> Posted by Kettianne Cadet, Lead Analyst, Investing in Inclusive Finance, CFI

“Evolve or die, it is that simple!” remarked Kelvin Twissa, Board Member of FINCA Tanzania. His comments came during a session on Disruption at the recent Africa Board Fellowship (ABF) seminar in Cape Town.  In an era where business is definitely not usual, many incumbent financial institutions and their operating models are being threatened by disruptors, and the ability to continuously innovate and evolve has become an increasingly important ingredient for survival.

Graphic harvesting image from May 2017 Africa Board Fellowship Seminar

Graphic harvesting image from May 2017 Africa Board Fellowship Seminar

At the Africa Board Fellowship seminar, CEOs and Board Members from financial inclusion institutions across sub-Saharan Africa come together to think more deeply about the challenges of disruption, among other topics, and to reflect on whether their own institutions are ready to respond strategically to these threats. At the heart of our recent discussion was FINCA Tanzania, an institution that has had to evolve to keep pace with new disruptive models from digital financial service providers including Jumo and Airtel Tanzania’s ‘TapTap’.

Jumo, for example, partners with mobile operators and uses behavioral science by tracking clients’ spending to understand their spending habits and create a ‘Jumo score’. Unlike traditional banks which use credit history, Jumo relies on data from clients’ mobile wallet to help determine creditworthiness. Airtel Tanzania’s ‘TapTap’ is based on digital payment cards on the consumer side, and small, affordable point of sale (POS) devices on the merchants’ side. By using the system, both consumers and merchants create digital credit histories for themselves.

Jumo and TapTap are viewed as disruptors in the financial inclusion space for the following reasons:

  • Payments/transactions through their platforms happen instantly
  • They have low operating cost structures
  • Accessing their products can be done remotely, far away from branches
  • They aggregate data to establish clients’ creditworthiness and learn more about customers

The following video describes the pressures FINCA Tanzania faces.

 

In the video, Mike Gama- Lobo, Board Chair of FINCA, outlines the steps that FINCA is taking to evolve amidst constant pressures from the market, commercial banks, and mobile network operators (MNOs). Before innovating, FINCA made sure a core banking system was in place, along with an operations department to handle reconciliations. Additionally, FINCA obtained licenses to collect deposits and leverage agent networks. With high board engagement, FINCA Tanzania has begun implementing three activities:

  • Partnering with credit scoring organizations and capturing data on clients
  • Implementing digital field automation- in other words digitizing processes that were previously paper-based in order to save time and reduce inefficiencies among staff
  • Leveraging the mobile phone – by partnering with MNOs and using mobile phones to deliver products

In addition, FINCA Tanzania has launched several new initiatives; for example, they have launched mobile payments with Vodacom and agency banking called ‘FINCA Express’.

Through the peer exchange and discussions around FINCA Tanzania at the ABF seminar, a general consensus surfaced among the participants: MFIs need to focus attention on fintech disruptors likely to affect their traditional microfinance business models, and they need to start now – before digital lenders move more directly into the microfinance space. Additionally, as outlined in a recent paper from Bankable Frontier Associates, Alternative Delivery Channels for Financial Inclusion, which includes a spotlight on FINCA Tanzania’s agent banking story, in order to successfully implement alternative delivery channels, regular and effective communication with regulators can be of utmost importance.

Despite these proactive advances, the future remains uncertain for larger microfinance institutions while questions still loom as to how they can remain top players in the industry. Does innovation mean focusing more on client engagement, offering a variety of financial products, or turning towards low-touch digital offerings? In this time of fierce competition, only time will tell. But one thing is for certain, in order to survive, let alone thrive, evolution is essential.

This FINCA Tanzania Case Study will be discussed in more detail at the upcoming Africa Board Fellowship Roundtable on Governance in a Digital World. As part of the 2017 African Microfinance Week (SAM) hosted in Addis Ababa, Ethiopia, we will be hosting a two-day Roundtable from October 12 – 13 focusing on Governance in a Digital World. This Roundtable will facilitate strategic discussion around key governance issues among leading CEOs, board members, investors and regulators.