August 27, 2020

A Case Study in Interoperable Payments in Myanmar’s Microfinance Industry Part 1: The Challenges

by Drew Johnson in Financial Inclusion , Microfinance , Mojaloop , Open Source , Payment Management 0 comments

Over the last six months, our team has collaborated with UNCDF Myanmar to demonstrate the benefits of interoperable, real-time payments for about five million microfinance customers in Myanmar. But it hasn’t been easy. In this blog, we’d like to share some of the barriers we faced, discoveries along the way, and our approach to “getting to yes” with the country’s participants.

Globally, COVID-19 has forced microfinance institutions (MFIs) into a perilous position. Lenders are reducing funding, forcing businesses that rely on these loans to deal with less reputable sources of capital. Although this project began before the global pandemic, its success is now critical because the Myanmar economy and the global MFI industry must adapt quickly to this “economic rainy season.” For this reason, our team manually connected the core banking technology of participating organizations to the lab in an effort to build capacities and a knowledge base in-country. 

Additionally, enabling digital payments involves multiple stakeholders and complex education events. Relying on PowerPoint presentations and panel discussions over Zoom just wouldn’t cut it. To help facilitate collaboration, full participation and investment were required from the financial institutions engaged. Members had to contribute to the process and allocated resources to design a loan repayment standard. This also meant using standard APIs to integrate their core banking systems to Mojaloop, the first open source platform for interoperability in a real-time payment network.

The goal with this approach was for all parties – whether CEOs, CTOs, Product Managers, or developers – to agree that this exercise was worth the investment and work together. It was crucial for UNCDF and ModusBox to lead Myanmar’s financial service providers to a state of agreement. For any real progress to take place, we had to “get them to yes” regarding their participation in the pilot of real-time payments through the Mojaloop Lab.

What we’ve learned so far

Do your pre-work

This project actually started long before the pilot began. 18 months earlier, UNCDF and ModusBox held consultations with the government, MFIs, the Myanmar Microfinance Association, and others to share the project vision. This work identified industry champions who agreed to push the initiatives through their networks and within their own organization.

Network effects

It wasn’t surprising to find that incentives to join payment systems followed the parameters of the network effect: the more connected a financial service provider was, the more valuable it was to become part of the network. Large meetings that gathered multiple financial institutions created a demonstration effect, while public commitments and government support also bolstered confidence. “Getting to yes” is a collective action problem because people only want to join if others are part of the scheme – even for a lab.

Navigating labyrinths

There was a direct relationship between a financial institution’s size and the effort required to build consensus among its leaders. Agreements with large banks and mobile money often needed a “yes” from six or more people, including senior business officers, senior technology leadership, project management, developers, security, etc. If the organization was part of a conglomerate, consultation with the head or regional office was sometimes required. On the other hand, microfinance organizations showed much more agility and often only required the buy-in from two individuals.

Power of the vendor

Regardless of the type of financial service provider, unity required the core banking or platform vendor’s involvement to assess feasibility and resource requirements. Involving the technology vendor early in the process was crucial because it answered the questions of “how long?” and “how much?” that executives wanted to know before connecting to the Mojaloop Lab. We found that the sooner our team could hold a one-hour tech call, the sooner we could provide clarity to management to make decisions on resource prioritization.

Now what?

Six financial service providers are already connected to the Mojaloop Lab with another two in the process of connecting. There is growing interest, and we expect it to become easier over time due to the network effect and ability to show something tangible to interested organizations.

Given the extensive market demand and urgent needs associated with COVID-19, ModusBox and the MFI industry have begun building a more robust system capable of managing live transactions. We’ve started adding a few new use cases as well. There will be more to share on that in a few months!

If you are interested in learning more about establishing a Mojaloop lab in your country or for your industry, start with the resources on our website. These include our Mojaloop Partner Program, training courses, and the Mojaloop Lab

Of course, our team is always ready to have a conversation with you to learn how we can provide a hands-on experience to help you achieve your objectives.

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