolio for Impact and Innovation (PI2)</a> has launched, which builds on the success of OPIC’s Portfolio for Impact (PI) initiative, introduced in 2014. PI2 is how we serve smaller, early-stage social enterprises that have a highly developmental impact but that lack scale-up capital due to their relative size, novel approach, or limited track record. Initially, financing for each project under PI2 was $1 to $5 million; now, we’re able to go up to $10 million per deal.

In the wake of COVID-19, PI2 takes on even greater importance: we know that it is often small, early-stage ventures that introduce the most innovative solutions to daunting challenges. These creative business models will be exactly what we need to navigate the many new challenges that COVID-19 has brought to emerging markets.
<h3><strong>Has the crisis shifted the perceptions of inclusive finance within DFC?</strong></h3>
Inclusive finance has been a focus of DFC for a long time. We have become one of the most significant capital providers among DFIs to microfinance over the last 10 years. This crisis is demonstrating how inclusive finance is even more essential.

Though our underwriting process is rigorous, we have leveraged information sharing with co-investors to further accelerate the deployment of capital. Additionally, in the management of our existing portfolio, we have been proactive and expeditious in trying to respond to clients who may be struggling as a result of this crisis and may need some relief.
<h3><strong>Has DFC engaged with fintechs and non-microfinance FSPs during this crisis? Are you seeing a rush to digitization among your partners? How, if at all, are your investees working to accelerate digitization for consumer segments who were conducting business primarily offline – and how might this be done <a href="https://www.centerforfinancialinclusion.org/a-covid-digitization-stampede-mustnt-trample-consumer-protection" target="_blank" rel="noopener noreferrer">safely</a>?</strong></h3>
There’s no question that, with the lockdowns, having a digital platform is critical. Some MFIs have already digitized, others less so, and the latter are of course a lot more vulnerable in these conditions.

It’s really important that those MFIs and intermediaries that need to further digitize have the opportunity and support to do that. For example, a fund manager launching a fund for which we expect to provide financing has a specific technical assistance facility that focuses on digitization. They assess an MFI’s digitization needs and can provide finance to facilitate action items. It’s important that we not only provide financing, but provide this kind of targeted support to strengthen financial institutions to which we are lending.
<h3>What about time frames? <a href="https://centerforfinancialinclusion.org/how-should-investors-coordinate-when-time-is-of-the-essence/" target="_blank" rel="noopener noreferrer">CFI</a>, the <a href="https://centerforfinancialinclusion.org/microfinance-coalition-call-to-action-for-investors/" target="_blank" rel="noopener noreferrer">Microfinance Coalition</a>, and others have identified investor medium-term needs as well as short term ones. What do you see as the medium-term needs beyond liquidity? When does the medium term “start”?</h3>
My personal interpretation is the “short term” is the next quarter or two. We’re trying to move very quickly. We don’t want to miss the opportunity to support pressing needs.

We are thinking about liquidity now and solvency issues that might arise down the road. At this time it is difficult to forecast market conditions in the coming quarters. One of our existing partners that lends to MFIs has a view that demand for their funds will slow down temporarily while others are expecting increased demand. Projecting the demand for capital in this kind of volatile market is less certain than it typically would be, so that’s creating some challenges in thinking about the risks versus returns.
<blockquote>We are thinking about liquidity now and solvency issues that might arise down the road.</blockquote>
Unfortunately, it seems likely that some people in the markets we serve who are currently middle income may lose jobs and income that will push them into a lower income level or even poverty – at least temporarily – so that could create more demand for the services from some of the institutions that we fund.

We want to support funds and intermediaries that will manage their capital prudently and avoid taking unnecessary risks. In some cases, this may mean focusing their lending initially to MFIs that are the strongest right now, and then adding institutions to their portfolios that are smaller and more vulnerable – but serve important underserved groups – over time.

&nbsp;

&nbsp;

DFIs, COVID-19 and Financial Inclusion: A Conversation with Richard Greenberg of DFC

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.).


One Billion Accounts in the Pandemic Era: Insights from GSMA’s Mobile Money Report

News

EL-Zoghbi discusses how COVID-19’s economic shocks are affecting incomes, and elaborates on the population segments most vulnerable to pandemic-induced shocks.

She also describes why financial inclusion alone is not enough, and how financial inclusion – especially when paired with digitization – can help distribute support from humanitarian and governmental organizations to the base of the pyramid.

Furthermore, El-Zoghbi mentions the Microfinance Coalition’s calls to action aimed at awareness-raising among <a href="https://centerforfinancialinclusion.org/microfinance-coalition-call-to-action-for-investors/" target="_blank" rel="noopener noreferrer">investors</a>, <a href="https://centerforfinancialinclusion.org/microfinance-coalition-call-to-action-for-donors/" target="_blank" rel="noopener noreferrer">donors</a> and <a href="https://centerforfinancialinclusion.org/microfinance-coalition-call-to-action-for-policymakers/" target="_blank" rel="noopener noreferrer">policymakers</a>.

