The Human Factor in Digital Financial Inclusion

Dhaka, Bangladesh – James Onyutta is a mobile microfinance evangelist. He is CEO of Musoni, which is leveraging Kenya’s mobile money platforms to make microfinance lending more efficient and more accessible, especially for people living in rural or remote locations. Musoni says it has tallied more than 10,000 clients since launching in 2009 and an expansion to neighboring Uganda is in the works.

The company’s name combines “m” for mobile, and the Swahili word for future, “usoni.” Like many other microfinance institutions, Musoni operates a group-based lending model to promote peer support and collective financial responsibility.

Go to the Musoni website and you’ll see it touted as “the first 100 percent mobile microfinance institution in the world.” But Musoni is not exclusively mobile-centric. Onyutta is also adamant about retaining the human dimension in the lending process and he advocates it in financial services provision generally.

“You have to have the client touch point. Clients need financial education, you need to build the savings culture. Our loan officers still meet client lending groups every week or every other week, we have just eliminated the cash element from these meetings,” he said. “What we are doing is just making the [loan] payments process more efficient.”

Onyutta made these comments at the second annual BRAC Frugal Innovation Forum, which focused on the theme of “scaling digitally” and devoted the first day of the two-day event to issues around mobile money adoption and scaling digital financial services.

Forum attendees generally hailed mobile money platforms as positive game-changers in the drive for full financial inclusion. But there also was serious consideration of the potential consequences of a massive shift to technologically-driven financial services distribution – particularly, whether consumers are going to make financial transactions without benefiting from the personal interaction and perhaps guidance that a financial professional, loan officer or even a group lending leader might otherwise provide.

In other words, do we need to sacrifice financial education and capability on the altar of broad financial accessibility?

Of course, this question applies generally to financial services markets, regardless of how services are delivered. For example, in the U.S., the subprime mortgage meltdown in the previous decade underscored the need to couple expanded access to financial services with stepped-up efforts to help people understand and properly employ what is available to them.

On the digital financial front, the timing is good to consider this issue in detail. As mobile money services proliferate around the globe (they’re now available in one form or another in more than 80 countries, according to the GSMA), proponents of financial inclusion are heralding a new phase when mobile money is used as a launchpad for savings, lending, insurance and other products, available anytime, anywhere, through digital devices. Indeed, this is already well under way in Kenya, where the M-Shwari savings and short-term credit product has become hugely popular among M-PESA users in a brief span of time.  The Financial Inclusion Insights Tracker survey of Kenya, conducted in mid-fall 2013, showed that 10 percent of adult Kenyans and 15 percent of active mobile money account holders (defined as those who have a registered account and have used it in the past 90 days) have used M-Swhari. It’s worth noting, however, that M-Shwari’s streamlined credit process has led to some criticism that it may expand an apparent trend of over-indebtedness among middle-class Kenyans to those in lower economic echelons who now have ready access to a credit product. Is this perhaps a signal that financial education needs to accompany financial access?

So let’s return to James Onyutta and Musoni. A microfinance veteran, having previously worked at FINCA for 12 years, including stints as CFO at FINCA’s Tanzanian and Ugandan arms, Onyutta explained that, with typical group-oriented microfinance, loan payment transactions and loan accounting take up the bulk of time during regular group meetings attended by loan officers. But at Musoni, since loan payments are all made via mobile, time at such meetings are freed up for discussion of other topics – such as financial education.

Encouraging as this sounds, it’s hard to imagine that most digitally-based financial services will incorporate serious knowledge-building elements, and most certainly not at the human level. This is an area where proponents of financial inclusion, particularly those focusing on spreading inclusion to the poor and underserved, will surely devote more attention.