The Covid 19 has had a negative impact on the lives of many people, organizations, and sectors of the economy worldwide. It is also fair to recognize that faced with the “new normality”, there have been providers of essential services that found new solutions to respond to the needs of their users; one of these is the sector of microfinance services to low-income people in Latin America.
Digitalization in Latin America and the digital urge caused by Covid-19
In the pre-COVID time, many users of microfinance services were satisfied with traditional processes and manual tools established by MFIs, although these usually implied a high demand for time and costs for both the client as well as for the institution.
With the arrival of COVID in Latin America, the microfinance sector found it necessary to invest in digitizing at least part of its processes, making greater use of technological tools, and making strategic alliances with other market players.
The result of the above has been that from 2020 to date, the microfinance sector has undergone a significant evolution both in internal operations and in services to the public. On the users’ side, they have adapted in a short time to changes in processes and services. In both cases, were it not for COVID, this would have taken several years to occur.
Capitalizing on the digital potential
In the experience of Frankfurt School Impact Finance working with several financial institutions in Latin America, the use of digital tools by MFIs in Guatemala, El Salvador and Peru has been outstanding. Some examples of how MFIs have taken advantage of the digital potential are the following:
- Digitization of loan evaluation and approval processes, which increases staff productivity and improves institutional efficiency;
- Implementation of technological platforms to offer online education to its clients in terms of entrepreneurship education, financial education, and preventive health;
- Implementation of online banking platforms so that users can manage their credit and savings products;
- Expansion of alliances with companies that handle digital payment methods and mobile money.
Six strategies to scale financial inclusion
According to a research paper by ACCION International, to effectively support their clients and reach new populations in an increasingly digital environment, financial service providers need to digitally transform. ACCION uncovers six key strategies that financial inclusion-focused institutions need to keep in mind as they progress down the path of digital transformation:
- Combat the digital divide on multiple fronts;
- Optimize organizational design;
- Build (and rebuild) a culture of experimentation;
- Have a clear data strategy;
- Future-proof your transformation with the right technology platform;
- Form partnerships to achieve scale.
Frankfurt School Impact Finance agrees with ACCION International that much remains to be done, both by the MFIs, impact investors, and the industry at large. For the microfinance sector in Latin America, it is complex and multi-faceted and requires solid commitment to evolve the core business model from Board rooms all the way down to loan officers.