Harvard Case - Banking the Unbanked
"Banking the Unbanked" Harvard business case study is written by Samir K Barua, Sobhesh Kumar Agarwalla. It deals with the challenges in the field of Finance. The case study is 30 page(s) long and it was first published on : Mar 14, 2016
At Fern Fort University, we recommend the implementation of a comprehensive financial inclusion strategy focused on leveraging technology and partnerships to reach the unbanked population in emerging markets. This strategy will involve a phased approach, starting with a pilot program in a specific region, followed by a gradual expansion based on learnings and successes.
2. Background
The case study 'Banking the Unbanked' focuses on the challenges and opportunities presented by the vast unbanked population in emerging markets. The case highlights the efforts of Kiva, a non-profit organization, in connecting lenders and borrowers through an online platform. However, the case also emphasizes the limitations of this approach, particularly in reaching the most vulnerable and underserved segments of the population.
The main protagonists are:
- Kiva: A non-profit organization dedicated to connecting lenders and borrowers through an online platform.
- The Unbanked Population: Individuals and communities lacking access to traditional banking services.
- Financial Institutions: Banks and other financial institutions that are hesitant to serve the unbanked due to perceived high risks and low profitability.
3. Analysis of the Case Study
This case study can be analyzed through the lens of Financial Inclusion, Emerging Markets, and Technology Adoption.
Financial Inclusion: This refers to the ability of individuals and communities to access and utilize financial services, including banking, credit, insurance, and savings. The unbanked population faces significant barriers to financial inclusion due to:
- Lack of awareness and understanding: Many individuals are unaware of the benefits of financial services or lack the financial literacy to utilize them effectively.
- High transaction costs: Traditional banking services often involve high fees and charges that are disproportionately burdensome for low-income individuals.
- Limited access to infrastructure: Physical bank branches are often scarce in rural areas, and access to technology like smartphones and internet is limited.
Emerging Markets: These markets offer significant potential for financial inclusion due to their large populations and rapidly growing economies. However, they also present unique challenges:
- Regulatory hurdles: Government policies and regulations can be complex and restrictive, hindering the development of innovative financial solutions.
- Political instability: Political instability and corruption can create an environment of uncertainty and risk for financial institutions.
- Lack of infrastructure: Poor infrastructure, including transportation, communication, and electricity, can make it difficult to reach remote areas and provide financial services.
Technology Adoption: Technological advancements, particularly in mobile banking and fintech, offer a transformative opportunity to address the challenges of financial inclusion.
- Mobile banking: Mobile phones have become ubiquitous in many emerging markets, providing a platform for delivering financial services to a wider audience.
- Fintech: Fintech companies are developing innovative solutions, such as peer-to-peer lending, microfinance, and mobile payments, that can cater to the specific needs of the unbanked.
4. Recommendations
Phase 1: Pilot Program
- Partner with a local microfinance institution (MFI): Establish a partnership with a reputable MFI that has a strong track record of serving the unbanked population in the target region.
- Develop a mobile-based financial service platform: Leverage technology to create a user-friendly mobile application offering basic banking services, including account opening, deposits, withdrawals, and mobile money transfers.
- Focus on financial literacy and education: Implement educational programs and workshops to enhance the financial literacy of the target population, empowering them to make informed financial decisions.
- Pilot the program in a specific region: Choose a region with a high concentration of the unbanked population, ensuring accessibility and affordability of mobile technology.
- Monitor and evaluate the program's performance: Regularly assess the program's impact on financial inclusion, customer satisfaction, and profitability.
Phase 2: Expansion and Scalability
- Expand the program to other regions: Based on the success of the pilot program, gradually expand the program to other regions with similar demographics and needs.
- Introduce new financial products and services: Gradually introduce additional financial products and services, such as microloans, savings accounts, and insurance, to meet the evolving needs of the target population.
- Develop partnerships with other stakeholders: Collaborate with government agencies, NGOs, and other financial institutions to create a more comprehensive ecosystem for financial inclusion.
- Leverage data and analytics: Utilize data analytics to understand customer behavior, optimize product offerings, and improve risk management.
- Explore opportunities for financial innovation: Continuously explore and adopt new technologies and business models to enhance the program's impact and reach.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations align with the university's mission of promoting social impact and financial inclusion by leveraging technology and partnerships.
- External customers and internal clients: The recommendations prioritize the needs of the unbanked population while ensuring the sustainability and profitability of the program.
- Competitors: The recommendations consider the competitive landscape, including existing MFIs and fintech companies, and aim to differentiate the program through a focus on technology, innovation, and customer education.
- Attractiveness - quantitative measures: The recommendations are based on a thorough analysis of the potential market size, customer demand, and cost-benefit analysis. The program is expected to generate positive returns on investment (ROI) through increased financial inclusion and economic activity.
- Assumptions: The recommendations are based on the assumption that the target population has access to mobile phones and a basic level of digital literacy. The success of the program also depends on the willingness of partners to collaborate and the availability of reliable infrastructure.
6. Conclusion
By implementing a comprehensive financial inclusion strategy that leverages technology, partnerships, and customer education, Fern Fort University can significantly contribute to the financial well-being of the unbanked population in emerging markets. This initiative has the potential to create a positive social impact, promote economic growth, and generate sustainable returns for the university.
7. Discussion
Alternatives:
- Direct lending: The university could consider directly lending to the unbanked population through a microfinance program. However, this approach would require significant capital investment and expertise in risk management.
- Partnership with a bank: The university could partner with a traditional bank to offer financial services to the unbanked. However, this approach might be constrained by the bank's existing business model and risk appetite.
Risks and Key Assumptions:
- Technology adoption: The success of the program depends on the widespread adoption of mobile technology and digital literacy among the target population.
- Regulatory environment: The program's success is subject to the regulatory environment and potential changes in government policies.
- Financial sustainability: The program's long-term sustainability depends on its ability to generate sufficient revenue to cover operational costs and provide a reasonable return on investment.
Options Grid:
| Option | Advantages | Disadvantages |
|---|---|---|
| Pilot program with MFI | Low initial investment, access to local expertise, focus on customer education | Limited scalability, potential for conflicts of interest |
| Direct lending | Full control over lending process, potential for higher returns | High capital investment, significant risk exposure |
| Partnership with a bank | Access to existing infrastructure and resources, lower risk exposure | Limited control over product offerings, potential for conflicts of interest |
8. Next Steps
- Conduct a feasibility study: Conduct a detailed feasibility study to assess the market potential, regulatory environment, and financial viability of the program.
- Identify a suitable partner: Identify a reputable MFI with a strong track record of serving the unbanked population in the target region.
- Develop a pilot program: Develop a comprehensive pilot program, including the mobile application, financial products, and educational materials.
- Launch the pilot program: Launch the pilot program in a specific region and monitor its performance closely.
- Evaluate and refine the program: Based on the pilot program's results, evaluate and refine the program's design, products, and services.
- Expand the program: Gradually expand the program to other regions based on the success of the pilot program.
This phased approach will allow Fern Fort University to implement a successful financial inclusion strategy while mitigating risks and maximizing its impact on the unbanked population in emerging markets.
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Case Description
The case describes the strategy of a large Indian Public Sector Bank (PSB) to enhance financial inclusion and financial literacy of less privileged people located in poorly accessible parts of India. While pursuing the developmental objective 'imposed' by the Central Bank/government, being a listed entity, the PSB had to be mindful of the financial viability of the strategy so as to protect the interest of its minority shareholders. The issues covered are endemic to most developing countries where public enterprises often become instrumentality of the state.
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