Delivering Financial CapabilityA Look at Business Approaches

Brief 003

October 2017

Author Justyna Pytkowska,

Microfinance Centre

Delivering Financial CapabilityA Look at Business Approaches

October 2017

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TableofContentsIntroductionandResearchFramework.................................................................................................................2

TypesofFinancialCapabilityInterventions.......................................................................................................2

CaseStudies...........................................................................................................................................................4

CaseStudy1:Adie(France)...............................................................................................................................6

CaseStudy2:PerMicro(Italy)...........................................................................................................................6

CaseStudy3:Qredits(theNetherlands)...........................................................................................................6

CaseStudy4:Humo(Tajikistan)........................................................................................................................7

CaseStudy5:KMF(Kazakhstan).......................................................................................................................7

CaseStudy6:BorrowWiselyCampaign............................................................................................................7

Findings..................................................................................................................................................................8

StrategiesforAchievingFinancialViability........................................................................................................9

1. IncomeFromFees,ServicesorMaterials..............................................................................................9

2. GrantsandSubsidies............................................................................................................................10

3. AbsorptionIntoMarketingorCorporateSocialResponsibilityBudgets..............................................10

4. IntegrationIntoCreditProcessesandRoutineClientInteractions......................................................10

5. Cost-SharingThroughPartnerships......................................................................................................11

6. UseofVolunteers.................................................................................................................................12

Conclusion............................................................................................................................................................13

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IntroductionandResearchFrameworkManyfinancialservicesproviderswanttohelpimprovetheirclients’financialknowledge,skills,attitudes,andbehaviors.Thereisaquestion,however,ofhowproviderssustainablyintegratefinancialcapabilityinterventionsintotheircorebusiness.Thisbriefprovidesarangeofexamplesofhowfinancialinstitutionshaveansweredthisquestion.

Financialservicesproviderspursuethegoaloffinancialcapabilityfortworeasons.Mostimmediately,providersseefinanciallycapablecustomersasbeingmoreactiveusersoftheirfinancialproducts.Beyondthis,withincreasedfinancialcapability,clientscanmakeuseofarangeoffinancialproductswiththeultimategoalofimprovingtheirlives.Whilethevalueoffinancialcapabilityisrecognized,thereisstillaquestionofhowfinancialinstitutionsmakefinancialcapabilityinterventionsworkwithintheconstraintsoftheirrespectivebusinessmodels.

Financialcapabilityinterventions—focusedonbothpersonalfinancialmanagementandbusinessskills—rangefromsmallpiloteffortstolarge-scaleinterventions.Financialservicesprovidersmayhousetheirfinancialcapabilityfunctioninvariousdepartments,frommarketingtoproductdevelopmenttocorporatesocialresponsibility.Whilemanyinterventionsgetstalledinthepilotphaseorfailtoscaleup,someinstitutionshavepersisted,recognizingthebenefitsofimprovedcapabilityfortheirclients.

Inthisbrief,whichprovidesexamplesoffinancialcapabilityinterventionsbymicrofinanceinstitutions(MFIs)inEuropeandCentralAsia,wefocusonhowinstitutionshavemadefinancialcapabilityworkwithintheirconstraints.Wediscussthefinancialviabilityoftheseinterventions,whichhasbeenasignificantobstacletotheirscaleandsustainedoperation.Wewanttoknowhowinstitutionssolvetheproblemofpayingfortheseprogramsandwhethertheysucceed.

Weidentifystrategiesthatfinancialservicesprovidersusetofundfinancialcapabilityinterventions.Althoughnotallinstitutionsareabletofullycoverthecostsoftheirfinancialcapabilityinterventionswithrevenuesearnedfromtheirfinancialornon-financialserviceofferings,allofthemhavedevelopedstrategiestominimizethesecostsandcovertheinterventionsthroughotherfundingsources.

Thesixstrategiesforfinancingfinancialcapabilityinterventionsare:

1. Incomefromfees,services,ormaterials2. Grantsandsubsidies3. Absorptionintomarketingorcorporatesocialresponsibilitybudgets4. Integrationintocreditprocessesandroutineclientinteractions5. Cost-sharingthroughpartnerships6. Useofvolunteers

Thesestrategiesareinstructiveforotherorganizationsinterestedinimplementingtheirownfinancialcapabilityprograms.WeanticipatethatthisBriefwillhelpfinancialservicesprovidersoptimizeoroperationalizefinancialcapabilityinterventionswritlarge.

TypesofFinancialCapabilityInterventionsFinancialcapabilityinterventionscanbeclassifiedintothreemaingroups:

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1. Informationsharinginterventionsareaone-waytransferofknowledgefromtheprovidertotheclient.Theseinterventionsincludethedistributionofprintedmaterials,showingeducationalvideosatinstitutionbranches,andtraditionalandsocialmediacampaigns.Allaimtoprovidebasicinformationtoclientsbydrawingattentiontocertainrisksandshapingbehavioralattitudes.

