Financial institutions must invest time in understanding the needs, behavior, and preferences of their customers

Brigit Helms is general manager of the Multilateral Investment Fund (MIF), an innovation lab for the Inter-American Development Bank (IDB) Group. She has 30 years of experience working to find creative private-sector solutions to development problems, including financial inclusion, in Africa, Asia, and Latin America.  

With a PhD in Agricultural and Development Economics from Stanford University and a master’s degree from the Johns Hopkins University School of Advanced International Studies, she has worked in the Latin America and Caribbean Division of the UN International Fund for Agricultural Development (IFAD), and in the Caribbean Division of the U.S. Department of Commerce. During her career, she has held senior positions of great responsibility in organizations and projects such as SPEED, a USAID-funded program in Mozambique; in the consultancy firm, McKinsey & Company; and in the International Finance Corporation (IFC). Brigit Helms is also a founding member of the Consultative Group to Assist the Poor (CGAP) and has broad-ranging experience in matters relating to microfinance and financial inclusion.

1. In several parts of the world, you have been in a position to observe up close the development of microfinance since its beginnings. What have been the main achievements of the microfinance industry in the last three decades? What contributions have Latin American microfinance institutions, in particular, made to these achievements?

Financial services are evolving constantly. Microfinance is just one stage of that evolution, which has showed that low-income people can be viable clients for the financial system. This is a proven innovation that has important roots in Latin America and the Caribbean. While this history is well known, I would like to highlight some aspects that I find especially useful:

• First, services do not exist in a vacuum; microfinance providers rapidly realized that there was a need to build institutions that worked for a different type of client (informal, no collateral), and were at the same time financially sound. If banks were not ready to do it, then nongovernmental organizations and others would create the now so-called microfinance institutions from scratch.  Microfinance was a real “disruption” to banking back in the 1990s.

• Second, this emerging industry understood that long-term viability was only possible if microfinance became part of the overall financial system and not a silo industry, and forward-thinkers worked to create an enabling regulatory environment. This was not easy, since regulators did not have experience in dealing with these new risks, clients and institutions,  and many were open to learning and experimenting.

• Third, an important factor was the openness of the microfinance industry to a very diverse array of stakeholders. It is not uncommon to see microfinance institutions funded by capital markets and private investors (local and international), alongside philanthropic funders.

These are a few of the important lessons that we can extract from the experience in Latin America and the Caribbean for the rest of the world.  Each country in the region is, of course, developing its financial systems at different speeds, but clearly those countries that have integrated this sector better into their local financial markets (Peru, Colombia, Bolivia) are further ahead.

2. Clearly, your institution has played an important role in the development of microfinance and, more generally, financial inclusion in Latin America and the Caribbean. What has been the MIF’s strategy in this area?

The MIF has been a leader among multilateral and bilateral development institutions in supporting the growth of the microfinance sector in Latin America and the Caribbean.  We have supported about 250 institutions working in financial inclusion—or close to one of every three institutions in the region—either directly with loans, equity, or technical cooperation grants, or indirectly through specialized investment funds.  Individual clients of these institutions have surpassed 5 million.  A crucial MIF role has been to provide seed capital to create and strengthen emerging microfinance institutions and to help them evolve into specialized banks or regulated financial entities.

Today, about 70 percent of all microcredit clients in Latin America and the Caribbean are served by regulated institutions that have developed new delivery channels—such as ATMs, banking agents, and mobile phones. This is a marked contrast with the 1990s or even the early 2000s, when low-income clients were typically served by nongovernmental organizations. More generally, the MIF has worked to create the foundations of a solid microfinance industry in Latin America and the Caribbean by strengthening individual financial institutions, helping them to become regulated, testing new lending methodologies and products, and leveraging funds. MIF technical cooperation grants have been used to support  microfinance institutions, regulators, banking associations, rating agencies, and startups. This was accompanied by specialized knowledge transfer, research, and financial-inclusion events, to disseminate lessons learned and best practices.

3. Could you share with our readers some highlights of the MIF’s past work in developing this sector?

Sure, here are a few examples that reflect our comprehensive approach to developing microfinance and financial inclusion:

• The creation of ProFund, the world’s first specialized microfinance investment fund, launched in 1996. This was followed by several microfinance investment funds that experimented with new ideas and funding structures, which have gradually been adopted by private investment funds, for example, funds focused on topics such as local currency lending and rural finance.

• Early support for product development that takes advantage of new technologies, such as the mobile wallet initiatives in Paraguay with TIGO, and in Colombia with BanColombia.

• Foromic, the annual MIF conference on financial inclusion in Latin America and the Caribbean. It has become the premier platform for networking on this topic, attracting  1,000–1,400 people year after year.

• The Microscope report and index. In 2007, the MIF championed the first tool to analyze the business environment for financial inclusion in Latin America and the Caribbean with the creation of the Global Microscope. The report has scaled up to analyze 55 countries globally, and it is one of the dominant publications on financial inclusion.

4. Let’s turn to the MIF.  Can you tell us a little more about your role in this organization? What is your strategy moving forward?

