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Microfinance Digitization

Digitization has been a source of hope and frustration in the microfinance industry: Hope because it is seen as the means to make microfinance institutions (MFIs) competitive; and frustration because few digitization initiatives have transformed the traditional MFI model despite the significant resources invested.

CGAP argues that it is in the interest of the microfinance industry and the broader financial inclusion community to generate value for customers and businesses through digitization. MFIs play a vital role in delivering credit and other financial services to low-income customers, including closing the financing gap for micro and small enterprises (MSEs) estimated at nearly US$5 trillion

Digitization is a broad and fluid concept where the design and delivery of financial services is to a significant extent, assisted by technology. Using this definition, we identified promising digital implementations and distilled five core principles  of successful implementation. The five principles define an implementation approach that focuses on building customer and business value and relegates the technology buildout to a supporting role.  We believe that MFIs that deploy agile product development teams to define and measure value with a robust business intelligence practice focus on product features that create a good user experience and prototype with simple technology will most likely succeed and benefit from their digitization efforts. We tested those five principles in work with 27 MFIs and shared our findings here.

This work is part of a broader effort looking at MSE finance in the digital age, seeks an improved understanding of the MSE landscape, and accelerating progress towards a more digitally enabled MSE finance ecosystem. 

Creating Value through Digitization

CGAP’s early findings about what contributes to the success or failure of digitization inspired combining the most successful practices we found in our research and testing them through practical implementation. As a result, we propose five core principles for successful digital implementation: 

  1. Deploy agile product development teams to drive the digital implementation. The product team develops the product concept into operational and commercial form through a process of iterative testing and takes the product to market. Management delegates authority to the product team to lead the action and provides the resources and support needed for it to be successful.
  2. Define and measure the expected value to be generated from the digital implementation. Use clear metrics for measuring how value is created for the customer and the company. Develop the business intelligence capacity to track the customer behavior change associated with value creation.
  3. Prioritize the product features that create value. Use customer research and business case analysis to identify product features that generate customer and business value. Prioritize those features on the product roadmap in a sequence of product development tests that prove the concept before scale-up.
  4. Prototype and test solutions with simple technology. An MVP approach streamlines implementation, contains cost, and minimizes technology and data challenges during the initial product tests.
  5. Design for a good user experience for staff and customers. Customer and staff satisfaction are the primary drivers of product adoption and value creation. The customer experience drives customer adoption, while the staff user experience is a key driver of internal change management. 

These actionable core principles were tested and validated in five CGAP pilots on a promising digital implementation – the automated follow-up loan product. Our work further refined them with another 21 MFIs implementing various digital solutions.

Digitizing Microfinance Institutions: Funders' Role

CGAP has successfully supported two MFI Cohorts in their digital journey through an approach that supports value creation as a core tenet of success. CGAP leveraged learning and resources produced with the five MFIs in Cohort 1 to support more than four times the number of MFIs in Cohort 2, with a reduced timeframe and level of direct support. CGAP also invited 14 funders and networks to join the project’s Community of Practice and share feedback on how the project learnings could be relevant to their networks. 

Further Resources


This Working Paper takes a unique look at microfinance institution innovation with digital technologies by featuring case studies on five MFIs that successfully created measurable customer and business value through digitization:
Blog Series

Microfinance institutions (MFIs) around the world are exploring ways to digitize their operations. While some have achieved success, others have found this to be a difficult, costly endeavor in which success is anything but guaranteed. This blog series looks at the most common


We discuss how business intelligence can be assisted by artificial intelligence today, and where we believe human input remains irreplaceable.