It is no mistake that traditional banking institutions tend to somehow shy-way from the real informal sector. Sufficient engagement in this arena over the years has produced some key observations and wealth of experiences that adequately support why a few will dare to truly commit resources to play here. Realizing success can indeed be slow, painful, and costly.
It is from this experience that I hold a great deal of respect for some Rural Banks, Savings and Loans, Credit Unions, and Susu businesses. Committing to serving this section of the financial services market without a doubt requires unusual patience, parallel thinking, and abnormal risk-taking attitude. Many can indeed support the argument that but for proliferation of commercial banks and microfinance companies, which is driving competition to the brim in the financial services space, banks would have completely ignored this segment. The logic required to play here stands completely different from the formal sector and as a result formality-oriented organizations that stays put can’t be blamed much.
WHY UNUSUAL PATIENCE?
The make-up of the informal sector is fraught with significant nuances that if ill-defined can prevent potent strategy from being carved. From afar and close, understanding different needs to inform proper segmentation and value-driven product can be challenging. Ensuring proper need definition thus require years of truly embedding with the people which can sometimes seem time-wasting.
Assuming that all rural folks and the low-income group share common environment and aspiration can be a highly misplaced belief, although may seem true on the surface. It is no surprising to find some financial institutions that venture onto the sector launching new products and shelving them after some few months. Conducting traditional market research as a basis for developing product and services can be unhelpful if not strategically carried out. Based on experience, most of these folks belonging to the lower-end of the low-income group are often unsure of their true needs and priorities. Their aspirations revolve around the extremely limited income expectation which can be a very myopic way of wanting to achieve something worthwhile and a true financial freedom.
To drive real value, there is the need to co-create bigger possibilities and share with the target in the most authentic way possible. Understanding also that buy-in can only result if sufficient trust has been established is crucial. Largely, the thinking by these folks that the highly literate often leverages the mightiness of the pen to rip-off the illiterate is a dominant belief. A true sense of trust based on unfettered relationship built over years of engagement is often the only antidote. It is what drives people to offer listening ears to financial education, product sale, and eventual buy-in. And that will require long-wait in frequent and sustained engagement.
WHY PARRALEL THINKING?
Keeping an empty head and an open mind is critical to understand the target’s true need in the informal sector. Un-learning to re-learn is absolutely crucial. The thinking which is largely informed by the target’s own experiences and aspirations is completely different here. One needs to reposition in similar realm of thinking to understand what drives demand for financial service.
It is only after this has been well achieved that good strategy can be employed amidst the difficult task of restructuring the highly unstructured environment and need. One has to work with the firm assumption that few responses do not form a reasonable pattern here. A more reason why some market research will only result in misplaced assumptions.
This way of thinking successfully eliminates attempts to correlate, rationalize, and assume what the targets’ needs and what will drive future demand behaviour. A lot of consumer behaviour follows no defined and reasonable logic here. Thus preparing for anything will inform a different organization and operating structure which will in-turn drive a completely different strategy. And to stay mindful, thinking the way this target thinks is no easy task. A lot of patience and learning is pre-requisite.
WHY ABNORMAL RISK-TAKING
The transactional behaviour of the informal sector is highly messy. Established processes and procedures will be rendered dysfunctional if adequate in-built flexibility is not accommodated. And allowing for flexibility in systems and structures pose significant risk in the form of taking advantage of it by both internal and external customers.
The highly messy nature of transacting goes to the core of the daily engagements of the informal sector and cannot be eliminated. Attempt to do so presents great deal of discomfort to the target and will cause them to disengage. It thus stands that players need to accommodate the messiness of the engagement by making enough allowance in an intelligent way so as not to increase the risk vulnerabilities.
Understanding this risk and building internal mechanisms to control it is crucial. It is also important to note risk-averse players cannot survive here because the messiness can present a great deal of frustration. The difficulty especially lies with established financial institutions with set internal operating rules, processes and procedures venturing onto the sector. The challenges would seem insurmountable and retreating may seem the best option. In a determined fashion however, a palpable option would be to establish an informal arm and experienced hands from the sector hired to man the unit.
Whilst this presents crucial success factors, it is worth noting that trust through relationship building is also crucial here. And these cannot be built overnight. Unsurprisingly, Rural-based Susu businesses, Credit Unions and Rural Banks do this better than any other player in the informal sector banking space. For traditional commercial banks that see opportunity here but are not patient and risk-loving enough, a strategic partnership in a win-win arrangement presents plausible venturing possibilities.
Author: Ellah Makuba