At the beginning of this year, I had the privilege of becoming the general manager of the Multilateral Investment Fund, and having worked in international development for many years, I was familiar with this organization’s accomplishments and reputation.  The MIF has a well-deserved reputation as an effective and innovative organization, and I was immediately impressed by the high quality and dedication of the staff. However, it was clear that there was a need to accelerate the pace of innovation to ensure MIF’s relevance going forward.

To do this, we’re building on the MIF’s 23-year track record with a new strategy that consolidates the Fund’s position as an innovation lab for the IDB Group. This means that we come in with projects and experiments that are too small, too risky, or too far upstream for the rest of the IDB Group (the IDB on the public-sector side or the IIC on the private-sector side). But from the outset, the vision is to outline a clear path to scale up these experiments via our “family” in the IDB Group or with other investors.

Another key element of the new strategy is focus. The MIF refocused its work on three areas to better match the needs of our region and more closely align ourselves with the IDB Group:  Knowledge Economy, Climate-Smart Agriculture, and Inclusive Cities. We also revamped our financial instruments to have an innovative product mix, which includes social impact bonds (SIBs); instruments that combine grants, loans, and equity; and royalty-based pricing for loans. In addition, we’re exploring social performance discounted loans.

For this to happen, we can’t rely on business as usual. As does any modern organization, the MIF needs disruption and innovation. This entails changing not only what we do, but how we do it. We need behavioral change on the part of human beings to internalize the need for change and do something different from what they’re doing now. This is the only way to actually push the boundaries, disrupt the status quo, and innovate.

5.Very interesting. Can you elaborate more on how you do this?  How do you promote behavioral change in an organization? Especially an organization embedded in a big bureaucracy like the IDB?

Change happens only when promoted from the inside out and this is precisely what we are doing at the MIF.  To illustrate this, allow me to tell a story about behavioral science and the lottery.

In an experiment conducted with tens of thousands of subjects, half the group is given a lottery ticket, while the other half is asked to write their own lottery ticket. The researchers offer the first group $5 to buy back their tickets, which they readily accept. But the second group? You have to offer them 3-5 times more to get them to sell.  

The moral of the story? When people “write their own lottery ticket” at their companies/places of work, they are 3-5 times more likely to commit to the result.  At the MIF, we’re shaking up the status quo by:

• Using a 24-hour hackathon to empower colleagues to re-imagine and streamline our project-approval cycle to take a quarter or third of the time it took before
• Holding “shark tank” pitch sessions for proposed new projects
• Creating interdisciplinary task forces to carry out tasks like revamping our website
• Flattening our leadership structure by allowing employees at all levels to head teams, and by conducting regular surveys that solicit direct feedback for top managers

By learning from our experiences and those of others, we hope to spark the innovation—both the what and the how—that is needed to help Latin America and the Caribbean face the challenges and seize the opportunities of the next decade.

6. How do microfinance—and more generally financial inclusion and digital finance—fit into this new strategy?  

I consider microfinance as a stepping stone for more efficient and inclusive financial systems. Digital finance is another powerful force that is mainstreaming new digital technologies into financial systems around the globe, with immense potential for more efficient operations, better products, and alternative/new channels. The MIF will support its further development in the region, not as a goal in itself, but as a key contributor to our priority areas.

In fact, we are convinced that digital finance is an important element to fuel innovative businesses to consolidate, grow, and expand. Latin America and the Caribbean is fertile ground for a major revolution in digital finance, and the MIF and IDB Group are joining with large corporations, financial institutions, and innovative startups to advance this nascent industry.

7. Can you elaborate a bit more on the reasons that digital finance seems nascent in Latin America and the Caribbean? Why isn’t digital finance mainstreamed yet?

Several reasons are given for this. However, based on my experience, there are three important factors that help explain why Latin America and the Caribbean appears to lag in digital finance:

• Brick-and-mortar payment services. Our region has an established “brick-and-mortar” payment system for both domestic and international transactions, and people prefer to use cash. So, any new payment technology—for instance—must have a cash-in and cash-out system. Any new technology must build upon the existing financial system, combining the efficiency of digital platforms with the current financial infrastructure.

• Out-of-touch innovation. Companies have often tried to replicate models from other parts of the world in our region and have failed. Entrepreneurs and financial institutions must invest time in understanding the needs, behavior, and preferences of their customers. The success of electronic wallets in Colombia and Paraguay show that this is possible.

• A cautious regulatory environment.  The new economy requires flexible government regulations that adapt and respond to emerging technologies and business models. This has been difficult, because countries in our region have a tradition of keeping financial regulations strong, to avoid systemic risks and to protect consumers. This is good, but adaptations are necessary to take full advantage of new technologies.

8. Could you recommend any books or movies to our readers?

I’m embarrassed to say that I haven’t had much time to read lately. But I will always recommend The Five Dysfunctions of a Team by Patrick Lencioni for anyone who is serious about change management in an organization. I continue to find this entertaining parable super illuminating, and have used it at every opportunity throughout my career.

My favorite movie of all time is Being There, a 1979 movie that stars Peter Sellers and Shirley MacLaine. The movie sheds light into the human tendency to see and hear what we want to see and hear, sometimes to devastating and dramatic effects. I think it’s as relevant today as it was four decades ago!