The Five-Minute Loan: How India Stack is Speeding Loans to Small Businesses

By Niloufer Memon, Vibhor Goyal, and Varad Pande

We recently met Ajay, a fruit vendor in Mumbai who struggles to pay the 60 percent annual interest rate on a loan from his local money lender.

Ajay was saddled with this debt, unable to refinance or raise more capital to buy a second fruit cart. Last month, that changed. Using just his mobile phone, Ajay got a 15,000 rupee (£185) loan from one of India’s largest private banks, at a moderate interest rate. It took five minutes.

Rajesh has a similar story. He got a 50,000 rupee (£615) working capital loan on his cell phone – without stepping out of the mobile phone repair store he owns and runs in Delhi.

Neither filled out lengthy loan applications, submitted complicated documentation, or queued up in bank branches on futile visits. Their reaction: “Mujhe yakeen nahi hota ki aisa bhi ho sakta hai” (I cannot believe that this is even possible).

This revolution in access to credit was made possible through the digital infrastructure created by ‘India Stack’ – the set of powerful open and programmable capabilities that build on India’s digital ID program Aadhaar.

Capital gap

India has a huge credit gap: 90 percent of all small businesses are dependent on informal sources for credit. These micro-entrepreneurs are grossly underserved by traditional lenders because they typically do not have collateral or credit histories that make them “lend-able.”

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Q&A: Reflecting on Our Internships

With the recruiting season for Dalberg’s internship programs well underway, we talk to Dalberg team members about their internship experiences, and learn about what they have been doing since joining Dalberg full time.

Applications for our Graduate School Consultants Program are open until Jan 8, 2017. D.Capital are also recruiting for their Summer Investment Associate Program – applications are open until Jan 8, 2017.

Introducing our interviewees:

John Kidenda is a Senior Consultant in Nairobi. He joined the internship program in 2014, while pursuing a Master’s in Public Administration in International Development at the Harvard Kennedy School. Before attending Grad School, John had been working in Healthcare Tech in Austin, US. He became a permanent member of the Nairobi team in 2015.

Ellen Kendall is an Associate Consultant in Paris. Ellen started at Dalberg in London, completing her internship there in 2015 and joining as full time member of the team, before moving to Paris in Spring 2016. Prior to the internship, she had been studying a Master’s in Development Studies at the University of Cambridge, and had been working with an NGO in Thailand for two years.

Amanda Dawes Ibanez is a Senior Consultant in San Francisco. Amanda completed an internship in 2015 with Dalberg’s New York office. She joined the team in San Francisco in 2016, after completing a Master’s in Public Administration in International Development at the Harvard Kennedy School. Before attending Graduate School, Amanda worked conducting impact evaluations using randomized control trials to test the effectiveness of policies aimed at reducing poverty in Latin America.

Scott Hosking is an Analyst in our Johannesburg office. He started his internship in 2015, straight after completing a Master’s in Economics and a BSc in Economics and Law at the University of Cape Town. While studying, Scott had worked with NGOs in and around Cape Town, mainly focused on supporting small entrepreneurs in townships to increase their effectiveness.

Sikai Chen is an Associate Consultant in Dalberg’s Singapore office. He joined the internship program in 2015, after just completing a BSc in Economics from Singapore Management University. As a student, he’d volunteered with Southeast Asia’s first social change consultancy, and had also completed internships in the healthcare and automotive industry. Sikai joined the Singapore office permanently in 2015 as an Analyst, and was promoted to Associate Consultant in 2016.

And now for the questions:

What did you work on during your internship?

John: I worked on a World Bank project to devise a unified metric for measuring pharmaceutical supply chains across Africa. The topic resonated with me given my professional background in healthcare, and it was an interesting experience to approach this topic from the perspective of a strategy consultant. I was on the project from start to finish, so I gained real insight into what a project lifecycle, and the day-to-day, is like at Dalberg.

Sikai: During my internship, I focused on identifying the gaps in India’s education sector that the Tata Group could invest in as part of their sustainability efforts. I was part of a team that carried out a landscape study of the sector, and identified issues of quality and access across the education lifecycle of an individual from kindergarten to tertiary standards.

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The Private Sector Could Help Us Save the World’s Oceans

By Michael Davis

The importance of the world’s oceans, and the challenges they face cannot be overstated. Oceans are home to the earth’s most diverse ecosystems, and are crucial to fighting climate change as they absorb 30% of the CO2 in the atmosphere. The total economic value of the world’s oceans is estimated at USD 2.5 trillion per year, with the livelihoods of 660 – 820 million people globally supported by the fisheries sector alone. Yet, despite this environmental and economic importance, ocean mismanagement is rife. The major fish stocks people consume are on the edge of collapse, as fish stocks are severely over-exploited. The world’s reefs are stressed, and mangroves – the lungs of the ocean – continue to be removed at destructive rates.

