> Posted by Gino Picasso, CEO, GloboKas
Sendhil Mullainathan, Professor of Economics at Harvard
First and foremost I would like to thank all that were involved in organizing and sponsoring the FI2020 Global Forum. It was really an excellent conference.
Like all the others who attended this conference, I have attended dozens of conferences and they are all pretty much the same. I get to see old friends, make some new friends, and exchange some ideas, but usually there is very little that is fresh. The FI2020 Global Forum stands out in my mind because I walked away with a fresh perspective on the work we are all doing.
Dr. Sendhil Mullainathan’s presentation was a highlight because he provided a fresh perspective on what I consider the most important issue we touched on at the conference: we need to know our customer. I do not want to minimize the many other speakers and discussions, because all of these helped advance our work in some way. However, I think that a key takeaway is that we all must learn a lot more about the real needs, wants, and drives of our customers. We cannot talk about the BoP and forget that just like any other large demographic, there are many things that segment this group into differentiated consumer groups. And, like Sendhil taught us, some consumer behaviors are driven by factors that we are only beginning to understand.
In our work, too much is driven by suppositions of what might be attractive at the BoP. At the Global Forum we heard it said that of 140 mobile money deployments, only 14 are considered successful. Mobile technology offers a compelling medium to reach the BoP because it is nearly ubiquitous. Awesome! So why haven’t there been more success stories? I posit that the answer is simple: consumers buy what satisfies a need/want and these deployments have not addressed the real consumer need. Obvious! Marketing 101. But the results speak for themselves: in this space we are still tackling the very basics of marketing.
In my musing, I asked myself what I would do if I had $10 million to spare (think foundations with grant money)? I would foster a competition that would bring the freshest, greatest insight into what financial products consumers at the BoP most need, how they can be informed about these services, and how we can make them available economically. Hopefully, the results of this work would be shared and spawn many $10s of millions more that are better targeted to best getting consumers of different types that are at the BoP to obtain the financial products and services that they most want and need.
From the many discussions and presentations at the FI2020 Global Forum, (sorry for using an old English cliché!) I know that I am preaching to the choir. Though I for one, have come away recommitted to this goal. My resolution is that I will not assume that I know what consumers want, but rather I will find out ways of asking them. The billions of people in the BoP are entitled to no less.
Image credit: The Center for Financial Inclusion
Have you read?
Finance for All by 2020 in Order to End Extreme Poverty by 2030
The Financial Inclusion 2020 Global Forum: A Letter to Microfinance Institutions
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November 27, 2013 at 11:46 am
John Gitau
It is intriguing that we keep guessing what the customers in our field need and want, yet we only need to ask them. I think they know what they need and want, not unless we have taken up Steve Jobsism that says consumers don’t know what they need and want.
Can’t we use the vast and deep religious infrastructure to ask consumers we want to enlist into the formal financial system what they need and want? At least religion has succeeded significantly in religious inclusion( it doesn’t matter if there is spiritual poverty within the religious inclusion) through Hope, their product. While religion has largely succeeded in providing hope to the poor, we in financial services industry have failed to deliver the main thing – finance. No wonder the poor, though hope-full through religion, are financially hopeless. The poor buy hope from religion in the form of offerings. We in financial inclusion are not even able to sell to them the real thing, finance, yet they are willing and ready to pay for it. If they can buy the intangible hope voluntarily, what makes us feel they can’t buy the main thing? We need to admit that we are poor product designers and hopeless marketers if we can’t place within reach of majority, what is coveted by everyone in the world-finance. Which serious industry has such a ready and clearly curved out niche market and is unable to deliver the goods to those willing and ready to buy?
We in financial inclusion have let religious leaders down. While they herd the poor once a week in their houses of prayer and keep them busy with hope waiting for us to come and deliver the goodies, we congregate in big cities to strategize how to reach the poor with our financial goodies which we are not even clear about. So, every week, the clergy keeps releasing their poor congregations back to their homes, frustrated that nobody has come to talk to them about finances leave alone availing them for purchase. The congregation go home dejected saying ” let’s forget these finance people. They are not serious. They think we can’t pay for finances yet we have all along paid for hope and if we can pay for hope, what makes them think we can’t pay for the real thing?” And with that, every week the poor go back home more apathetic.
We can’t be serious that it had to take london to discover how important customers are and how we need to focus on them. Who were we focusing on before? Yes we were focusing on products first and have discovered it is the wrong approach. But, wait a minute, even for our animal products, the animal focus comes first as we prepare the food they eat. We study and research on what they prefer. Is it because they don’t talk? Even the animal food names precede the animal names complete with their demographics. That is why we talk of dog food, chicken feed, horse mash, cow salt, rabbit pellets, kitten mix, layers mash. Compare that with the many impersonal financial products such as bank loans, car insurance, personal accident policy, savings account, bank overdraft, consumer loan, school fees loans, financial literacy, retirement benefit, in-hospital cover, fixed deposit account, treasury paper and so forth. Where is the human touch in such product names? How do we expect the poor to take up products that don’t resonate with their humanity?
We need to get serious and realize that unlike physical commodities that can be experienced sensually, financial products are mental and difficult to create into forms that can be mentally experienced. That makes our work harder because we can’t create mental products unless we understand mental processing of needs and wants of our intended consumers. Try to feed cows with fodder they don’t eat and tell me if they will even touch it. Why would we assume that the fact that human beings can talk, we can then give them anything without bothering to find out if that is what they like? It was Dale Carnegie who wrote that to catch fish, he has to use worms and not the chocolate he loves so much. For financial inclusion, to catch the poor we want to be included, we have to give them what they want, not what we experts like. Fortunately, unlike fish, the poor can talk and say exactly what they want and how they want it.
