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Blog Vol. 5 MFO Convenes Meeting to Discuss Cost-effective, Scalable Delivery of Financial Education

By Dina Yunus and Nitika Sethi | September 24, 2014

Last week, Microfinance Opportunities held an event to share current work on embedded financial education (FE) with microfinance sector experts and thought leaders in Washington D.C. The event was moderated by Ann Miles, Director for Financial Inclusion at The MasterCard Foundation, and hosted by the Center for Financial Inclusion.

Representatives from CGAP, Accion Venture Lab, ACDI/VOCA, the Inter-American Development Bank’s Multilateral Investment Fund and others gathered to discuss challenges and opportunities for financial education. MFO offered the embedded education model as a way to mitigate the challenges of scale, cost, sustainability, client protection, and financial capability, to name a few.

The Value Proposition of Embedded FE

Watch Julie Lee, Senior Technical Adviser at MFO, delve into embedded education as a potential solution for delivering FE. She discusses how using a financial service provider’s (FSP) existing infrastructure can lower the cost of delivery at scale. By integrating FE training with VisionFund and Zoona’s existing operations in Zambia, MFO leveraged teachable moments in client interactions and strengthened the commitment of FSP frontline staff to customer service and core business objectives.

Guest speakers, Lelemba Phiri and Andrea Stiles, joined virtually to illustrate how Zoona in Zambia and Banco Solidario in Ecuador successfully implemented embedded FE programs in partnership with MFO. Together, they highlighted the many benefits of the embedded approach. Phiri noted that embedding FE within Zoona’s existing client interactions proved less intimidating and more applicable for clients, the majority of whom were many years removed from formal education systems.

Andrea Stiles[1] detailed the client-centered approach applied by Banco Solidario and MFO. Embedding FE ensured that Banco Solidario’s financial products and client services were responsive to the needs and capabilities of clients. She discussed how the embedded programs helped frontline staff transition from sales agents to financial counselors during their interactions with clients.

These changes were effective in shaping clients’ money management behavior. Following implementation of the first module, Banco Solidaro’s clients indicated decreased use of credit to cover unexpected expenses and increased use of insurance products. Like Phiri, Stiles commended the embedded approach for its ability to capture the attention of clients in contrast with traditional classroom training.

A number of key questions emerged from experts in the room concerning the implementation of embedded FE. Beth Rhyne, Managing Director of the Center for Financial Inclusion, pointed out the challenge of garnering institutional buy-in from an FSP and its staff. In the case of Banco Solidario, Stiles agreed that there was an initial resistance to investing added time in financial capability development. After living the implementation of the first module, however, bank staff and sales leadership began to think more about long-term outcomes. They saw the benefits of the program, including greater customer loyalty and interest in the bank’s financial products.

Peter McConaghy, a financial sector analyst from the World Bank, raised the question of cost for FSPs to implement embedded FE. Stiles replied that compared with Banco Solidario’s implementation of traditional FE workshops, the embedded programs were actually less expensive and more effective in educating clients. She brought to light additional incentives for FSPs including helping frontline staff understand the products better themselves and improving money management in their own lives.

Maria Jaramillo, Senior Manager at MFO, has written extensively about the benefits of the embedded approach for FSP core business and staff performance[2].

What Embedded FE can do for FSPs

Following interactive discussion about what the embedded approach is capable of and has already achieved in the field, Executive Director, Guy Stuart, and Research Officer, Eric Noggle moved into a discussion of the Pay-for-Performance (PfP) model, a way to finance embedded FE for Financial Service Providers (FSPs). The PfP model offers a way to take financial education to scale, a commonly cited challenge in meeting the demand for financial services.

“For the financial service provider, financial education is traditionally viewed as a cost center,” Noggle stated, and went on to illustrate how a shift from paying for financial education to paying for performance can help an FSP reduce its annual write-offs, which currently total $1.4 billion a year for FSPs reporting to The Mix worldwide. The PfP model can help an FSP address whatever operational challenges it may face while developing the financial capability of its clients, thereby reducing the amount of money lost to things like fraud, default, money mismanagement, and dormant savings accounts.

In the PfP model, MFO fronts the money to implement an embedded FE program in exchange for a contract with the FSP. MFO is paid for implementation after the FSP achieves agreed-upon bottom line results like an increase in balances in savings accounts. In making payment contingent upon results, MFO’s approach facilitates a “self-sustaining financial education model,” said Stuart.

The innovative model elicited salient feedback from experts in the room. Camille Busette of CGAP asked, “would you say that PfP creates an incentive for FSPs to provide clients with just enough information to use proprietary products but not understand the other choices they have in financial management?” Tahira Dosani of the Accion Venture Lab raised an additional concern about adverse effects of increased interaction between frontline staff and clients: “There is the risk that if the FSP learns a client does not fully understand a product, they could charge them a higher rate. How would MFO manage this risk?”

Such questions signaled new and engaging challenges for MFO to consider in developing future PfP contracts with FSPs. The meeting concluded, charged with excitement around new ideas and future opportunities for delivering financial education.

Click here to view MFO’s event, Delivering on the Promise of Financial Education: The Embedded Education Model in full.



[1] Due to poor sound quality during the live recording, we have posted a prerecording of Andrea Stiles’ presentation.

[2] Jaramillo’s post is forthcoming on MFO’s blog and the Inter-American Development Bank’s Multilateral Investment Fund blog.

 

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