2. Masseducationinterventionsseektoimprovefinancialcapabilitythroughlarge-scale,in-persontrainings.Typically,masseducationisconductedinatraditionalclassroomsettingforgroupsofclientsorthroughe-learningonlinecourses.TheintensityofengagementfromtheMFIrangesfrommediumtohigh,asthedeliveryoftrainingsrequiressomemaintenanceofthepooloftrainersandresourcesforrecruitmentandlogistics.Institutionsofteninvestsignificanttimeandresourcesintothedevelopmentofcurriculumandmaterialsandtrainingtheinstructors.Clientsalsoinvesttimeattendingsuchtrainings.

3. Individualeducationinterventionsaredeliveredinaone-on-onesettingandinvolvementoring,financialcounselingorindividualtraining.Theycanbehighlycustomizedastheeducatorcantailorcontenttotheneedsoftheparticularclient.Thisisthemostresource-intensivefinancialcapabilityactivity,bothfortheinstitutionandtheclient.Theeducatorrequiressignificantknowledgeandinterpersonalskillstoadjustthecontentandtheteachingstyletotheneedsoftheclient.Giventhehighlyinteractivenatureoftheone-on-onesessions,theyalsorequiresignificantattentionandcommitmentonbehalfoftheclient.

Thedifferencesintheinvestmentrequiredforeachtypeofinterventionhasimportantimplicationsforthecoststructureofthefinancialcapabilityprogramandoverallsustainabilityofbusinessoperations.Theindividualapproachisthemostintensiveandmostcostlytypeoffinancialcapabilityintervention,bothfortheinstitutionandtheclient.Masseducation,whilealsocostly,hasthepotentialforcostreductionasthefinancialcapabilityinterventionsareorganizedforuniformgroupswhofacesimilarchallengesinfinancialmanagement.Informationsharingcanbedoneonamassscaleatlowunitcost.

Theremaybeatrade-offbetweenintensityofinvolvementandscaleofactivity(seeTable1).Wewillconsiderhowscaleandintensityarelinkedtofinancialviability—anddrawsomesurprisingconclusions.

Table1:ClassificationofFinancialCapabilityInterventions

TypeofIntervention

SpecificActivities Description Scale

LevelofInstitutionalEngagement

LevelofClient

EngagementCost

LevelofBusiness

Sustainability

InformationSharing

• Informationdisclosures

• Publicawarenesscampaigns

• Printedmaterials

• Websites• Social

media• Text

messaging

Broadlycommunicatinginformation

MassMarket Low Low Low High

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TypeofIntervention

SpecificActivities Description Scale

LevelofInstitutionalEngagement

LevelofClient

EngagementCost

LevelofBusiness

Sustainability

MassEducation

• Classroomeducation

• Onlinetraining

Teachingthroughvariouschannels,methods

Groupsandindividuals

Medium/High Medium Medium Medium

IndividualEducation

• Mentoring• Counseling• Individual

training

One-on-one,tailoredsessions

Individual High High High Low

Source:AdaptedfromSarahGordon,JenniferTescher,andJoshSledge,FromFinancialEducationtoFinancialCapability:OpportunitiesforInnovation,CenterforFinancialServicesInnovation(CFSI),March1,2010,http://cfsinnovation.org/research/from-financial-education-to-financial-capability-opportunities-for-innovation/

Financialcapabilityinterventionsareprovidedtoclientsusingthreedeliverymodels(seeFigure1):

1. ParallelModel:Activitiesaredeliveredbythefinancialinstitution'sdedicatedstaffwhoarenotalreadyengagedindeliveringfinancialservices

2. UnifiedModel:Activitiesaredeliveredbythefinancialinstitution'sstaffwhoalsoprovidefinancialservices

3. LinkedModel:ActivitiesaredeliveredbyapartnerinstitutionFigure1:FinancialCapabilityDeliveryModels:Parallel,Unified,Linked

Source:AdaptedfromDeliveringFinancialEducationinAfrica:ReachGlobal’sLessonsLearnedonSupportingtheDeliveryofFinancialEducationundertheUNCDF-YouthstartProgramme,UNCapitalDevelopmentFund(UNCDF),December2015,http://www.uncdf.org/article/895/delivering-financial-education-in-africa

OurcasestudiespresentexamplesofMFIsusingeachofthesedifferentdeliverymodels.

CaseStudiesAlargenumberofmicrofinanceinstitutionsacrossEuropeandCentralAsiaofferfinancialcapabilityprograms(seeTable2)andprovideloansforincome-generatingactivities.Someinstitutionsfocusonpersonalfinancialmanagement,astheyrecognizetheimportanceofsoundfinancialmanagementoftheentirehouseholdbudget.Otherinstitutionsfocusonimprovingbusinessfinancialmanagement,arguingthatitiscriticalfor

MFI

NGO

LoanOfficer/ Educator

LoanOfficer

Educator

MFI

MFI

ParallelModel UnifiedModel LinkedModel

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securingincomeflowandprosperityoftheclient.TherearealsoMFIsthatprovidebothpersonalandbusinessfinancialmanagementprogramsinrecognitionofthedualneedsoftheirclients.