Lastly, she predicts that insurance products will see higher demand, and notes that the crisis requires collective action that goes beyond market-oriented solutions.

El-Zoghbi is a member of the Advisory Council of BBVA's <a href="https://www.bbvaedufin.com/en/" target="_blank" rel="noopener noreferrer">Center for Financial Education and Capability</a>.

Read the full article <a href="https://www.bbva.com/en/how-to-strengthen-the-finances-of-the-vulnerable-population-against-the-crisis/" target="_blank" rel="noopener noreferrer">here</a>.

&nbsp;

BBVA Interviews Mayada El-Zoghbi on Financial Inclusion in the Pandemic Era

The elderly, young people, the homeless and casual workers are just some of the groups that might have a difficult time participating in the economy, the article notes. Some do not have the skills to use digital payments, do not have access to the internet, do not have a credit history or a fixed address:

<em>A dependence on cash can be linked to the digital divide that exists in both rich and poor countries, said Mayada El-Zoghbi, managing director for the Center for Financial Inclusion (CFI), an independent U.S. think tank.</em>

<em>“A move to a cashless society will not benefit all groups equally. The groups that are most likely to be excluded will be women, rural communities, and the elderly,” she said.</em>

Read the full article <a href="https://www.reuters.com/article/us-health-coronavirus-banks-britain-trfn-idUSKBN23X0XE" target="_blank" rel="noopener noreferrer">here</a>.

&nbsp;

Reuters Quotes Mayada El-Zoghbi on Going Cashless During the Pandemic

Ram Krishna is the owner of a local grocery shop in the outskirts of Hyderabad.

“Yes, I have digital options,” he told <a href="http://www.accessassist.org/" target="_blank" rel="noopener noreferrer">ACCESS ASSIST</a> in February. “But my customers pay in cash mostly. It’s convenient. I have no fear of fraud. I prefer it that way. I have to pay to my suppliers and workers in cash.”

Little did Ram Krishna know that his preference for cash, arising out of convenience and ease of doing business, was about to change. When the World Health Organization released a <a href="https://www.forbes.com/sites/rogerhuang/2020/03/09/who-encourages-use-of-digital-payments-due-to-covid-19/#2549508e41eb" target="_blank" rel="noopener noreferrer">statement</a> on March 9 recommending people turn to cashless transactions in March, and the Reserve Bank of India <a href="https://economictimes.indiatimes.com/wealth/personal-finance-news/rbi-urges-customers-to-use-digital-banking-facilities-amid-coronavirus-outbreak/articleshow/74653847.cms" target="_blank" rel="noopener noreferrer">followed suit</a>, it was evident that contactless and digital payments would get a significant push. Since cash handling carries the risk of contamination of COVID-19 and requires social interaction, many customers have started demanding and using digital options.
<h2>Survey: Micro-Merchants are Weary and Skeptical</h2>
However, despite strong political will and government support to push the digital agenda across India – not to mention the immense <a href="https://www.cgap.org/research/publication/digitizing-merchant-payments-why-and-how" target="_blank" rel="noopener noreferrer">potential of a cashless economy</a> – micro-merchants have been weary and skeptical.

This is the conclusion of our dipstick survey of 50 micro-merchants in February across various sectors, from<em> kirana</em> shops (small convenience stores), small eateries, salons, vegetable and fruit sellers, to medical shops and mobile shop owners. We sought to understand and identify barriers to adoption of cashless modes of doing business. The study used in-depth interviews and focused discussions with micro-merchants from the cities/towns of Delhi, Krishnagiri (Tamil Nadu), and Guntur and Hyderabad in Telangana.
<blockquote>We sought to understand and identify barriers to adoption of cashless modes of doing business.</blockquote>
The interviewees had revenues ranging from $13,500 to $170,000, average margins of 15 to 20 percent and average transaction sizes ranging between $2.25 to $3. Seventy percent of the respondents were less than 50 years old. Ninety percent of respondents owned smartphones and 98 percent of them had either secondary or tertiary education. Almost all of them had at least one bank account and 84 percent made personal payments digitally. Seventy-five percent of the retailers who had not adopted digital payments had all the basic prerequisites for adoption (bank account, a smartphone, internet access and basic literacy).
<h2>Barriers: Infrastructure, Supporting Services and Demand</h2>
The barriers to adoption of digital payments were explored by analyzing the responses of the retailers who had either not adopted the digital payment instruments or had adopted, but with limited sustained usage rates. The survey also inquired about possible challenges they anticipated in adopting and using the digital payment instruments. The anticipation itself acted as a deterrent for micro-merchants to adopt digital payment instruments.

On the supply side, infrastructure-related issues like uninterrupted power supply and slow speed of internet remained a challenge. Inconsistent and unreliable technological infrastructure and poor capacity building support in rural and peri-urban markets to support electronic payments were found to be important reasons of non-adoption.

