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The importance of digital microfinance for emerging markets in a COVID-19 world

The importance of digital microfinance for emerging markets in a COVID-19 world 1

By Andrée Simon, President and CEO, FINCA Impact Finance

The coronavirus pandemic has transformed how we go about life and business in unprecedented ways. The world’s low-income individuals, who are largely based in areas just beginning to enter the worst of the pandemic, are disproportionately affected. Oxfam warns that more than half a billion people could be pushed into poverty as a result of COVID-19’s economic impact. Most microfinance clients work in the informal sector and have little savings to fall back on in times of need – to meet daily food demands or to find ways to support themselves and their families.

In this current environment of financial and health stress, digitally-enabled microfinance organizations like FINCA Impact Finance have a vital role to play. But while technology can help facilitate convenience and physical distancing, this alone isn’t the full solution. Oftentimes, customers also need in-person support to help onboard them to digital resources and to help determine personalized financial solutions. A touch-tech approach – one that employs the efficiency and reach of digital, mixed with personal, face-to-face interactions – is critical for populations who often are utilizing mobile or online financial services for the first time. With a thoughtful framework in place, digital financial services can enable underserved communities to more easily open accounts, make payments, transfer money, repay loans and better manage their overall expenses and finances – during COVID-19 and beyond.

With the presence of COVID-19, digital financial services offer more regular, convenient and safer access to critical financial resources than would otherwise be available. The rapid growth of mobile networks is allowing people in underserved communities to access financial services without having to travel often far distances to a branch, instead turning to branchless channels, mobile and online banking solutions, and e-wallets, to name a few. Institutions also are able to easily and safely communicate with and support customers through SMS messaging and call centers.

Digital products and features that speak directly to customer needs are most likely to have an impact, particularly during a time when we’re seeing a spike in digital inquiries as a result of the stresses and concerns prompted by the pandemic. Real-time advice and quick access to practical solutions that enable quick action are among the most direct routes to improved financial health during an increasingly challenging time.

The spread of COVID-19 and resultant physical distancing has also placed businesses that rely on customers coming into their establishments at a disadvantage. For some businesses that are able to continue functioning or have shifted to offer new products, like masks, fintech allows for a continuation of services in a format that is much safer in terms of COVID exposure than having to exchange physical cash or travel a significant distance to visit a bank branch. Fintech also can help businesses continue to pay employees safely and easily.

Digital microfinance services can also jumpstart the flow of credit and help underserved individuals get back on their feet. A key part of this is supporting clients to rebuild their financial health to be stronger than before. A recent FINCA Impact Finance survey found that 70% of customers in Uganda wished they had saved more before the pandemic. This crisis presents an opportunity to further financial health and resilience by underscoring the importance of savings. Digital tools can allow organizations and banks to build on this new awareness and promote good savings habits so individuals are better prepared to face future economic challenges.

Fintech companies have the opportunity to step up now and provide a desperately needed service in many parts of the world, as vulnerable individuals and families weather the impact of a COVID-19 economy.  But in the march towards digitization, we must not lose sight of the customer and the importance of the Client Protection Principles. Digital tools for the sake of digital tools, or resources focused only (or primarily) on education, won’t cut it. It’s imperative to consider customer protection and practicality in the tools put forward, as well as how to onboard individuals and communities to their use. If the client’s needs and the realities of their environment are top of mind, these platforms can help to better clients’ situations.

Building people’s financial health means providing them the tools necessary to benefit from the products and services available, which ultimately reduce customers’ financial stress and allow them to become more resilient in the future. Beyond the pandemic, the importance of equalizing access through the tools fintech offers will be more top of mind than ever before – especially in emerging markets, where that type of widespread access has long been desired. By approaching empowerment and recovery through a lens of first doing no harm, we can ensure we continue to keep the customer front of mind in the inevitable rush to digitization post-COVID.

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