Digitalization in Microfinance in U.S.

Grameen America, Inc (GAI) was founded by the Nobel Peace Prize recipient Muhammad Yunus in 2008 in New York. As a 501(c)(3) nonprofit, GAI offers microloans to women entrepreneurs in the U.S. through the community-based lending model used by Grameen Bank in Bangladesh. Before coming to HBS, I worked in the finance team as a data analyst and had the chance to lead their digital transformation initiatives, which I wish to talk about today.

Business Model
GAI’s value proposition has two components: capital and credit access. GAI offers loans starting at $1,500, and borrowers are entitled to incrementally larger loans as they go through loan cycles in the program. Furthermore, a benefit specific to the U.S. economy, GAI partners with Experian to help borrowers build their credit score. In 2015, the largest loan taken out by a single borrower was $11,000, and borrowers on average built a credit score of 670 within 6 months of their first loan [1]. GAI is partially funds it operations by collecting 15% interest on these microloans, which have 99% repayment rate. By Q3 of 2016, GAI has distributed more than $515MM in disbursements to 81,100 women across the U.S [2].

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Operational Model
GAI operates in 18 branches across 11 different cities in the U.S., with each branch manager planning the branch’s microloan portfolio and disbursing loans. Each branch has up to 10 center managers to collect interest every week during the borrowers’ weekly meeting. GAI takes pride in the extent of its employees’ facetime with its borrowers, but the amount of labor hours was starting to place a huge burden on its treasury operations.

GAI recognized that as the volume and size of disbursed loans increased, it would have to invest heavily in digitalization.

Pain Points
Before GAI’s digital transformation, there were two major operational pain points, along with the challenges they created:

• Check Disbursements – GAI was printing out hundreds of checks every day to disburse loans, which were then cashed out at local bank branches by the borrowers.
  • Challenges:
    • Exposure to fraudulent checks
    • Burden on bank branches to carry a large amount of cash
    • 20-50% of bank branches are expected to close in the U.S. within the next decade due to online access [3]
    • Danger for GAI borrowers who are walking out of bank with thousands of dollars in cash
• Outdated Management Information System (MIS) – GAI was using Gbanker, a portfolio management system that was built in-house in Bangladesh. Data was entered at the branch level during disbursement and collection periods, then scrubbed and reformatted at the headquarter to be uploaded to Salesforce, customer relationship management (CRM).
  • Challenges:
    • Prone to human error at the point of data entry
    • Manual work for data entry as the bottleneck for loan disbursements
    • 15-20 hours of labor lost every month for data migration from Gbanker to Salesforce

Solutions
By the time I left in May 2016, GAI has successfully launched pilot runs for the following solutions:

• Prepaid cards for disbursements – prepaid cards are a familiar technology for the underbanked population in the U.S. [4] This reduces the reliance on bank branches and cash.
• New dynamic MIS with integration capabilities – With this new MIS, there is no need for scrubbing or reformatting of data from the branch level to the headquarter level. By simply scanning the cards, this system communicates with banks online to load the cards with the correct amount and instantly updates the data in GAI’s MIS.

Impact

• Manual hours saved
• Impact data tracked – Another benefit of prepaid cards, compared to cash, is that GAI is able track GAI borrowers’ spending habits to measure the effectiveness and impact of its program
• Less reliance on banks – GAI will be effected less as banks make operational changes to cut down costs
• Prepares borrowers for better financial inclusion in the U.S. – GAI borrowers, hugely an immigrant population with an average age of 37, currently face a technological barrier to the larger U.S. financial institutions. By introducing digital payments through prepaid cards and helping to build credit history, GAI better equips its borrowers for financial inclusion in the U.S.

GAI borrowers are fierce women entrepreneurs with bold ambitions and plans for their business. As GAI successfully grows its portfolio in both volume and size, the impact of this digital transformation will only become more apparent and serve its borrowers to be better equipped as business owners in the U.S.

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1. “2015 Annual Report”. Grameen America. http://www.grameenamerica.org/sites/default/files/Grameen%20America_2015%20Annual%20Report_Full%20Size_1.pdf
2. “Q3 2016 Report”. Grameen America. http://www.grameenamerica.org/sites/default/files/Q3%20Report_National_0.pdf
3. Chokshi, Niraj. “Say goodbye to your neighborhood bank branch.” April 19, 2016. Washington Post. https://www.washingtonpost.com/news/wonk/wp/2016/04/19/say-goodbye-to-your-neighborhood-bank-branch/
4. Ratcliffe, Caroline. McKernan, Signe-Mary. Kalish, Emma. Martin, Steven. “Where are the Unbanked and Underbanked in New York City?”. September 2015. Urban Institute. http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000430-Where-Are-the-Unbanked-and-Underbanked-in-New-York-City.pdf