2014 Banana Skins – Using Technology To Manage Future Risks

The 2014 Banana Skins report is out and although we’ve only just started to skim the report, the summarized findings once again point to the critical role of technology and the potential our platform has to address “future risks” facing the industry.

The Centre for the Study of Financial Innovation (CSFI), Citi Foundation, and CFI in their annual report on the risks and challenges facing the microfinance sector has pegged Strategy as one of the new areas of concern. Quoting the recap of the study, both internal and external stakeholders are concerned financial institutions aren’t looking forward enough and ready to respond to new forces/trends shaping the market:

The other major area of concern flagged by the survey lies in strategic planning. With strategic risk at a high No. 6 position, respondents said that insufficient thought was being given by the industry to its future at a time when major changes were taking place in its market, through new entrants, technological innovation and calls for new products.

Underscoring strategic planning is a mix of future risks that all map closely to our four pillars of technology-enabled financial inclusion that we’re advancing through our roadmap:

In the report, they find:

In No. 6 position is the first of the new risks we introduced this year to test forward thinking in the industry: strategy. This showed a strong level of concern about the lack of thought given to strategic planning. One respondent said: “Many MFIs are running without strategies. They respond as events unfold.”

Two linked risks in this area are product risk (No. 12) and client relationships (No. 14). These Banana Skins were added to the questionnaire to measure the risk of failure by institutions to connect with customers and address their changing needs. The fact that both of them ranked quite low suggests that people see little urgency in them. In general non-practitioners (i.e. investors, observers, analysts) ranked them higher than practitioners; indeed, practitioners ranked product risk at No. 18, one from the bottom. Significantly, the issue of transparency of objectives¸ seen by many as an essential attribute of a responsible MFI, ranked very low: No. 17. There was a similar lack of interest in technology management (No. 15) even though many respondents said that technological innovation was crucial to the future of microfinance. For MFIs, this was the lowest risk of all. These low rankings could mean that these risks are being well managed and are not therefore a source of concern. It could also mean that they are being under-rated in the context of the industry’s need to evolve, a point made by a number of respondents in their comments.

Through our Mifos X platform and our ecosystem of support and solution providers, our community stands committed to enabling product and service innovation,  facilitating better financial and social transparency, more in-depth client management, and the smooth transition to digital financial services.

Nevertheless, the challenge and risk of technology might be being under-estimated by practitioners and its our role to serve as a thought leader to communicate these issues and endorse best practices for technology-enabled financial inclusion. While through our platform and our partners, continuing to make  technology as accessible, and affordable. and convenient as possible so through the cloud and mobile banking, financial institutions can adopt it with ease and bring the most impactful services to their clients.

Download the full PDF report from the CFI website.