Theinterventionsaredeliveredinavarietyofways:throughmentoring/counseling,classroomtrainings,informationprovision,writtenmaterialsandmassmediacampaigns,withmanyinstitutionsusingseveraldeliverychannels.Someinstitutionsdelivertheseinterventionsinthecourseofcreditoperations,whileothershaveseparatedepartmentsorsisterinstitutions.Afewinstitutionspartnerwithexternalorganizations.

Table2:FinancialCapabilityInterventionsAmongMFIsinEuropeandCentralAsia

TypeofFinancialCapability

Intervention

TypeofFinancialManagement

Program

TypeofDeliveryModel

Unified Parallel Linked

InformationSharing

PersonalFinancialManagement

BorrowWiselyCampaign(implementedviaaconsortiumofMFIs):• Noa(Albania)• FINCAArmenia,ECLOF,

NorHorizon,FarmCredit,Ucora(Armenia)

• Azercredit(Azerbaijan)• EKI,Lider,Partner(Bosnia

andHerzegovina)• SISCredit(Bulgaria)• Adie(France)• Crystal(Georgia)• KEPA(Greece)• AfK(Kosovo)• Horizonti(Macedonia)• MicroInvest(Moldova)• Vitas(Romania)• AgroInvest(Serbia,

Montenegro)• Hope(Ukraine)

• ProCreditBank(Kosovo)

• AccessBank(Tajikistan)

N/A

MassEducation PersonalFinancialManagement

• ACF,KMF(Kazakhstan)• Arvand,AccessBank,

BankEskhata,FINCATajikistan,FirstMicrofinanceBankTajikistan,Humo(Tajikistan)

• Azercredit,AzeriStar,DemirBank,FinanceforDevelopment,FINCAAzerbaijan,TuranBank,Viator(Azerbaijan)

• FINCAKyrgyzstan(Kyrgyzstan)

• XACBank(Mongolia)

• SKOK(Poland)• Imon

(Tajikistan)

Business/EnterpriseFinancialManagement

• KMF(Kazakhstan) • MicroStart(Belgium)• Adie(France)• Qredits(Netherlands)

• PerMicro(Italy)• Romcom

(Romania)

IndividualEducation

PersonalFinancialManagement

• AccessBank,Arvand,BankEskhata,FINCATajikistan,FirstMicrofinanceBankTajikistan,Humo,Imon(Tajikistan)

N/A • SKOK(Poland)

Business/EnterpriseFinancialManagement

N/A • Adie(France)• Qredits(Netherlands)

• PerMicro(Italy)• ErsteBank

(Serbia)

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Weselectedsixinstitutionstostudyindepthandtoillustratethediversityofstrategiesthatexistsacrosstheregion.

CaseStudy1:Adie(France)Adieisamicrofinanceinstitutionthathelpspeoplewhoareoutsideoftheformallabormarket/financialsystemstartsmallbusinesses.Adieprovidesloansforbusinessdevelopmentandsupportsentrepreneurstoimprovetheircapacitytoestablishandoperateanenterprise.Adieengagesinbuildingtheskillsoftheunemployedwhoareinterestedinstartingtheirownbusiness,especiallyindisadvantagedareasandamongyouth.TheMFIalsoprovidesloansforpeoplereturningtoemployment.

Adieseekstoimproveentrepreneurs’financialcapabilityinseveraldifferentwaysbasedontheirlevelofexperience.Foraspiringentrepreneurs,AdieorganizestrainingsonhowtowriteabusinessplanthroughitsCreaJuenesprogram.Forentrepreneursinthepre-startupphase,Adieprovidesinformationonhowtoregisterafirm.IfanentrepreneurregistershercompanyandreceivesaloanfromAdie,shereceivesmentoringwhichcontinuesthroughouttheloantermandcanbeextendedaftertheloanisrepaid.

Indeliveringmentoringservices,Adieappliesaparallelmodelinwhichamentorprovidesfinancialcapabilityservicesinparalleltothefinancialservicesdeliverybytheloanofficer.

Additionally,Adiehasdevelopedninethree-minutevideosthatpresentthestepsneededtostartabusiness,suchascustomeranalysis,competitionanalysis,strategy,salesplanningandfinancialprojections.

CaseStudy2:PerMicro(Italy)PerMicroisanItalianMFIcreatedin2007topromotesocialinclusionandemploymentthroughtheprovisionofmicrocredit.Itpartnerswithanon-governmentalorganization(NGO)—PerMicroLab—todelivernon-financialservicestocurrentandfutureentrepreneursandtocoordinatethedeliveryofmentoringservicesforPerMicroclients.Thisisanexampleofalinkedmodelinwhichtwoorganizations(anMFIandanNGO)worktogethertodeliverbothfinancialandnon-financialservices.