<img class="aligncenter wp-image-39081 size-full" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/06/barriers-to-adoption-of-digital-channels-by-micro-merchants.png" alt="barriers to digital adoption graphic" width="820" height="385" />

On the demand side, having access to POS machines and the convenience of cash were the top reasons for micro-merchant’s disinterest in adopting digital modes, with 23 percent of respondents echoing this as primary concern. One example is from the Krishnagiri semi-urban area, where a retailer applied for POS with his local private bank. In spite of regular follow up for more than 4 months, the bank was unable to provide a POS machine.

Twenty-three percent of the respondents mentioned weak aggregate customer demand. Their customers usually set aside monthly household expenses and prefer transacting with cash as it helps keep expenditures on budget. Even during the pandemic, the preferred mode of payment for this segment remains cash.
<blockquote>Customers set aside household expenses and prefer transacting with cash as it helps keep them on budget.</blockquote>
Sadly, 12 percent of respondents tried going digital, but subsequently discontinued due to insufficient demand, low perceived benefits and added complexity of operation. Complexity of handling POS machines, inability to handle unusual transactions -- especially when they fail due to technical errors or poor internet -- were key concern areas for many retailers.
<h2>No One to Show Them How</h2>
Moreover, shop owners do not have access to help from peers or family members to guide and facilitate the use of technologies for digital payments. In local neighborhoods, availability of the service providers for troubleshooting issues was also limited to mobile phone repair and internet connectivity fixes in most cases.

Among the respondents, 12 percent of the micro-merchants were unaware of the possibility of accepting digital payments, signaling a strong need for targeted communication strategies. Fifty percent of retailers who were not using digital payments mentioned they were not aware of the process of accessing digital modes. Neighborhood grocery retailers, which usually serve local households, refrain from using digital transactions, citing small size and scale of their businesses.

Moreover, they felt that installing digital payment instruments would be an unnecessary cost. Bigger department stores usually can streamline the operations and financial management to offset costs from fees, but 12 percent of respondents mentioned they operate on thin margins, and any cost escalation eats away at those margins.
<h2>Fear of Fraud and Lack of Trust</h2>
The fear of fraud stemming from a lack of trust of employees processing payments was also observed. All of the sample respondents mentioned payments being handled by owners or family members and in cash. The only exception was observed in a medical shop where the POS machine is integrated with inventory and billing. Such integrated application helps address the fear of manual error from retailer’s end; however, it comes with the tradeoff of becoming formalized and having to deal with tax requirements and compliance.
<h2>Leveraging a Critical Link: Suppliers</h2>
It will be equally critical to identify the key leverage points for improving digital payment adoption at scale. One leverage point is suppliers.

<img class="aligncenter wp-image-39083 size-full" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/06/how-do-you-pay-your-suppliers-micro-merchant-survey.png" alt="how to pay suppliers micro-merchants survey results" width="849" height="432" />

A <a href="https://www.mastercardcenter.org/insights/move-indias-small-merchants-toward-digital-financial-services" target="_blank" rel="noopener noreferrer">broken link in the digital payment value chain</a> is usually third or fourth stage distributors. Such suppliers or distributors demand cash from retailers, which in turn had a cascade effect. In fact, 49 percent of the sample respondents made cash payments to suppliers while 29 percent made check payments leading to a whopping 78 percent of respondents using non-digital modes for supplier payment.

Any digitization effort aimed at improving last-mile micro-merchant’s adoption rate should also push for adoption at the supplier’s end as well. Appropriate incentive structures for increased digital adoption need to be carefully thought out and incorporated into supply chains.
<h2>Leveraging Peer Support</h2>
The merchants’ peer networks played a prominent role in influencing merchants’ behavior and propensity to adoption of digital modes.
<blockquote>Retailers rely on tech-savvy friends for receiving or making payments through applications.</blockquote>
Peers accepting digital modes of payment helped to weaken inhibitions of others. Early movers in the peer group act as critical influencers: they discuss the benefits or challenges of digital adoption, which either weakens or reinforces inhibitions. Many retailers mentioned that they rely on friends for receiving or making payments through applications like GooglePay or online transfers. All the retailers mentioned that their friends were “tech-savvy” or “reliable” – and free.

The core value proposition of accepting digital payments – a secure, efficient and convenient way of being paid – needs to resonate with the merchants’ business needs. While we mobilize efforts and resources for increasing access and usage of digital financial services to bring back normalcy in post-COVID times, let us not ignore the key barriers and challenges last-mile retail units face.


The Digital Payments Push: What 50 Micro-Merchants in India Are Saying

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Richard  Greenberg

This is the first of an occasional series of interviews with professionals from development finance institutions supporting inclusive finance during these difficult times. 

Lauren Braniff

<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.

Ezra Mannix

Mayada El-Zoghbi

The Spanish multinational FSP features CFI's Managing Director in its Responsible Banking content section.

The article highlights how certain groups could be left vulnerable by a widespread COVID-induced switch to digital-only payments. 

Aryasilpa Adhikari

Radhika  Agashe

Micro-merchants face challenges adopting digital payment modes, but the trend toward digital payments will continue and perhaps accelerate due to the pandemic. It’s imperative that enablers, service providers and the government resolve critical cash-to-digital barriers. 

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