Microfinance trends: what lies ahead?

As we enter the new year, we asked our CEO Steven Duchatelle to comment some of the main trends in the microfinance sector and how they link to Advans. Here’s what he replied.

Leveraging data for financial inclusion

Key debates continue about how data can be used to better serve clients in microfinance. As the quality and quantity of data financial institutions have on clients improves with the increasing use of technology i.e. new systems and new channels, the big question is, how can we exploit this data to improve efficiency and the quality of services? First of all, data can help financial institutions to develop credit scoring models using historical data and customer behavior patterns to improve credit decisions and build efficiency. Secondly, data can be used to build a better understanding of client profiles and needs, using the data on clients to categorize our customers into segments based on key characteristics and following how that data evolves over time. Having this use of data enables us to enhance relationships with clients, and go further to design products based on their needs. Finally, with more and more companies obtaining financial and other data on clients, financial institutions can team up with other players to reach out to new clients and create new innovative services.

Becoming a data-driven organization is part of our strategy and we are currently working on improving our tech infrastructure, building our client segmentation model, testing out partnerships and working on new scoring projects in several markets: in short, building what’s needed to propel Advans into the new decade.

Client protection in the digital era

We’ve heard a lot about digital credit over the past few years, especially with the boom of small digital loans offered through mobile services like M-Pesa in Kenya. But the question that often comes up on digital credit is: how do we ensure that practices remain responsible when the human element is removed from the client relationship? In 2019, the Smart Campaign introduced the Consumer Protection Standards for Digital Credit designed for financial services providers offering digital loans, seeking to help them guarantee better protection for their clients as they go through the loan process. This includes for example ensuring that customers can use digital tools properly and are informed regularly on the status of their credit. These standards shift the focus in application of consumer protection from staff and operations toward product design and delivery: adopting responsible practices in the design process minimizes consumer risks and improves client protection. Advans will use the new standards to inform the development of digital loans in our subsidiaries, such as the digital school loan for cocoa farmers and emergency loan in Cote d’Ivoire. We have also joined Fintech Protects, a community dedicated to addressing consumer risks in digital financial services with the aim of learning from our peers and helping to develop responsible innovations in the sector.

Focusing on environmental issues in microfinance practices

The fight against climate change has become a pressing matter on a global scale, and there is an increased focus in the financial inclusion industry on how financial institutions can play their part in limiting their impact on the environment and going further having a positive influence on their clients and surrounding communities. This was reflected in the 2019 European Microfinance Award, with the competition focused on the importance of increasing resilience to climate change: the winner APA insurance in Kenya, was awarded for its innovative products to help protect smallholder farmers against climate shocks. Financial institutions can play a key role in helping to fight the climate crisis, through having responsible financing policies defining which activities can and cannot be financed, offering green finance products for more ecological business operations or living habits, working on limiting the carbon footprint of operations, and more importantly, helping clients to better withstand the risks of climate change (especially farmers and clients in rural areas). At Advans, we will accelerate our work in 2020 to improve our overall environmental and social policy and also strengthen how we evaluate our carbon impact at group level.