Mentorsassistnewentrepreneurstodeveloptheirbusinessideasandwritebusinessplans.PerMicroLab(theNGO)preparespotentialclientstoapplyforaloanfromPerMicro(theMFI).OncethebusinessislaunchedwithaPerMicroloan,PerMicroLabmentorshelptheentrepreneursimplementabusinessplan,monitoringtheactualcashflowincomparisontotheprojectionsand,ifnecessary,adviseoncorrectiveactionsandsettingnewobjectives.

Additionally,PerMicroLabrunsatrainingprogram,“UptoYouth,”targetedatyoungadults.Thisprogramcombinesgrouptrainingwithpersonaladviceandsupportfrommentors.Trainersofferindividualsupporttodevelopparticipants'businessideas.

CaseStudy3:Qredits(theNetherlands)QreditsisanonprofitmicrofinanceinstitutionintheNetherlandsfoundedin2009.Itsmissionistostimulatethecreationofnewstart-upsandtoinvestinexistingbusinesses.Qreditshelpscurrentandwould-beentrepreneursmakeinformedchoicesforentrepreneurship,thusincreasingbusinessopportunitiesandsurvivalrates,creatingopportunitiesforentrepreneurstobecomefinanciallyandeconomicallyindependent,andbridgingthegapfornewentrepreneursenteringtheformalfinancialsector.

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Qreditssupportsentrepreneursatdifferentstages,rangingfromentrepreneurswithregisteredbusinesses,start-upentrepreneurs,andaspiringentrepreneurssuchasstudents,theunemployed,andschooldropouts.

Mentorsadviseandsupportentrepreneurs(bothwithexistingbusinessesandstart-ups)todeveloptheirbusinesses.Mentoringservicesareprovidedthroughaparallelmodel:mentorsonlyprovidefinancialcapabilityserviceswhileloanofficersonlyprovidefinancialservices.

Forpotentialentrepreneurs—students,vulnerableadultsandothersinterestedinstartingabusiness—QreditshasdevelopedaneducationalprogramcalledEigenBaas(“BeYourOwnBoss”)whereparticipantscantesttheirentrepreneurialspirit,learningwhatittakestostartabusiness,writeabusinessplan,presentthemselves,andselltheirproduct.Theycanalsopreparetheirownbusinessplansandpracticebusinessplanpitches.

CaseStudy4:Humo(Tajikistan)HumoisamicrofinanceinstitutioninTajikistanthatoffersarangeoffinancialservices,includingbusinessandpersonalloans,deposits,andmoneytransferservices.Ittargetslow-incomepeoplelivinginruralareas.

Humoprovidesseveralservicesaimedatimprovingfinancialcapability.Theseservicesincludecounseling,classroomtraining,videospotsshowninbranchoffices,posters,leafletsandbrochures.Additionally,Humohasincorporatededucationalmessagesintothebrochuresforcreditproducts.

Humoutilizesaunifiedmodelinwhichloanofficersprovideeducationtoclients.Loanofficersaretrainedtodelivercounselingandtrainingtotheirclientsalongsidetheirworkdeliveringfinancialservices.

CaseStudy5:KMF(Kazakhstan)KMFisthelargestmicrofinanceinstitutioninKazakhstan.Itprovidesbusiness,agriculturalandconsumerloanstolow-incomepeople.ThemajorityofKMF’sclientsusesgrouploansandlivesinruralareas.

KMFaimstobuildfinancialcapabilityofcurrentandpotentialclientsthroughclassroomtraining.Inthisway,KMFisabletoreachouttoalargenumberofbeneficiaries,andhastrained95,000peopleinthelastthreeyears.Trainingsonpersonalfinancemanagementcovering11topicsareofferedinallbranchestoclientsaswellasnon-clients.KMFhasalsodevelopedbrochures,posters,avideo,andaudiolessonsasaccompanyingmaterialsforself-study.Thesematerialsareallavailableonline.

Since2015,KMFhasalsoofferedbusinesseducationthroughfivetrainingmodules,whichareonlyavailabletoloyalclientsofKMF.

KMFutilizesaunifieddeliverymodeltoimplementitsfinancialliteracyprogram.KMFstaff,includingloanofficersandbranchmanagers,deliverfinancialliteracytrainingsandprovideindividualconsultationsforKMFborrowers.

CaseStudy6:BorrowWiselyCampaignTheBorrowWiselyCampaign(BWC)aimstoraiseawarenessandprovidetipsontheresponsibleuseofcredit.ThecampaignisheldannuallyinOctoberinovertencountriesinEuropeandCentralAsia,1duringwhich

1In2014,theBWCwasimplementedby12microfinanceinstitutions.Thenumberincreasedto18MFIsin2015,and20in2016.

