The Rise of Fintech and Banking Disruption

Microfinance: Once We Measure It, We Will Improve It

It was with great pride that we recently announced that Mambu has now been selected by 100 organisations in more than 26 countries around the world. The Mambu platform has developed rapidly in the past two years, and we’ve been somewhat astounded by the breadth of countries who need our services but most of all this announcement really has validated our belief in the critical role technology has for microfinance sustainability.

To understand sustainability, we need to understand the full value chain. Something can only be truly sustainable if it’s providing value for everyone involved. The value can be economic, it can be social, it can be making big investor returns or it can be making a difference in how someone feeds their family. All this means is measuring and communicating impact to the different stakeholders. Those who adopt technology may be surprised at how much of their value chain it will help them measure and communicate their impact to. Here are just a few ways of how this can happen:

Research has shown that money has only a limited role in motivating and inspiring people. Microfinance institutions, who tend to be very capital constrained need the best talent to help them along their challenging mission. How better to attract it than to give their staff meaning in what they do?

The right technology can help individuals see the impact they are having on their clients. They can see at the macro and micro level how their day to day work is changing lives. The right technology can also facilitate a culture of accountability, transparency and equality: qualities which are valued by the most skilled staff. Imagine being able to see how the loans you approved have changed lives, have helped build businesses, have solved real problems for real people. This kind of visibility gives organizations of any size a chance to attract, retain and inspire their top talent. Microfinance organizations can leverage this to compete with banks for top talent because they surely won’t be able to do it with larger paychecks.

Donors & Investors
If the microfinance industry is really to be sustainable in the longer term it will need to become self-funding. But we are not there yet, and donors can and want to play an important role in the road to getting to that point. But donors want to see that their funds are making a difference. While they may have no shortage of capital, they also have no shortage of choice. Why put money into a microfinance institution if its impact will be questionable and other vehicles may offer a more measurable impact?

Donors want to make a difference in the world and they need to be able to back up this claim by not simply saying how much money they are giving but what that money is achieving. With the right technology, microfinance institutions gain the insight they need to generate both the ‘hard’ numbers, but also the ability to capture the human success stories, that help to justify their existence until the free market is able to take over.

Clients are ultimately the lifeblood of a microfinance institution. Helping them understand the impact your organization has had in other communities is a powerful marketing message. Can you explain concretely how your financial services have helped other clients, how their businesses have improved, how their lives have changed by working with your team? For now many microfinance institutions may feel they have a monopoly on clients by simply virtue of distribution: they are the only ones able to reach them. But what happens when this is no longer true? What happens when the model changes, as it surely is doing – when mobile money decreases distribution cost, when three billion people come online and have access to capital over the internet, or when peer to peer lending or traditional bank lending moves to service this market? Understanding and communicating the impact your institution is having will be at the core of differentiating yourself as competition increases.

Regulators are rightfully wary of giving microfinance organizations the same powers and liberties of a bank. With less data available, less transparency and less ability to predict and measure their impact, the economic and political risks are too high.
But imagine if universally accessible banking technology allowed regulators to control and monitor the industry while also measuring its social impact.

If every microfinance institution in a country was able to run on modern banking technology, with real-time data, accounting, information sharing, internal control and risk assessment processes. And all of this could be monitored at the individual level by management and at the aggregate level by regulators. The risks decrease, transparency increases and those organizations that jump on such an initiative will thrive. With millions of businesses to fund, and billions of people to bank, accessible, affordable technology could be the final frontier for regulators working to build an inclusive financial infrastructure.

Universal access to modern banking technology will radically change the landscape for microfinance by measuring and communicating its impact in ways that have been impossible before. Those that are providing the most value, will rise to the top and will do so quickly with access to more funds, stronger staff and better clients. They will reduce costs both to themselves and their clients. They will have the most impact – social and financial – and will be seen as industry leaders.

Once we can all measure microfinance, we will all be able to improve microfinance.