This is the second in a publication series of three interview pieces with the three finalists for the European Microfinance Award on Financial Inclusion through Technology.
ESAF Small Finance Bank (ESAF SFB) is an Indian MFI that is leveraging the rapid expansion of mobile phone and smartphone penetration in India to digitise a wide range of its lending processes, in particular customer onboarding, electronic applications, customer financial training, credit appraisal, in-field verification, mandatory customer identity and address verification using eKYC, as well as opening of accounts, cashless disbursement and paperless collections of loan repayments. ESAF’s field officers use Internet-connected tablets with biometric identity verification and its clients have QR-enabled Aadhaar Cards – with Government-issued 12-digit unique identify numbers based on biometric and demographic data. Their details are automatically transmitted for credit bureau verification, and clients are given ATM cards to withdraw money in convenient tranches from any ATM.
e-MFP: How is the technology initiative that you presented for the Award particularly innovative?
ESAF SFB: Our technology initiative was innovative in its approach to end-to-end customer experience and scope. Rather than attempting to re-work one or a few pieces in the customer journey, the initiative went back to the drawing board on all processes. It transforms the entire processes of customer onboarding, including capturing account creation request (on tablet using texts and pictures), financial literacy training (via queue management, using tablets and multimedia content), customer appraisal (including house verification visits and Group Recognition Tests, loan application appraisal (via automated straight-through processing through an external Credit Bureau and in-house business rules engine), e-KYC verification (using biometric identity and the Aadhaar database) and AML.
Once loans are sanctioned, Pre-generated Kits (PGKs) with debit cards are allocated and entire set of documents is auto-printed from the system. Then the customer is scheduled to come to outlets wherein she signs the pre-generated document and the funds are electronically transferred to her savings account. She is given the PGK to use at any ATM of her choice and withdraw money. Further, for ongoing repayments, transactions are captured on a tablet, which talks with Core Banking Software (CBS) on a real-time basis.
This approach has helped reduce various types of risks within the core business for the institution. It reduced the hassles for staff on accounts of moving with paper based applications, poor database quality owing to multiple stages of data capture and digitisation, operational risks associated with significant cash in-transit, process deviations, as well as general customer dissatisfaction on account of long processing times. Most importantly, it facilitates fast decision making by supervisors due to easy availability of data and visibility on various stages in the process.
e-MFP: Could you give one or two examples of challenges you’ve faced in implementing your initiative, and how you have had to change or adapt your activities as a result?
ESAF SFB: The most important challenge was training staff and supporting them in adapting. More than half of our field force are women, most are over 40, poorly educated and with low technological literacy. Making them technology-ready was a herculean task. A well-structured training program was devised to overcome this challenge. Cadres of Regional Managers and Area Managers were first trained to initiate branch level staff into the process change on anvil. Further, branch managers were trained to pass-on the learning and comfort to the front-end cadre of field officers.
However, once the transition was implemented, it led to huge disruption in service delivery. Weakness in at least one technology module to handle huge volume also added to the problem. Owing to this, business growth expectations were tampered and for almost three months, not much incremental business was done. The period was utilized to stabilize the new technology initiative and to make the staff comfortable. Business was slowly started and the staff was encouraged to move slowly. Another month into the restart, staff became comfortable enough to regain the tempo. As the technology proved useful in reducing workload on them, the business expanded rapidly in the following months.
e-MFP: What are some of the (general or specific) risks that are possible when using technology to serve clients, and what do you think the financial inclusion sector can do to protect those clients or institutions from those risks?
ESAF SFB: Some of the risks around use of technology are customer dissatisfaction due to lack of familiarity with technology solutions, newer ways of committing fraud, data abuse, possible exclusions of those who are not very tech-savvy, risk of obsolescence etc. One generic risk around technology is lack of sufficient awareness on using it safely. Our new process entailed depositing funds directly into clients’ savings account and giving them a debit card. This exposed some of them to new risks of unauthorised use of their debit card. In light of this, the bank came up with a list of Do’s and Don’ts to be shared with customers.
e-MFP: What are some of your future plans to further utilize technological opportunities in serving your clients?
ESAF SFB: Emboldened by success in achieving a large-scale technological transformation, ESAF SFB wishes to continue to assess ways and means to improve customer experience using technology. One of the key bottlenecks facing the inclusive finance ecosystem is heavy reliance on cash at the customer end. In addition to myriad costs, it also adds to abusive practices like being paid less than declared. It may be mitigated in two ways: by establishing a wide network of easily accessible cash transaction points wherein a customer may deposit, withdraw, or transfer very small amounts of funds; and promoting the use of digital money by bringing small shops to accept it as an acceptable alternative to hard cash. The government-initiated UPI payment mechanism is a significant step in this direction, which the Bank will use to push in its operating geographies through popularising its usage on smartphones, printed QR codes etc.
The winner of the €100,000 European Microfinance Award 2018 will be announced during the ceremony which takes place on the 15th November in Luxembourg in the framework of European Microfinance Week.
For further details on the Award visit the European Microfinance Award website.