The pitfalls and potentials of digital lending solutions: Juhudi Kilimo's experience with cloud-based MIS and SMS reminders

Smallholder asset lender Juhudi Kilimo used a cloud-based management information system to improve its operational efficiency.  Then it tested a new SMS reminder initiative, which proved promising in pilot but faced challenges during rollout.  Elvin Walela tells this chapter in the story of Juhudi's digital journey.

By Elvin Walela 

Cloud-based MIS for greater operational efficiency 

In 2014, Juhudi Kilimo was facing challenging times and needed to better meet the increasing demand for distributing credit to rural smallholder farmers in Kenya. To do this, Juhudi needed to optimize business processes and deliver new loan products to the market quickly, as customer requirements are always changing.

At the time, Juhudi relied on a management information system that was inflexible, slow, inefficient, and involved a substantial amount of manual processes. As a result, Juhudi sought a new management information system that was flexible and able to decentralize loan processes.

Juhudi’s management chose Cloud Lending Solutions, an ICT platform that we found to be extensible, cost effective, and quick to implement. Once the new system was rolled out in January 2014, we witnessed a noticeable increase in both operational efficiency and user experience. This led to a rapid scale and faster loan approval. The implementation of Cloud Lending Solutions also improved portfolio quality due to near real-time reporting and reduced operational costs now that there was no need for expensive in-house IT infrastructure. 

After such positive results the Juhudi team realized that to improve the systems even more we’d need to invest in further integrating our core management information system with supplementary databases and data gathering tools, which previously were still separate and independent. To make this possible, Juhudi applied for an Acumen grant that allowed us to integrate systems and develop a new platform which came to be known as Echo-Flex. The Echo-Flex’s main goals was to expand Juhudi’s data collection activities, through periodic SMS surveys, and to study the effect of SMS reminders on the repayment behavior of clients.

Can SMS reminders improve repayment from delinquent borrowers?

Juhudi Kilimo decided to try using SMS messaging to recover overdue loan installments from clients in arrears. We chose two types of overdue borrowers: The first was a group of 98 clients with loan repayments overdue by 30 to 60 days. This group received a friendly SMS reminder because they were only a month or two late with their loan repayment. For example, Alice, whose payment was late by 45 days, received a message from Juhudi reading, "Dear Alice, Juhudi is reminding you that your loan installment is overdue by 45 days."

The second group of 104 clients, who were overdue by more than 90 days, received a more strongly worded SMS reminder. Joseph, whose payment was late by 99 days, received this message, “Joseph, you have not paid your loan installment for the last three months. Discuss repayment with your Juhudi officer so you don’t lose your asset [financed by the loan].”

To evaluate the effectiveness of these SMS messages, Juhudi then observed and recorded changes in the repayment behavior of the 202 clients over a period of 2-4 weeks. The first try at SMS reminders worked so well that Juhudi decided to send more SMS reminders to 1,841 clients who were overdue by more than 60 days. We sent a third and final batch of SMS reminders to 406 clients who were 30-60 days overdue. In total, Juhudi had sent 2,449 SMS reminders over six weeks to clients in varying degrees of delinquency.

Promising results 

How many people made payments?

• Overall, a third of the 1,841 clients in arrears made at least one repayment in the four weeks following the SMS reminder.
• Proportionally, the clients who were least in arrears were more likely to make at least one repayment during the month following the SMS reminder than those who were more heavily in arrears. 

How many payments did clients make?

• During the 4-week period following the SMS reminders, we received 870 loan payments from the 1,841 contacted clients.
• 60% of payments were made in the first two weeks
• The frequency of payment declined steadily for all clients, regardless of how much they were in arrears.

How much did clients pay?

• The average size of payments increased with level of delinquency.
• Juhudi also noted the total amount repaid per client was highest for the most overdue clients. This suggests that while the most-overdue clients were relatively less likely to make a payment after receiving an SMS reminder, those who did react made a bigger effort to clear their outstanding debt.

How much did the SMS campaign cost?

• The cost of the SMS campaign was a small fraction of the total monies repaid by the clients we contacted.
• This shows that SMS reminders can be an inexpensive and effective tool for managing loans.
• Particularly for highly overdue or hard-to-reach clients, SMS can be a very good channel for communication and relationship management. 

Challenges with early rollout

The transition from pilot to early rollout revealed some challenges in linking this digital solution to our overall group-based business model, and highlighted the importance of effectively engaging clients and field staff in designing our customer experience.  

The SMS study concluded that using SMS reminders has direct business relevance as it elicits positive repayment behavior from clients. Once the Echo-FLEX system was functional and able to automatically send SMS reminders to overdue clients, Juhudi decided to roll out SMS reminders to 6 of its 20 branches. However, this early rollout failed to start because Juhudi had not engaged loan officers, clients, and client group officials early in the conceptualization of the SMS reminder idea.  During this attempted rollout, we quickly learned from our group clients that reminding each group member of their repayment date (especially if different from the group meeting date) would have the following undesirable effects: (1) the group would lose initiative of following up with its members’ repayments, (2) members would not feel obliged to repay during group meetings, (3) group members without loans would be alienated from financial services if group members with loans were in arrears, and (4) the group treasurer will lose the initiative and prestige of following up on repayments.

Next iteration

Looking to reap benefits of SMS reminders in a way that better incorporates customer experience and group behavior, Juhudi is currently engaging various stakeholders in a redesign of the SMS reminder intervention. Juhudi plans to incorporate the recommendations and guidelines from these engagements before we begin using SMS to ensure regular repayments and minimize risk of delinquency.

Note: Juhudi Kilimo is a winner of the 2015 Fund for Rural Prosperity's Innovation Competition. The Fund for Rural Prosperity - a MasterCard Foundation program - is  a USD 50 million challenge fund to extend financial services to people living in poverty.