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participatingMFIsdistributeleafletsandbrochures,showvideospots,sendtextmessages,andtalkwiththeircurrentandprospectiveclientsaboutresponsiblecredituse.

Thecampaignwasfirstheldin2013when12MFIsjoinedforcestodevelopthecampaign'smainmessages,toolsandcommunicationchannels.Thecampaignhasbroadreach;in2016,itreached473,660currentandprospectivemicrofinanceclientsdirectlyandvirtually.

Thecampaignisdeliveredthroughaunifiedmodelandimplementedbyfrontofficestaffatvariousstagesofthelendingprocess.Loanofficersintegratethedeliveryofeducationalmessagesintotheroutineactivitiestheyperform,usingallpossibletouchpointswiththeclient—inbranchofficesatthetimeofcreditinquiry,intheloanapplicationprocess,duringmonitoringvisits,orduringmarketingactivitiesinthecommunity.

TheMicrofinanceCentre—anetworkofmicrofinanceinstitutionsinEuropeandCentralAsia—hassupportedBWCMFIsintheinitialdevelopmentofcampaignmaterialsandinannualmonitoringandevaluationofprogramoutcomes.

FindingsThesixcasestudiesrepresentthespectrumoffinancialcapabilityinterventionsintermsofdeliverymodels,content,beneficiariesandfinancingstrategies.Mostoftheinstitutionsuseamixofinterventions,particularlywhenservingavarietyofclients.Forexample,Adie,PerMicroandQreditsdeliverhigh-touchmentoringservicestocurrentborrowersandmedium-touchgrouptrainingtoprospectiveclients.MFIsoftenuseinformationsharingasacomplementaryservice.Brochures,leafletsandvideospotsaredistributedbyMFIstafftostrengthentrainingandcounselingmessages(i.e.,Adie,PerMicro,KMFandHumo).InformationandadviceonregisteringacompanyiscomplementarytotrainingforaspiringentrepreneursinAdie’sConseilservice.

However,informationsharingcanalsobeastand-aloneserviceinthecaseofanawareness-raisingcampaign.Forexample,theBorrowWiselyCampaignaimstoraiseawarenessabouttheresponsibleuseofcreditbydirectlydeliveringkeymessagestobeneficiarieswithlowinvolvementonthepartofMFIstafforeducators.

Althoughinformationsharing,especiallydeliveredthroughmassmediachannels,isconsideredtobethemosteffectiveinreachinglargegroupsofpeople,wehavefoundthatKMFhasachievedconsiderablescaleinprovidingtrainingthroughanintegratedapproachwhereloanofficersserveaseducators.Thisisauniquecasegiventheintensityofinstitutionalengagementintermsofstaffinvolvementandcosts.

WhiletheprimarymotivationforMFIsistoimprovethewell-beingofclientsandstrengthentheimpactofmicrocreditonclients’lives,thebusinessapproachesfordeliveringfinancialcapabilityinterventionsvarywidely.MFIsaimingatself-sustainabilitytendtochoosesolutionsthatdonotinvolvesubsidiesoruseofexternalfunding.MFIsusingdonorfundingtosupporttheirmicrocreditoperations,incontrast,aremorelikelytousesubsidiestofinancefinancialcapabilityinterventions(seeTable3).

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Table3:SummaryofSelectedCases

MicrofinanceInstitution

FinancialCapabilityActivities

TypeofFinancialManagementService

TypeofDeliveryModel

FinancingStrategies Comments

Adie(France)

Mentoring,training,e-learning

Business/Enterprise Parallel Volunteers,donations High-touchdeliverytechniques,subsidized

Humo(Tajikistan)

Counseling,training,marketingmaterials

Personal Unified Coveredthroughmarketingbudget

High-touchdeliverytechniques,self-financedbytheMFI

BorrowWiselyCampaign(Multi-country)

Informationprovisionthroughmultiplechannels

Personal Unified Coveredthroughmarketingbudget,MFInetworkcontribution

Largescaleofoutreachthroughlow-touchdeliverytechniques

KMF(Kazakhstan)

Training Business/EnterpriseandPersonal

Unified Coveredbycorporatesocialresponsibilitybudget

Largescaleofoutreach,self-financedbyMFI

PerMicro(Italy)

Mentoringandtraining

Business/Enterprise Linked Volunteers,donations High-touchinterventionsdeliveredbypartnerinstitution(PerMicroLab),subsidized

Qredits(Netherlands)

Mentoring,training,e-learning

Business/Enterprise Parallel Fee-basedservices,volunteers,donations

High-touchdeliverytechniques,partiallypaidbyclientsandpartiallysubsidized

StrategiesforAchievingFinancialViability

Inthecourseofstudyingthebusinessapproachesfordeliveringfinancialcapabilityinterventions,wediscoveredsixwaysoffinancingtheseinterventions.MFIsoftenuseamixofstrategiesthatcombinecostreductionsolutionswiththosethatgenerateincometocoverthecosts.