The impact of ocean degradation, and collapses in marine ecosystems will be most keenly felt in the global south. In Africa, fish accounts for 40% of protein intake across the continent, and the fishing industry generates livelihoods for an estimated 100 million people, many of whom already live below the poverty line. The fishing industries currently contribute USD 24 billion to African GDP – already quite a substantial sum, which could even be much higher if supply chains are improved. Poor management, rampant illegal fishing, and poor policing of coastal areas have drastic consequences on seafood production, with countries such as Ghana (one of the few where adequate data exists) experiencing up to 90% reduction in the amount of locally produced seafood.

Read the full article on Global Daily.

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Protecting Tigers from Asia’s Infrastructure Development Boom

By Will Green and Jamie Chung

This blog draws on findings from a new report from Dalberg and WWF — Protecting Tigers from Asia’s Infrastructure Development Boom.

Tigers have travelled a rocky road over the past hundred years. Decimated from rampant poaching and merciless habitat destruction, the tiger population fell from over 100,000 at the start of the 20th century to just 3,200 in 2010. This rocky road is fast approaching a cliff edge.

Tiger landscapes contribute to economic growth in developing economies. Attracting millions of tourists each year, tiger landscapes provide local communities with sustainable sources of income and employment. In India, for example, three million people each year participate in wildlife tours, and this figure is growing each year. Tiger-related tourism today is mainly concentrated in the national parks, reserves and sanctuaries of India and Nepal, and is estimated at USD 2.2 billion per year. Given the difficulties of finding secure employment opportunities in tiger landscapes that are often remote, the jobs supported by tiger-related tourism are crucial for local communities.

Tiger landscapes also provide an abundance of environmental and socio-cultural value at local, national, and international levels. A recent report, for example, estimated the value of carbon absorption across six of India’s 50 tiger reserves is estimated to be over USD 17 million per year. Tiger landscapes also provide water for drinking and irrigation for downstream communities, and protect these communities from natural hazards, such as floods and landslides. In some areas, tigers are named national animals, while in others, the presence of tigers has led to their designation as World Heritage Sites. Additionally, tigers are inextricably linked to the millions of indigenous people that co-exist with them.

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User-centred Financial Inclusion

In Live Mint, Varad Pande and Nirat Bhatnagar explain why digital financial services should be tailored to the habits of the underserved. While financial service firms in India are beginning to explore digitizing their services and products for the BoP, two key dilemmas – user-experience and user-interface – are limiting innovation.

India is going through a “golden age” of financial inclusion. The government and the private sector have been equal players in this with key initiatives such as Aadhaar, the licensing of new institutions (payment banks and small finance banks), and the emergence of a vibrant fintech sector. The Unified Payments Interface (UPI) has been launched and promises to herald a new age of frictionless payments across devices and interfaces.

Now that the rails have been laid, the conversation is moving towards the creation of digital financial services that cater to the needs of the millions of underserved—the so called base-of-the-pyramid (BoP)—and bringing the benefits of the formal economy to them. Traditional banks, microfinance institutions (MFIs) and fintech companies are all taking steps that express their intent to target this segment.

However, there remain two dilemmas or “fuzzy choices” that are holding back innovation in this space. Firstly, the the user-experience (UX) dilemma, and secondly, the user-interface (UI) dilemma.

Read the full article on Live Mint.

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Financial inclusion fit to size: Customizing digital credit for smallholder farmers in Tanzania

For the fourteenth briefing note in a series from the Initiative for Smallholder FinanceDalberg’s Design Impact Group (DIG) explores the causes of low uptake in digital credit for smallholders to better understand how we can develop concrete product solutions to jump-start adoption of digital credit products by them.

[Download the full briefing here] 

Digital credit products represent an important financial inclusion opportunity for smallholder farmers in Tanzania, where close to 80% of the workforce is engaged in farming. Uptake of these products by smallholder farmers, however, remains limited.

To address this challenge, Dalberg’s Design Impact Group used a human-centered design (HCD) approach across three regions of Tanzania to produce behavioral insights around smallholder farmers’ interaction with, and demand for, digital credit products.

