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This is our second response to the provocative post two weeks ago from Ignacio Mas. Ignacio asks why the “current innovation frenzy in digital financial services in the U.S.” does not translate into action in BoP markets across the world, and puts forth a number of hypotheses.
“In other words, why is there such an inherent innovation deficit within the very commercial ventures that we think are going to drive financial inclusion forward? Do market players really need this very granular level of handholding to get what academics, NGOs, and donors so clearly believe in? …Or is the problem, rather, that there isn´t enough of a competitive push to drive them to want to innovate as a key source of market advantage?”
What follows is a response from Gerhard Coetzee, who leads the CGAP Customers at the Centre Team.
In considering the question posed by Ignacio Mas, I am reminded of the work of business strategist C.C. Markides. He did not see it as “the great competition and innovation deficit” question, but rather, the challenge of how large institutions make two business models exist in the same organization. In fact, the question is how to serve two distinct market segments in the same institution. He notes that the large industry players that develop new radical business models are exceptions rather than the rule. Most innovations and market changing models are introduced by newcomers to that industry.
Why don’t we see the large financial service providers (FSPs), who have the ability to change things at scale, jump into this area of the market and deliver solutions to low-income and poor customers even where regulation may enable them to engage? In essence the argument focuses on product centricity, incomplete business cases, an over-emphasis on the supplier view of cost to serve, short-termism of incentive structures, and competition for resources in large organizations. Read the rest of this entry »
> Posted by Guy Stuart and Eric Noggle, Executive Director and Research Officer, Microfinance Opportunities
In our first post in this series, we described the need for an approach to financial education that was both effective and scalable, and we offered embedded education as a potential solution. Our second and third posts described how the embedded education approach works and showed its potential effectiveness by describing the improved money management behavior displayed by clients in Zambia after participating in our program. We believe that these findings also revealed the potential for a business case for delivering financial education using the embedded approach.
For a business case to exist, two things have to be true: financial service providers (FSPs) need to see a positive, bottom-line impact from an embedded program and a financing mechanism needs to exist that can compete with the current grant-based model for funding financial education.
Bottom-Line Impact
Financial education can positively impact financial service providers in a number of ways (aside from knowing that they’re empowering individuals to take control of their financial lives). Offering training could improve client retention by strengthening loyalty. It could reduce customer service requests by increasing familiarity with a banking process. But our market research suggests that the biggest potential impact is lowering write-off ratios and increasing savings balances.
> Posted by Richard Koven, Consultant, MicroInsurance Centre
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.”
Both client value and a business case are needed for microinsurance to be sustainable. In an ideal world, the two ultimately reinforce one another. Value is recognized by clients, leading to greater satisfaction with and demand for insurance, while demand leads to reasonable profits for insurers, enhancing their ability to provide value to clients in the medium and long-term.
In an effort to better understand how profitability and client value complement one another and how they conflict, the MicroInsurance Centre’s Microinsurance Learning and Knowledge (MILK) project conducted extensive research on health microinsurance in Kenya.
Understanding client value and the business case
To understand client value, MILK conducted two “Client Math” studies. These quantitative assessments seek to understand the value of insurance compared to other risk management tools by exploring the differences in how insured and uninsured households cope with financial shocks. We looked at hospitalization insurance products offered by two private insurers: the Afya Yetu Initiative, an NGO that oversees and implements 30 Community-Based Health Insurance schemes, and the commercial insurer British-American Insurance Company Kenya (Britam). We surveyed low-income people (insured and uninsured), asking them about the direct, indirect, and opportunity costs they incurred in connection with a high-cost hospitalization as well as the strategies they used to finance those costs.
Overview of products studied
We found that while both products provided value for clients, the Afya Yetu product offered more generous coverage. Post-claim, Afya Yetu policyholders paid only a quarter of the total costs of hospitalization of their uninsured counterparts. By contrast, Britam’s clients paid 80 percent as much as their uninsured counterparts. In both cases, insured respondents were able to finance their costs more independently than uninsured respondents by reducing spending in the short-term rather than taking out loans. The Afya Yetu product is simpler and was thus better understood by respondents than Britam’s more complex product, which offers eight different levels of coverage. Afya Yetu uses a relatively “high touch” enrollment process that leverages existing relationships with agents from within the communities of the target populations, thereby educating clients and building trust. Britam’s clients, by contrast, struggled to understand their coverage; of the insured respondents in our study, 60 percent reported paying more than they expected to pay for their hospitalization.
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