December 2, 2013 at 3:55 pm
erhyne
John, Your animal feed list is very funny! And it makes a great point.
December 2, 2013 at 3:57 pm
erhyne
And as for Steve Job-ism,
Jobs could imagine what customers wanted because he was similar to the customers he was aiming at, and needed/wanted much the same things.
This does not hold in financial incluison where there is an enormous gulf between providers and customers in terms of life experiences, attitudes, and needs.
December 3, 2013 at 2:58 am
John Gitau
Thank you Beth for your remark, and you are right. The only unfortunate thing is that the enormity and magnitude of the gulf is determined by expedience and not dichotomy ignorance. I remember Ignacio Mas posing a question in one of his posts; why would a bank bother banking the poor while it can finance road construction projects and make millions of dollars effortlessly? Imagine the headache of managing 10,000 small accounts with little cash balances and the so much attention their holders will seek because what is little to the bank is so much to them. Banks are in business. So, it is not because they don’t know what products the poor need and want. They do. But it is not cost effective to create and deliver them and they are clearly not charities.
In my country, Kenya, I can estimate comfortably that more than 70% of the executives working in urban based financial institutions came from rural areas and majority of them were brought up in poverty. Have they forgotten such fast what a poor person needs around finances? What amnesia! Most financial institutions executives in the developing countries know exactly what financial services the poor in their countries need. But they have no breathing space to think about pro-poor products because their in-trays are full of work related with the employed and salaried customers, business owners in manufacturing, distribution, real estate, import, farming and supplies to the so many government institutions. And as the economies of these countries improve with the growing middle class, the financial institutions get busier. MFIs would have been a good solution because they are closer to the poor but they very fast realized that profits are good things to die for. Would we say that MFIs don’t know the financial needs of the poor?
I get tempted to think that the poor’s attitudes and needs are not any different from anyone else. Don’t we all work hard to meet the basics of food, shelter, clothing, education? Isn’t the pursuit of these basics what shapes our activities, attitudes and beliefs? I, as an executive use charcoal for my barbeque but the poor use it to cook. I buy bread from the supermarket but they buy same bread when they can afford from their local shop. They think about their children, what they will eat, clothes, school, water, energy all which they access in different quantities, frequencies as dictated by their money. But these are the same things that shape all human being’s lives and their attitudes towards life.
To put it simply, the poor just have less money than the rest of us but their needs and wants including financial services are the same as ours. Their financial services may be informal. The difference between a loan from a village shylock and one from an MFI is perhaps just cost. If you compare the two loans, you will find that one has some benefits that the other doesn’t have. Eg an MFI loan may be cheaper but security or pre-saving is required to guarantee it. A shylock loan may be expensive but it is accessed faster. Savings in a tin buried under a mango tree may be risky because it can be stolen but it is accessible. A savings account in the bank may be secure but the bank may be far and accessing it would mean transport cost. An investment maybe a milk yielding goat which would compare with a fixed deposit investment in a bank. So, a bank can argue that the goat as an investment can die. But banks do collapse with investors money and it doesn’t mean that goats die more than banks do( Meating death notwithstanding). So, let’s not see the poor as Beings from another planet that need special financial products like babies need soft food.
We in the financial inclusion can borrow a lot from the manufacturing sector businesses. They package their products in quantities and prices suitable for everyone and that is why we get all products even in the poorest slums. We can also package financial products in small “sachets” that the poor can afford and use cheap distribution channels such as capacity building the local shylocks with cheaper loans to cater for the credit component of financial inclusion.
As part of doing what I believe, I have been piloting for two year now a micro-loan product for the micro-entrepreneurs in the BOP. I don’t ask for security and I don’t push for payments. I use frequent contact to build relationship and commitment to repayment. There is no recovery mechanism or default language. It is an open ended relationship with customers There is no pressure. I want our customers to repay in their favorable installment and in the frequency they determine. They repay not because they fear but because they are appreciated and understood. A branch with 250 customers is served by two officers, one in the office and the other in the field with total branch monthly cost of $400( overheads and running costs) with a loans portfolio of $42,000 and growing. Most customers being served by MFIs repay their loans because they fear they will lose their savings, household items or stock through auctioneers engaged by the financial institutions. My financial product is based on an assumption that most people are good and honest and are not there to swindle financial institutions of their money. I also assume that money is good any time it is paid and time based repayment is an unnecessary emphasis. Harassing customers for non payment is killing the same customers sourced at very high costs. What if a customer delays repayment for 3 months, 6 months? Yes we say planning becomes hard and serving more customers becomes untenable. But how true is that? I haven’t seen cash flow inconvenience because of repayment delays as most customers prefer to repay quickly to ease their obligation burden. I believe that It is important to invigorate in the customers the value of paying their loans as a benefit to them as opposed to thriving on a threat based repayments success. The poor borrowers will get stuck in repayment just like everyone else and delay in repayment is not a deviation that deserves the venom I see everyday from MFIs and banks trying to recover their money. For my pilot effort and faith in the poor, I am getting an 85% repayment. Not bad for completely unsecured open ended, flexible loans built on trust with no NPL parameter to consider.