1. IncomeFromFees,ServicesorMaterialsInthisapproach,theMFIoffersfee-basedfinancialcapabilityservices.Qreditsisanexampleofaninstitutionusingthisapproach.

Qreditsaimstobeself-sustainableindeliveringfinancialcapabilityinterventions,soitdevelopedastrategyforgeneratingsalesrevenuesfromdiversifiedsources.Qreditssellsfinancialcapabilityservices,suchasmentoringande-learningmodulesdirectlytocustomers,aswellasacompleteeducationalpackage(theEigenBaasprogram)tovocationalschools,highschools,universitiesandotherpartnerinstitutions.Additionally,Qreditssellsane-learningcoursetootherMFIsandNGOsworkingwithcurrentandaspiringentrepreneursintheNetherlandsandabroad.

ActivitiesrelatedtofinancialcapabilityaremanagedbyQredits’mentoringdepartment,aseparatecostcenter,andthusthecostsofprovidingfinancialcapabilityactivitiesaretrackedseparatelyfromthecostsrelatedtotheprovisionoffinancialservices.Asaresult,Qreditscanadjustitspricingstrategywithitscoststructure.

Clientfeesareagoodsourceofrevenuesforinstitutionsfocusedonachievingfinancialsustainability.Suchastrategyalsoallowsforclarityincommunicationwiththeclient.Eachservice—financialandnon-financial—has

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apriceandclientscanselectthemostsuitablesetofproductsandservicesbasedontheirneeds.Clientstendtovaluemorehighlyandmakebetteruseofservicesforwhichtheypay.

Despitethesebenefits,itmaybedifficulttoconvincelow-incomeclientstousepaidservices,especiallyincountrieswhereMFIscompetewithoneanotheroverthepriceoftheirservices.Clientsmaybesuspiciousofthequalityofeducationalservices,sinceMFIsarenoteducationalinstitutionsnorisfinancialcapabilitytheircorebusiness.Theuptakeofpaidservicesmaydependontheculturalcontext(willingnesstopay),incomelevel(affordabilityoftheservice)andtheavailabilityofothereducationaloptions.

2. GrantsandSubsidiesInstitutionsthatprioritizesocialimpactoverself-sustainabilitytendtousedonatedfundstosupporttheirfinancialcapabilityinterventionsforcurrentclients.MFIsreceivegrantsfromprivatesources,suchasinternationalcommercialbanks,localgovernments,andNGOs.Adie,QreditsandPerMicroLabhaveuseddonorfundingtodevelopand/ordeliverfinancialcapabilityinterventions.

MFIswithaccesstograntsandsubsidiescandeliverfinancialcapabilityinterventionswithoutpassingthecostsontoclients.However,continuedaccesstograntsandsubsidiesdependsonthestrategyofthedonorinstitution—thereisariskthatfundingmaybereducedovertimeordiscontinued.Additionally,thenumberofpotentialgrantsourcesislimitedandusuallythereishighcompetitionfromotherorganizations.MFIshavetonotonlymaintainrelationshipswithcurrentdonors,butalsoconstantlylookfornewfundingopportunities.

3. AbsorptionIntoMarketingorCorporateSocialResponsibilityBudgetsSeveralMFIs,includingtwoofourcasestudies—KMFandHumo—coverallcostsassociatedwiththedevelopmentanddeliveryoffinancialcapabilityinterventionswiththeirprofits.Thesecostsareabsorbedintotheirmarketingbudgetorthebudgetforcorporatesocialresponsibilityinitiatives.

MFIsimplementingthisstrategyexpectthattheinvestmentinimprovingthefinancialcapabilityoftheircurrentandprospectiveclientswillnotonlyimprovelivelihoodsbutalsoresultinenhancedclientloyalty,improvedreputationandbetterperformanceoftheloanportfolio.

Incoveringthecostsassociatedwithfinancialcapabilityinterventionswithitsownprofits,anMFIcanreduceitsdependenceonexternalparties.Self-financingoffinancialcapabilityactivitiesreducestheadditionalburdenofseekingexternalfinancing(suchasthroughdonationsandvolunteers)andmaintaininganetworkofsupporters.

ThedecisiontofinancefinancialcapabilityinterventionsviamarketingorcorporatesocialresponsibilitydepartmentsdependsontheprioritiesoftheMFI’sshareholders.Changesintheshareholdingstructuremayimpacttheallocationoffundsandthusthreatenthecontinuityofthefinancialcapabilityprograminthelongterm.ProfitdistributionisalsodependentonthefinancialperformanceoftheMFI.Ineventofaneconomicdownturnorlowerprofits,thefinancialcapabilityprogrammaybeatriskofbeingdiscontinuedorreducedinscale.

