Digital Finance for Development: 3 Principles for Greater Impact

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25 April 2019

 

Earlier this month, USAID hosted the Digital Financial Inclusion for Development Forum to explore how the development community can leverage digital finance to address challenges around the world, including in healthcare and agriculture. Reflecting on the forum, three principles emerged that can help guide donors and others to enable greater impact through the strategic use of digital finance.

 

Use technology to leap frog constraints

 

Greg Collins of USAID shared what this looks like through the example of Somalia. After the country plunged into civil war in the 1990s, people fleeing the violence needed to find ways to stay connected with their families and communities. As the diaspora grew, so did the network and many Somalis living abroad began sending remittances to family still in the country. Mr. Collins shared that households receiving remittances are more resilient than those that don’t, and the inflow of money powered the local economy.

 

Today, 1 in 8 Somalis lives outside of Somalia and nearly $1.5 billion is sent from abroad each year. Built on new technology stacks, a new wave of payments and remittances providers offers Somalis low-cost options for sending money home, which frees up more cash in the local economy. These solutions show how disruptive technologies can address a pain point, enable connectedness, and improve resiliency.

 

Partner with other sectors outside of finance

 

Financial inclusion has shifted from an end in-and-of-itself to an enabler for several Sustainable Development Goals (SDGs).  Yet, much of the sector continues to coordinate only with other financial actors instead of those in health, agriculture, and energy, to name a few. As a result, digital finance providers lack a deeper understanding of these sectors, which limits the potential for meaningful disruption.

 

Hamilton McNutt of Strategic Impact Advisors noted that the problems we as a community are trying to solve are not about mobile money but about agriculture, health, and other real world sectors. The question digital finance providers should be asking is: Where do their products intersect with these sectors? Amani M’Bale of USAID reinforced this idea by imploring the audience to understand the experience of individuals interacting with the health sector; each journey varies based on the illness, condition, and location. Understanding the pain points, the healthcare systems, and the individual experience is the first step in developing appropriate financial solutions.

 

Keep the customer at the center

 

Naturally, then, products must be customer-centric. This might seem obvious but it is often ignored, as the newness or novelty of a technology can distract from its value (a challenge we noted in a previous blog post). Instead, as one Inclusive Fintech 50 judge reminds us, solutions should be built on the customer needs first and the technology second.

 

Lauren Hendricks of Grameen Foundation shared a simple example. With usage flat, a mobile money provider introduced a new feature that allowed users to name their separate digital wallets to designate which was used for school fees, which for emergency funds, and which for house repairs. This simple feature made it easier for users to manage their household budget, and resulted in outsized uptake among women.

 

But, as Puneet Gupta of Kaleidofin noted, finding a good fit with customers’ needs requires months of research, which can be difficult for the startups driving much of the innovation in digital finance. Kaleidofin benefited from USAID funding that allowed them to conduct consumer research, which Mr. Gupta said was critical for the early-stage company. This example highlighted the critical role that donors can play in providing the patient, low-/no-cost capital to support product development that keeps the customer at the center. (For more information on how donors can strengthen digital finance, see USAID’s FinTech Partnerships Playbook). 

 

 

After the forum: Turning talk into action in digital finance

 

It’s no surprise, then, that securing capital is a primary challenge for startups in the digital finance space. As Camilla Nestor, MIX CEO, noted on a panel on fintech investing, investment in regions like East Africa is highly concentrated in a handful of startups. As a result, many fintech startups are unable to tap into the investment they need to develop, test, and scale their products.

 

At MIX, we’re working to make that possible. Through Inclusive Fintech 50, we’re highlighting the most promising early-stage fintechs and developing criteria to help investors assess the startups driving inclusion. We are also mapping out funding flows for digital financial services so donors can identify gaps and concentrations to improve their allocations and impact. And we are working closely with leading fintech actors to build a standardized taxonomy to enable benchmarking and comparisons for investors and others. Together, these efforts will provide better data that enable the development community to drive better outcomes through digital finance.