The Rise of Fintech and Banking Disruption

Microfinance in Europe

The 10th European Microfinance Network Conference in Stockholm provided for a fascinating contrast with the work we’ve been doing with MFIs in Africa, Asia and Latin America. Microfinance in Europe emerged mostly in the eastern block with the traditional story heard all over the world. The banking sector was antiquated, interested in the biggest customers and accounts and unable to respond to emerging needs of smaller enterprises. MFIs, NGOs and others emerged to address this market with a double-bottom line agenda: an economic impact to support the creation of income-generating businesses and a social impact by providing education, training and capacity building to these newly minted entrepreneurs.

So far, the story is similar to those we’ve encountered coming out of Africa but as microfinance moves into Western European countries some interesting diverseness begins to emerge. Unlike Africa, the majority of the UK is banked – 99% of the population has banks accounts. In contrast to Africa, there is no major opportunity of just simply making sure everyone is ‘banked.’ Or rather, it forced one to look deeper under the skin of the word and recognize that being ‘banked’ is insufficient if you don’t have access to the right products and the right services by that banking provider. That is the role that microfinance has been able to fill in Western Europe.

None of the numbers are as impressive as from other emerging markets. The client basis are small, the portfolios managed are small, the growth prospects are small. Yet the impact, and the innovation underneath is impressive. Take Fair Finance based in London. Although reaching only a few hundred clients, they are addressing a very specific need for immigrants starting or needing to grow their businesses in London. They, like so many others see the critical combination required in both providing capital and training. It is in this second element that I believe European microfinance has much to teach the rest of the world.

Innovation in client education is wonderfully exemplified by Qcredits who have fully realized the need to combine capital with expertise. Beyond giving out loans, they provide an e-learning platform for clients to put together a business plan, do basic budget and forecasting. It’s free and incredibly valuable for both sides. For the client because they get to have a much more clear picture of their business, learn critical aspects of sales, marketing, resource-planning, accounting and more to make sure their business is on track and actually helping to fill a market need. For the MFIs because they have well educated clients and a clear understanding of their business, skills and financials when evaluating a loan application. Taking this concept even further, QCredits is working with over 600 volunteers from the banking industry to act as mentors and advisors to their clients. The banks get to fill their corporate social responsibility policies and the volunteers are grounded back to the the real roots and impact of banking. As much as we love to shine the light on billion-dollar enterprises and their ambitious leaders, it is these MSMEs that are driving the economy and creating jobs.

Microfinance organizations around the world, large and small, should be looking at examples coming out of Europe on how to intelligently combine capacity building to help their clients succeed and grow. Not only is this a great social mission, it will also have tremendous impact on the organizations’ bottom line. Its services and its staff will have a strong competitive advantage over others who only provide capital. Its client turnover and portfolios at risk will decline and they will see many more loyal, repeated customers coming in for bigger loans, asking for deposit services and then seeking insurance and other financial products.

MFIs in Europe are a prime example of the fact that financial services isn’t just about having a bank account or having access to capital. That’s just half of the picture. The other half is ensuring they have the skills, tools and contacts to succeed. Money is just a commodity, but providing educational, expertise service can transform lives and economies.