Estelle Darie-Rousseaux, Amret's Executive Director, has taken a look at how digital transformation can be challenging for MFIs and ways to best manage the change. Find out more below.
There’s no sugarcoating it: digitization can be a disruptive process for microfinance institutions (MFIs). For organizations that are used to operating in a brick-and-mortar world, shifting to a digital business model involves a lot more than adopting a new technology. Working digitally has implications for products, practices, teams and clients, and too often MFIs are unprepared to manage these changes. The good news is that through effective change management, MFIs can digitize successfully and generate value for themselves and their customers. Below are three ways your MFI can manage the change that comes with digitization.
1. Upscale your internal capabilities to avoid being dependent on vendors
An MFI that digitizes but fails to mix in relevant profiles and skills at all levels of the organization risks missing out on the full benefits of digitization.
As MFIs seek out solutions that are highly configurable, they also often have to internalize a number of developments to get away from vendor dependence, delays to getting to market, expensive technical solutions and limitations in process improvement. This means onboarding and retaining staff with specific skills. It also means having strong deployment and solution governance systems in place to allow the organization to quickly identify and drop initiatives that do not bring customer and business value.
Upscaling internal capabilities has been a priority for us at Amret, one of the largest MFIs in Cambodia, as we pursue our digitization strategy. We relied heavily on a vendor in the early version of our field staff app and had challenges meeting time-to-market needs and rapidly evolving requirements. As a result, we changed our approach from being 100% vendor-led to hybrid. In the new approach, we internally manage core and backend developments, while an agile partner focuses on user interface/user experience (UI/UX) front-end design.
2. Manage change for all aspects of the business
Digitization might not have maximum effect if all end-to-end processes affected directly or indirectly (‘’macro processes’’) are not properly considered and if everyone is not ready to work differently. Take core business process digitization. MFIs often think of field staff when they digitize a process like client onboarding or lending. They usually — and rightly so — prioritize support for credit officers, who need to modify how they interact with clients, make sales and approach credit appraisals once they begin using tablets and digital tools. But digitization often affects other staff too. MFIs should manage digitization’s impact on these staff too.
3. Promote digitization throughout the organization, and be clear about expected short-term benefits
Digitization can have immediate advantages in the front office, bringing efficiencies to sales and other customer-facing areas of the business. Digitization can also make middle and back-office functions like recruitment, payroll and accounting more efficient, especially through automation. For a lot of MFIs, many of these functions are labor- and time-intensive, so automation can lead to significant efficiencies and cost savings.
These benefits may take more time to materialize, and many MFIs focus first on the quick wins in the front office without investing in digitizing the middle and back offices. But to reap the full benefits of digitization, you must digitize the support functions too.
Some MFIs are now investing in standard tools to digitize these support functions, often in a desire to optimize OpEx-to-income ratios. When successful, automation can quickly improve individual micro processes and meet specific key performance indicators. In the case of Amret, it has meant closing monthly accounts seven days earlier, recording expenses in the right cost centers, and improving procurement speed by 25%. Other positive short-term outcomes that often come from digitization are improvement of user satisfaction, data reliability, controllership and better business analysis.
It can be easy to lose focus when digitizing. MFIs need to organize to deliver value to the business and to customers, while being clear-eyed about where value will materialize. At Amret, expectations from process digitization are an OpEx-to-income ratio down by at least 7 basis point by the end of 2022, compared to 2019, despite two years of revenue impacted by COVID-19.
Read the full blog post here.