Based on insights collected during their research, DIG designed and prototyped a new digital credit product for smallholder farmers and evaluated their response to it. This idealized digital credit product builds on existing products available in the Tanzanian market, but has five new components, each with multiple differentiated features, that meet the unique credit needs and behaviors of smallholders. These new components include:

  • Design enhancements to the core product to make loan sizes and repayment terms more relevant and manageable for smallholder farmers
  • Supporting features to improve customer engagement with the product
  • Ideas to increase the effectiveness of marketing, customer training, agent support, and other functions that drive product adoption and usage

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James Mwangi on the Development Plan for the 21st Century – Podcast

James Mwangi, Executive Director of the Dalberg Group, joined the ‘Maintaining the Momentum for the SDGs’ event, convened by The Guardian around the UN’s General Assembly in New York.

James joined the first panel discussion on ‘How to Implement 17 Goals and 169 Targets’, and detailed the increasing need for tri-sectoral athletes: people who feel equally comfortable across civil society, government, and business.

A podcast summarising the key takeaways of the event is now available.


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How Does Digital Technology Make Lending to Farmers More Viable? (Early Findings)

The Learning Lab – an initiative of The MasterCard Foundation, jointly implemented by GDI and Dalberg –  is researching the Business case for digitally-enabled smallholder finance, specifically: what role do digital tools play in successful business models for lending to smallholders?  This blog highlights a few takeaways from the study to date. There is also a presentation from a Sep. 2016 workshop where Dalberg and the Lab discussed the results with MasterCard Foundation partners and selected financial and digital service providers.

The Business case for digitally-enabled smallholder finance is concerned with how digitalization can enable financial service providers (FSPs, broadly defined) to more profitably and sustainably serve small holder farmers. The goals of the research to date have been:

  • Build an initial knowledge base of the current and projected use of digital tools by FSPs serving smallholders
  • Begin to explore the impact of digitalization on the financial performance of FSPs
  • Identify key constraints to digitalization and areas of opportunity to accelerate digital integration
  • Identify requirements for building out a more robust business case for digitalization over the coming years

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[VIDEO] Devang Vussonji On Solutions to Unemployment with CNBC Africa

Devang Vussonji, Partner and Tanzania Office Director at Dalberg, joined CNBC Africa to discuss the link between education and unemployment in East Africa.

Devang explained that there is a disconnect between the skills employers look for, and the attributes schools develop. Strengthening relationships between employers and schools to develop apprenticeships and project based learning is crucial to boosting employment across the region.



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New Report: Small Merchants Offer Big Financial Inclusion Opportunities

There are more than 180 million micro and small merchants operating in developing and emerging markets globally. These merchants serve the world’s lowest income customers at a scale that is staggering. Every day, small merchants interact with more than 4.5 billion customers. While individually each merchant generates low revenues, they collectively influence the global economy significantly; the financial transactions they conduct total an estimated U.S. $6.5 trillion annually.

Since small merchants generate low transaction values and often run their businesses informally, little effort has been made by financial service providers to incorporate them into the digital economy. However, given the number of financial transactions and their vast customer network, small merchants have the potential to spark huge growth in digital financial services. If these merchants were to adopt cashless payment systems, and therefore encourage their customers to use digital payment accounts, they would provide a critical pathway toward financial inclusion for themselves and their low-income customers. The movement to digital payments would also present a substantial commercial opportunity for the financial sector; transaction fees alone could amount to an estimated U.S. $35 billion a year in additional value for financial service providers.

While the potential impact of small merchants adopting digital payments is huge, most of the current systems offer few obvious benefits to the merchants. Fewer than one in 10 small merchants in the developing world are using cashless payment systems, and those who are often find the process frustrating, time consuming and unreliable. Broadly speaking, customers and small merchants alike still prefer to use cash, and it will take a concerted effort from governments, regulators, financial services and businesses to change this reality.

A new report, Small Merchants, Big Opportunity: The Forgotten Path to Financial Inclusion – commissioned by Visa and authored by Dalberg and the Global Development Incubator – explores how financial service providers can engage micro and small merchants to unlock the social and economic potential of digital payments. Drawing on conversations with more than 300 merchants and 75 key financial sector stakeholders, the report concludes that digital payment systems must be improved to meet the specific needs of small merchants. These improvements include simpler and less expensive card terminals, effective support and customer services, increased merchant protections around chargebacks, faster processing times, and reduced costs. Creating cashless systems that suit small merchants is crucial for both the merchants and financial service providers, as cashless systems are often the first step toward increased uptake of more sophisticated financial products such as loans and insurance.

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