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Building Value in Microfinance Through Digitization: Lessons from Loan Automation Pilots

Digitization has been a source of hope and frustration in the microfinance industry. Hope because it is seen as the means to making MFIs competitive into the future—frustration because, despite the significant resources invested, very few digitization initiatives have transformed the traditional MFI model. We identified promising digital implementations in previous publications and distilled five core principles for successful implementation. In this focus note, we report on the tests we ran on those principles with 27 MFIs located around the world.

The five principles define an implementation approach that focuses on building customer and business value and relegates the technology buildout to a supporting role. We believe that MFIs that deploy agile product development teams define and measure value with a robust business intelligence practice, focus on product features that create a good user experience, and prototype with simple technology will most likely succeed in and benefit from their digitization efforts.

To probe their validity, we tested the principles through pilots in business intelligence and loan renewal automation. This focus note summarizes the experience, evaluates the validity of the five principles, offers key lessons learned, and provides evidence that other industry stakeholders can adopt and scale a similar approach – funders, donors, investors, and consulting firms. The insights are based on CGAP’s work with five successful credit automation pilots and over 90 dashboards revealing insights about digitization efforts and the customer value created.

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