4. IntegrationIntoCreditProcessesandRoutineClientInteractionsThisisacommonstrategyamongmanymicrofinanceinstitutions,includingHumoinTajikistan,KMFinKazakhstan,andsomeMFIsparticipatingintheBorrowWiselyCampaign.Loanofficersdelivercounselingand

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trainingtogetherwithfinancialservicestoclientsinbranchofficesatthetimeofcreditinquiryorloanapplication,duringmonitoringvisits,orwhileconductingmarketingactivitiesinthecommunity.

Thedeliveryoffinancialcapabilityinterventionsisamarginalcostasloanofficersspendthesameamountoftimewiththeclientregardlessofwhetherornottheydeliverfinancialcapabilityservices.Loanofficersknowtheclientsandtheirbusinessesandareabletotailortheirmessagesandtheirteachingstyletotheneedsandpreferencesoftheclients.Theycandeliverfinancialcapabilityinterventionsinthemostteachablemomentwhentheclientmakesafinancialdecision.

Engagingloanofficersinfinancialcapabilitycostslessthanhiringnewteaching/mentoringpersonnelandrequireslesseffortthansettinguppartnershipswitheducationalinstitutions.Unfortunately,notallloanofficersaretalentededucators.Loanofficersarehiredbasedontheirabilitytodeliverfinancialservices,nottoeducateclients,andthereforethequalityoftheircounselingmaybepoorerthanwhatisneededtoeffectivelymentorclients.

Itisdifficulttomonitorthequalityoftrainingandcounselingdeliveredbyloanofficersatthetimeoffinancialservicesdelivery.Additionally,theincentivesystemsofmanyMFIsgivepreferencetofinancialservicesdelivery,thusloanofficerswhoaimtomeettargetsrelatedtotheloanportfoliomaybelesscommittedtofinancialcapabilityinterventions.

5. Cost-SharingThroughPartnershipsThisstrategyinvolvessharingcostsofdevelopingfinancialcapabilityinterventionswithotherinstitutions,suchanMFInetwork.

TheBorrowWiselyCampaignisanexampleofacombinedeffortoftheMicrofinanceCentre(theregionalmicrofinancenetwork)andmemberMFIs.Theroleofthenetworkwastoproposeacommonframeworkforthecampaign,developcustomizablematerials,preparemonitoringandevaluationmethodologyandtools,andanalyzeresultsafterthecampaignroll-out.TwelveMFIsjoinedforceswiththeMicrofinanceCentretocontributetheirtimeandexpertiseinrefiningkeymessagesandthelayoutofthematerialsbeforeimplementingthecampaign.

Eachinstitutioncoveredthecostsassociatedwithitsactivities.TheMicrofinanceCentrecoveredthecostofagraphicdesignerandfilmmakerandthetimeofstaffengagedinprojectmanagementandmonitoringandevaluation.TheparticipatingMFIscoveredthecostsofmaterialsadaptation,printingofcollateral(posters,leafletsandbrochures),andstafftimespentoncampaignplanning,implementationandcollectionofmonitoringandevaluationdata.

PartneringwithanMFInetworktocoverthecostsofdevelopingtheframeworkandmaterialsforfinancialcapabilityinterventionsgeneratessignificantcostsavingsforMFIs.Similarly,incountrieswhereseveralMFIsareparticipatinginthesameactivity,thereisasynergyeffectwhichpositivelyinfluencestheoutcomesoftheprogram.

However,itshouldbenotedthattheBWCcampaign'smaterialsarearesultofacompromiseamongMFIsfromtencountriesandmaynotbefullytailoredtothespecificneedsandexpectationsoftheclientsineachcountry.

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6. UseofVolunteersSeveralMFIsengagevolunteerstodeliverfinancialcapabilityinterventions.ThemostcommonvolunteerroleistobeamentorwhoassiststheentrepreneurinwritingabusinessplanbeforereceivingMFIfinancingandinfurtherdevelopingthatbusinessafterreceivingaloan.Volunteerscontributetheirtimefreeofcharge,whichisasignificantcostsavingsfortheMFI.ThreeMFIs—Adie,PerMicroLabandQredits—workwithvolunteerswhoarebankers,accountants,taxadvisorsandactiveorretiredentrepreneurs.SomeMFIsengageinbuildingthecapacityofprospectivementors.Forexample,Qredits'mentorsgothroughane-learningcourse("MicrofinanceMentoring”)aboutmentoringtechniquesthatcanbeappliedwhenworkingwithclients.Everyquarter,Qreditsorganizesapeerreviewmeetingformentors,duringwhichaprofessionaltrainerisinvitedtodeliveraworkshoptoedifymentorsandrefreshtheirskills.

PerMicroLab,expectingthatvolunteersalreadyhavementorshipexperience,doesnotofferanymentortrainingbutprovidesopportunitiesformentorstonetworkandlearnfromeachotherandfromPerMicro’sloanofficers.

