THE LARGEST FINANCIALLY
UNDERSERVED MARKET IN THE WORLD
More than a third of the global population—as many as 2.5 billion people—belong to small-scale farming families in developing countries. And nearly 7 out of 8 of them live in Asia.
Across the region, farming and the business it generates accounts for the largest share of national economies and occupies the majority of the population.
Yet despite the enormous economic value they generate, most rural economic actors continue to rely on informal financial services. These traditional forms of savings and borrowing allow the rural economy to operate, but they extract much of the profit from it through high interest rates and lopsided contractual obligations.
Although the rural economy is large, it remains underserved by formal financial institutions, often due to concerns about costs and risks. Previous attempts at serving this market have not always been successful.
However, recent innovations in product design, policies and procedures, as well as new tools for measuring and managing risk, now make it possible to serve smallholder farmers and rural MSMEs securely and sustainably.
Matching the right product design with the most appropriate delivery modality ensures the best fit between the client’s needs and the operational requirements of the service provider.
ACCESS Advisory works with its partners to develop products and strengthen internal management systems to operate effectively and with impact in the rural economy.
Making finance inclusive begins by understanding the current financial management practices of potential clients and their unmet needs. In addition, there is a psychological aspect to financial decision-making that needs to be explored.
ACCESS is a highly data-driven organization, and its market research program is a structured journey from data to financial inclusion. Using a combination of quantitative and qualitative methods, ACCESS builds a financial profile of rural clients as well as understands the hopes, dreams and limiting beliefs that drive their usage of financial services.
In-depth research on clients is combined with supply studies for benchmarking purposes and broader mapping exercises to estimate market size and identify potential service partners.
With market research results in hand, enhancement of existing financial products or development of new ones takes place in a workshop environment, with the full participation of the financial service provider. Ideally, some of their staff will have been involved in data gathering during market research.
Facilitated by ACCESS, the product development workshop begins by analyzing the market research results to determine the features, policies and procedures for delivering products that build customer loyalty while managing risk in the rural economy. Marketing and promotional campaigns are also developed during the workshop.
A follow-up seminar is used to develop a business model and financial projections.
ACCESS has supported its partners to develop and pilot test credit, savings and insurance products designed to meet the needs of rural MSME clients.
COOPERATION AT SCALE
DELIVERY MODALITY ENHANCEMENT
All financial transactions involve an exchange of something of value (money) for a promise to repay in the future. This makes them different than other market transactions, in which the exchange of money for a good or service of approximately equal value happens immediately.
Due to the uncertainty about future repayment, financial cooperation can only take place in the context of mutual trust and reciprocity between the provider and the client. This is why informal financial services are commonly used––they take place in a high-trust environment.
Because informal financial transaction are conducted face-to-face, trust can be built quickly. Agent banking, on the other hand, divides the transaction value chain between the financial service provider and the agent, and digital banking often involves bringing a third party, the telco, into the chain. Each actor in the chain has only a partial relationship with the client and an arm’s-length relationship with each other. Cooperation in this context is based more on contract than trust, which builds in rigidities that complicate the processes of promotion, client relations, and liquidity management.
Breaking these rigidities is the key to building effective as well as innovative delivery channels.
FSP MANAGEMENT AND OPERATIONAL STRENGTHENING
The institutional strength of a financial service provider is based on its human resource capacity and corporate culture, both of which are expressed through the policies and processes that deliver services effectively to rural clients.
Technologies for delivering financial services are advancing, opening new ways to expand access to financial services. Yet, at its core, financial services remain a people business. In financial services, technology is most effective when employed by staff who understand clients’ needs and work in systems that are designed to respond to those needs.
The organizational structure and internal systems of a financial institution determines how it responds to market opportunities and market risks. ACCESS supports its partners to ensure that organizational goals, structure and systems are aligned in order to achieve operational goals.
IN RURAL AREAS
ACCESS’s cooperative formation program uses a framework originally developed by GIZ and modified in the Philippines. The process begins with the Rapid Savings Mobilization Technique (RSMT), which facilitates the formation of savings groups and encourages the habit of regular savings among each group’s members. After at most six months, the Informal Group Consolidation Technique (IGCT) facilitates knowledge sharing among group leaders and a sense that each savings group is actually part of a much larger activity. The “lesson” of IGCT is that it makes sense for the savings groups to cooperate rather than work in isolation.
IGCT is followed with a set of trainings on cooperative formation focusing on governance, management, and establishing policies and procedures for savings and credit, as well as audit, fund management, and accounting/record keeping. With the formation of a general assembly, selection of a board of directors and training of management, the organization is on its way toward becoming reliable, locally-owned and operated financial service provider.
FROM DREAMS TO REALITY (D2R)
Financial diary studies have documented the surprising complexity of the financial management practices of low-income households as they use various methods of saving and borrowing to smooth income. What has received less attention, however, is the complexity they face in deciding how to best use the limited financial resources they are able to accumulate. Lacking awareness of the range of options and unable to compare returns and risks for the few options they are aware of, many low-income households either play it safe, investing their savings into familiar but low-margin activities, or gamble, often with disastrous results.
Financial inclusion programs often address barriers related to access to financial services. But they rarely address the trickier question of how clients can use savings, credit, and insurance to actually increase and diversify income. This is the goal of ACCESS’s “Dreams to Reality” (D2R) financial education program, which demonstrates how financial education concepts work together. Just as a house cannot be built with a hammer alone, financial goals cannot be met with just one financial service tool. The tools must be used in combination in order to reach those goals.
PROTECTING CLIENTS FROM HARM
Using the Smart Campaign’s Client Protection assessment tools, ACCESS has worked with numerous financial service providers to identify the gaps in their client protection practices. Most importantly, ACCESS has helped them develop policies and ensure that those policies are practiced in the field. Examples include communication tools to protect client data, setting up grievance mechanisms, and avoiding over-indebtedness through improved client assessment.
MANAGERIAL SYSTEMS FOR
ACHIEVING AND MONITORING IMPACT
SOCIAL PERFORMANCE MANAGEMENT
Making financial inclusion work for the rural economy means putting in place products and systems that achieve impact. The managerial approach that establishes strategies, sets goals, and monitors progress toward achieving impact is known as “social performance management” (SPM). It is the foundation upon which all ACCESS interventions are based.
ACCESS has delivered SPM introductory training and a follow-up orientation workshop to rural financial institutions and industry stakeholders across Asia. Using the CERISE Social Performance Indicators (SPI) tool, ACCESS has audited the social performance of 30 financial institutions in the region.
Following the audit, ACCESS conducts a week-long “strategic realignment” workshop with the leaders and staff of financial institutions from all levels, the output of which is a change management plan that balances social and financial returns in the strategy of the financial institution.
Follow-up technical assistance is provided to assist the financial institution in implementing the change management plan, including integrating the change management program into annual operating plans.
FINANCIAL SECTOR ANALYSIS
Financial sectors in emerging markets are in various states of development, leaving gaps in service provision that represent potential business opportunities for providers. ACCESS uses an Ansoff matrix approach to support its partners to identify opportunities in current or new markets and whether to fill the market gap with existing or new products and delivery channels.
FOR RURAL DEVELOPMENT
INVESTMENT ADVISORY SERVICES
Rural economies need financial resources to grow, and local financial institutions are best positioned to make those investments. Ensuring that they have enough resources to invest is the main goal of ACCESS’s investment advisory services. From developing wholesale financial institutions to advising equity and debt providers on their investment strategies and conducting due diligence missions on individual financial service providers, ACCESS facilitates access to resources for rural economic actors to improve performance, sustain operations and support growth.