Strange Bedfellows? Why Fintechs and MFIs Are Actually the Perfect Match

Once upon a time there were concerns that microfinance institutions (MFIs) and fintech companies would at best remain frenemies – rival organizations operating in the same space but with incompatible approaches and goals. Thankfully, however, more than a decade of successful MFI-fintech partnerships have proven otherwise.

Whether it’s Artoo and Ujjivan in India, BRAC and bKash in Bangladesh, or Musoni and VisionFund Microfinance in Kenya, fintech companies are helping microfinance organizations with a clear goal to innovate but a lack of in-house expertise to make it happen.  By offering a fast track to innovation, they enable MFIs to seamlessly integrate specialized fintech solutions like loan automation, digital field tools for loan officers and sophisticated scoring algorithms, letting MFIs stay focused on their core mission without getting bogged down by the complexities of new technologies. 

But there are different approaches to partnerships – let’s look at two of them.

Two approaches to MFI-fintech partnerships

There are two main approaches to partnership that, while not mutually exclusive, differ massively in scope. The first, a direct aid partnership, focuses on transforming the way an MFI operates. These partnerships streamline processes, accelerating efficiency and effectiveness in service delivery through hands-on collaboration and digital innovation. One example from our own history is building an automated loan renewal product to help Advans Cameroun drastically reduce bureaucratic delays and boost customer loan reuptake.

The second type, a tripartite market expansion partnership, is when the MFI and fintech companies take on a third party with the aim of going beyond improving current models to truly revolutionizing their service delivery. Imagine, for example, 1) an MFI partnering with 2) a Lending-as-a-service (LaaS) company (like our company Rubyx) to embed loan services for sellers on 3) a digital platform, as we have done with Julaya in Ivory Coast. This approach allows the MFI to tap into new markets, using new digital insights to transform credit delivery and create innovative customer acquisition channels.

In addition to choosing the right approach for your needs, there are a number of additional factors necessary to guarantee success of any partnership.

Seven success factors for MFI-fintech partnerships

Fintech-MFI cooperation excels when there’s:

1. Buy-in and stakeholder commitment: Any serious misalignment between group management and local institutions can put the project in jeopardy, so it’s important to ensure that all stakeholders are on board and understand the mutual benefits. A compelling business case that resonates with everyone involved can turn the partnership into a shared mission with a common goal.
2. Regulatory compliance: Every partnership operates in a regulatory framework with specific constraints to be aware of. At Rubyx we’ve seen a project to fully automate lending never get off the ground because the client failed to consider regulations requiring minimum manual checks. By learning how to operate within the prevailing framework, the partnership can transform potential constraints into structured compliance strategies.
3. Trust and end-user buy-in: Building trust, particularly with end-users like loan officers, is crucial, as they will be the ones implementing your solution. One way we've found to do this at Rubyx is by involving them in the process through dedicated alignment sessions. In these sessions, we compare our algorithmic scoring results on a subset of customers with the loan officers’ own assessments. In our experience, when loan officers see how closely the results align, it helps overcome objections, builds trust in the system and increases the speed of adoption.
4. Incentives and clear benefits: For end users, another way to ensure solution adoption is by linking it with clear incentives. For instance, we’ve seen that loan officers are more likely to welcome a new fintech solution if it simplifies their tasks and boosts their performance, making their work more efficient and goal-oriented.
5. Resources, capabilities and technical readiness: The technical and operational infrastructure of the organization must align with the demands of the partnership to avoid risk of lengthy delays and potential failure. Examples include having the right technological setup (without being over-equipped), sufficient data quality and an operational model that can integrate and adapt to new solutions.
6. Operational expertise and experience: Even the cleverest fintech can’t succeed unless it’s well-suited to the MFI’s operational reality. That’s why we strongly believe it's important to choose a partner who knows that reality well. For example, at Rubyx many of us worked or consulted with microfinance institutions before moving into the fintech side of things, which helps us ensure that the solutions we propose for our clients are not just technically sound but also resonate with the practical aspects of credit decision-making and financial service delivery.
7. Flexible business models and revenue sharing: Embracing different business models, including revenue sharing, aligns the interests of all partners to performance, ensuring a mutually beneficial and sustainable collaboration.

Leveraging opportunities for growth

It’s important to remember that each of the above factors aren’t simple binary conditions – either there or not there. Rather, they’re factors that partners can analyze, implement and strengthen together in order to best deliver on their promises to each other and the people they serve.

Partnership is more than an agreement, it’s a journey. And along the way, we’ve seen MFIs address their weaknesses and transform potential challenges into stepping stones for innovation and expanded inclusion. In that sense, every great MFI-fintech partnership is an opportunity for growth – and in the dynamic world of financial inclusion, the perfect match.