Torecruitnewvolunteers,PerMicroLabreliesonelectronicmedia(i.e.,website,LinkedIn)andreferralsfromcurrentmentors.Adieorganizesweek-longnationalcampaignstoattractvolunteers.Qreditshasadedicatedstaffpositiontomaintainrelationshipswithbanks,auditfirmsandaccountantofficestorecruitvolunteersfromamongtheprofessionalstaffofthesecompanies.

Thegreatestadvantageofworkingwithvolunteersisthereducedcostsofdeliveringactivitiesthatrequirehigh-intensityinteractionswiththeclient.InthethreeMFIswesurveyedthatworkwithvolunteers,thedeliveryofmentoringserviceswouldnotbepossibleifmentorswerepaidmarket-ratefees.

Althoughthevolunteersarenotprofessionalmentors,theyareprofessionalsintheirparticularareaofworkandcanthereforeprovidefirst-handadvicedrawnfromtheirexperience.Mentorswhoarealsoentrepreneursarefamiliarwiththetypicalproblemsemergingenterprisesencounterandcanprovidesolutionsfromtheirownexperience.

Yetvolunteermentorsarenotprofessionaleducators,sodespitetheirextensiveknowledgeintheirparticularareaofexpertise,theymaylackinterpersonalskillsorfamiliaritywithmentoringtechniques.MFIscanmitigatethisriskbyengagingvolunteerswithmentorshipexperience,pre-screeningcandidatesandprovidingopportunitiesforupgradingskills.

Asvolunteersareoftenfull-timeemployeesoractiveentrepreneurs,theyhavelimitedtimewhichtheycanspendawayfromtheirownwork.Therefore,toensuresufficientavailabilityofmentorsfortheirclientsdistributedacrossthecountry,MFIshavetomaintainarelationshipwithalargenumberofvolunteers.Thisincreasesthecostsofmanagingthefinancialcapabilityprogramasthecoordinatorsneedtoconstantlyrecruitnewvolunteers.

Therearealimitednumberofprofessionalsinterestedinvolunteerwork,especiallyincountrieswithlowerlevelsofcivicengagementandshorterhistoriesofvolunteerism.ItrequiressignificanteffortonthepartoftheMFItoattractpeoplewhocanprovidehighqualitymentoringatnocost.

13

ConclusionTheimportanceofdevelopingfinancialcapabilityforclientsandlendershasbeenwidelyrecognizedandhasmanifesteditselfintheproliferationoftheseprograms.Ourresearchrevealsavarietyofservices,deliverymodels,andstrategiesforfinancingcapabilityinterventions.

Financialcapabilityinterventionscanbedeliveredsustainably,althoughtheyareimplementedthroughpartialcostrecoveryinamajorityofcases,withsomeportionofthecostssubsidizedeitherdirectlythroughdonationsorindirectlythroughin-kindcontributionsofvolunteers.Sincefinancialcapabilityinterventionsareexpensive,MFIsemploystrategiestoreducecosts,suchasintegratingtheinterventionsintofinancialservicesprovisionortransferringthecoststootherinstitutionsorindividuals(includingvolunteersandpartnerinstitutions).MFIsalsolooktocoverthecostoffinancialcapabilityinterventionsbysecuringrevenuesfromfee-basedservices,profitsearnedfromfinancialservicesanddonations.

Finally,whileourresearchuncoveredsomekeytrendsinapplyingvariousfinancingstrategies,wecouldnotpreciselyassesstheseservicesintermsoffullprofitandlossanalysis.AlthoughtheMFIswesurveyedeitherfullytrackorapproximatecostsofdeliveringfinancialcapabilityinterventions,noMFIrunsacost-benefitanalysisthatwouldshowthebusinessgainsfromtheinvestmentinbuildingthefinancialcapabilityofclients.ManyMFIslackthemethodologyandtoolsneededtoconductadetailedanalysisoffinancialinputsandoutputs.

Webelievethereisspaceforourresearchtobeexpanded,anditwouldbeworthwhiletoconductadetailedaccountingexercisetocaptureallthecostsassociatedwithfinancialcapabilityinterventionsandtheirimpactontheoverallsustainabilityofamicrofinanceinstitution.Suchanexercisecouldleadtoastreamlinedmethodologyforcapturingthetruecostoffinancialcapabilityprograms.Additionally,wefeelitisimportanttodevelopamethodologyforconductinganattributionanalysisthatwouldilluminatetheimpactofimprovedclientfinancialcapabilityonthefinancialperformanceoftheMFI,inadditiontotheclients'livelihoods.

About the Center for Financial Inclusion at Accion

The Center for Financial Inclusion at Accion (CFI) is an

action-oriented think tank that engages and challenges

the industry to better serve, protect, and empower

clients. We develop insights, advocate on behalf of

clients, and collaborate with stakeholders to achieve a

comprehensive vision for financial inclusion. We are

dedicated to enabling 3 billion people who are left out

of – or poorly served by – the financial sector to

improve their lives.

www.centerforfinancialinclusion.org

www.cfi-blog.org

@CFI_Accion