Musoni: putting low-income clients first in the digital age
The digital revolution is expanding the range and delivery of financial services to those traditionally overlooked by banks, with electronic money models and new digital payment platforms. We look at the work of Oikocredit partner Musoni Kenya Microfinance, a pioneer in the provision of digital financial services, and how its cooperation with Oikocredit in client protection principles helps it to serve low-income clients when digital services are provided.
World’s first cashless microfinance institution
Oikocredit’s partner Musoni Kenya Microfinance, launched in 2009, is an award-winning and innovative mobile money microfinance institution (MFI) based in Nairobi. It aims to serve disadvantaged and unbanked people in urban, semi-urban and rural areas of Kenya with its focus on microenterprises, women and smallholder farmers through the provision of its digital financial services. These include loans for groups, individual businesses, green energy projects, agri-businesses, emergency situations and education fees.
Musoni gained recognition as the first 100% cashless MFI in the world, as well as the first microfinance institution in East and Central Africa to be certified by the Smart Campaign for observing Client Protection Principles in its operations.
The Client Protection Principles (CPP) are structured to help financial institutions to:
- ensure the direct involvement of clients in designing products which meet their needs;
- take measures to prevent client over-indebtedness;
- ensure transparency at all costs;
- price products in a manner that does no harm to clients;
- promote the fair and respectful treatment of clients;
- guard the privacy of client data and
- put in place client-centric complaint resolution mechanisms.
Oikocredit partnered with Musoni in 2015 through an equity investment in the Kenyan MFI, to support its growth and in recognition of the organisation’s aim to provide digital financial services to benefit low-income clients.
Anthony Gichini, Oikocredit’s Equity Officer for Eastern Africa explains the rationale behind supporting Musoni: “We were excited to make an equity investment in Musoni given its ability to efficiently extend credit to underserved sections of our society using its mobile payment platform. Subsequently, Musoni has adapted to other tech-enabled credit solutions while remaining a truly customer-centric organisation, as demonstrated by its recent Smart Campaign Certification.”
Musoni’s CEO Stanley Munyao further explains that the organisation was exclusively digital at its launch: “Musoni has been digital from the very beginning, since its vision is to be the most efficient microfinance institution in Kenya by being cashless, paperless and data-driven in order to offer the best value, most flexible and most customer-oriented financial services in the market.”
Technology saves time
So what are some of the specific advantages of operating as a digital microfinance institution?
Some are more obvious than others; providing digital financial services can help to reach more people at a lower cost. Moreover, digital innovation allows a much wider range of innovative online services to be delivered, and more quickly to greater numbers of people.
One important advantage is that technology significantly speeds up a client’s loan application process as Stanley Munyao explains: ”The use of tablets by our loan officers saves a lot of time in the application, processing, disbursement and management of a loan; this is not the case with traditional microfinance institutions where loan officers manually manage the process.
"This is especially true when the loan officers have to visit clients in remote areas. The time saved by the online loan applications enables our loan officers to reach out to other clients, conduct more client training programmes and build quality relationships with clients.”
Client Protection Training
In October 2017, through the support of Oikocredit, Musoni conducted Client Protection Principles (CPP) training for its management team and field officers as well as a Client Protection assessment to establish its level of compliance with the standards promoted by the Smart Campaign.
The promotion of good client protection practices among its MFI partners is one of the strongest social commitments of Oikocredit which requires all of its partners to formally endorse the Client Protection Principles. Moreover, Oikocredit has in-house expertise on the principles themselves with a number of Oikocredit staff having obtained the Smart Campaign’s Lead Assessor and Assessor status.
One step further than CPP endorsement is CPP certification. The CPP Certification Program is an independent third-party evaluation. CPP certification is a clear indication to the public that an organisation meets adequate standards of care and demonstrates a level of commitment to both serve and protect its end-clients.
Following its CPP training with Oikocredit, Musoni embarked upon a programme leading to CPP certification. In April 2019, Musoni achieved its goal and its full adherence to the CPP standards (as examined by an external auditor) earned Musoni Microfinance global recognition as the first microfinance institution to receive the Client Protection (ISO) Certification in East and Central Africa.
Results of the CPP training and certification
The changes that Musoni adopted include (but are not limited to) the following: transitioning from charging interest on a flat rate to charging interest on reducing balance; issuing clients with a Key Facts Sheet – a summary document that details all cost elements of a client’s loan to enhance transparency; disclosing the total cost of loans as per the annualised percentage rate (APR); developing and strictly observing the implementation of a lending exclusion list; the monitoring of sales techniques; and ensuring that clients observe a cooling-off period between loans to avoid loan repayment fatigue.
Mitigating risks to clients
Implemented carefully, and in accordance with client needs, digitalisation can benefit vulnerable, low-income groups and their communities as a whole, enabling financial institutions to attract and serve higher numbers of customers and improve the effectiveness of their service. At the same time, adherence to the Client Protection Principles is an important tool in mitigating the downside risks that easier access to digital money wallets can bring such as over-indebtedness.
In the age of data-driven services, Musoni has demonstrated that providers of digital inclusive financial services can embrace technology, reach out to ever-greater numbers of low-income people while mitigating risks and implementing client protection principles. Client protection policies are a useful tool in the efforts to improve the lives of low-income people and their communities, enabling microfinance institutions to maximise their social impact.