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Pitfalls in MFI Digitization: Underestimating Change Management

There’s no sugarcoating it: digitization can be a disruptive process for microfinance institutions (MFIs). For organizations that are used to operating in a brick-and-mortar world, shifting to a digital business model involves a lot more than adopting a new technology. Working digitally has implications for products, practices, teams and clients, and too often MFIs are unprepared to manage these changes. The good news is that through effective change management, MFIs can digitize successfully and generate value for themselves and their customers. Below are three ways your MFI can manage the change that comes with digitization.

1. Upscale your internal capabilities to avoid being dependent on vendors

An MFI that digitizes but fails to mix in relevant profiles and skills at all levels of the organization risks missing out on the full benefits of digitization.

An Amret customer
An Amret customer sells fruit at a market in Phnom Penh. Photo: Amret

CGAP’s blog about not getting bogged down in technology explains that it is important to pair digitization with timely improvement of internal capabilities on management, IT and product development because these translate into monetary and work culture gains. The blog additionally cautions against heavy dependence on vendors. As MFIs seek out solutions that are highly configurable, they also often have to internalize a number of developments to get away from vendor dependence, delays to getting to market, expensive technical solutions and limitations in process improvement. This means onboarding and retaining staff with specific skills. It also means having strong deployment and solution governance systems in place to allow the organization to quickly identify and drop initiatives that do not bring customer and business value.

Upscaling internal capabilities has been a priority for us at Amret, one of the largest MFIs in Cambodia, as we pursue our digitization strategy. We relied heavily on a vendor in the early version of our field staff app and had challenges meeting time-to-market needs and rapidly evolving requirements. As a result, we changed our approach from being 100% vendor-led to hybrid. In the new approach, we internally manage core and backend developments, while an agile partner focuses on user interface/user experience (UI/UX) front-end design.

2. Manage change for all aspects of the business

Digitization might not have maximum effect if all end-to-end processes affected directly or indirectly (‘’macro processes’’) are not properly considered and if everyone is not ready to work differently. Take core business process digitization. MFIs often think of field staff when they digitize a process like client onboarding or lending. They usually — and rightly so — prioritize support for credit officers, who need to modify how they interact with clients, make sales and approach credit appraisals once they begin using tablets and digital tools. But digitization often affects other staff too. MFIs should manage digitization’s impact on these staff. For example:

  • How have Amret and other MFIs digitized successfully? Click on the image to learn more in a series of case studies.
    Counter staff. Counter staff can see big changes in the volume and nature of their work as a result of digitizing field lending process and using scores to automate repeat loans. For example, digitizing field data collection reduces the double-entry of loan and client information on paper and in the core banking system. One of Amret’s goals in loan digitization is to halve the amount of time its counter staff spend on data entry; hence, we have had to consider digitization’s impact on these staff members’ productivity, changes in their scope of work, and expected decrease in headcount. At Amret, having counter staff buy into digitization through proper communication and adjusting key performance indicators has been key to handling current changes.
  • Branch managers. How does digitization change branch managers’ interactions with and management of field staff? For instance, being able to approve a loan on a web interface or an app means that branch managers no longer need to organize in-person discussions and credit committees, which have always been a key step in the traditional microfinance lending process.
     
  • Managers in regions or headquarters. MFIs should keep their managers apprised of changes and new tools field staff are using. If managers are not comfortable with these tools themselves, they cannot understand feedback or contribute to constant improvement. At Amret, this means encouraging managers to use the newly available dashboards and play with data instead of calling branch managers or field staff and asking for reports on this or that indicator. Transformation leaders and project managers play a key role in helping regional and headquarters managers transition into the new reality.

3. Promote digitization throughout the organization, and be clear about expected short-term benefits

Automation has many advantages, but it is important not to over-sell overall efficiency gains, especially for non-core business processes. Digitization can have immediate advantages in the front office, bringing efficiencies to sales and other customer-facing areas of the business. Digitization can also make middle and back-office functions like recruitment, payroll and accounting more efficient, especially through automation. For a lot of MFIs, many of these functions are labor- and time-intensive, so automation can lead to significant efficiencies and cost savings.

These benefits may take more time to materialize, and many MFIs focus first on the quick wins in the front office without investing in digitizing the middle and back offices. But to reap the full benefits of digitization, you must digitize the support functions too.

Some MFIs are now investing in standard tools to digitize these support functions, often in a desire to optimize OpEx-to-income ratios. When successful, automation can quickly improve individual micro processes and meet specific key performance indicators. In the case of Amret, it has meant closing monthly accounts seven days earlier, recording expenses in the right cost centers, and improving procurement speed by 25%. Other positive short-term outcomes that often come from digitization are improvement of user satisfaction, data reliability, controllership and better business analysis.

However, many of these projects to digitize middle- and back-office functions may not reduce headcount in finance and HR or have immediate positive impact on the bottom line. Instead, they typically lead to a long disruption period during and after implementation. This often results in additional IT personnel and maintenance costs in the short run.

For actual OpEx optimization to materialize longer term, MFIs need to promote internally the non-customer-facing digital projects, credit the teams in charge of improving efficiency, and be prepared to change processes and the ways teams are organized.

It can be easy to lose focus when digitizing. MFIs need to organize to deliver value to the business and to customers, while being clear-eyed about where value will materialize. At Amret, expectations from process digitization are an OpEx-to-income ratio down by at least 7 basis point by the end of 2022, compared to 2019, despite two years of revenue impacted by COVID-19.


Estelle Darie-Rousseaux is executive director of Amret, one of the largest microfinance institutions in Cambodia. Underestimating the importance of change management is a common pitfall in MFI digitization, but it is not the only one. To learn about other common yet avoidable issues, see the other posts in CGAP's ongoing blog series, "Pitfalls in MFI Digitization: What They Are and How to Avoid Them." Also see our publication, “Digitization in Microfinance: Case Studies of Pathways to Success,” which offers an in-depth look at the journeys of Amret and other MFIs that have digitized successfully.

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