On Thursday November 2nd, 2017, during the global Financial Inclusion Week initiated by Accion, Enviu organized a webinar in collaboration with micro pension companies ‘Invest India Micro Pension Services‘ and ‘People’s Pension Trust’. Both companies developed a tailor-made pension product for workers in the informal sector in India and Ghana respectively. Building micro pension companies required the development of an eco-system for a completely new market, finding ways to retain customers, and the use of innovative technology and partnerships for achieving success. But like all initiatives, you have to start somewhere. In this article we have summed up the 5 main lessons learned to keep in mind when entering the micro pensions space.
1. Just start!
Worldwide, there are currently 1.8 billion workers in the informal sector without a pension. Most of them live in low- and middle-income countries, where informal workers don’t have access to a pension arrangement. These people literally have to work till they die and rely heavily on family support. Pension products for the informal sector have the potential to help generations break through this poverty cycle and strengthen local economies at the same time.
Yet, only a few daring and trailblazing individuals are addressing this issue the entrepreneurial way. Among them are Ashish Aggarwal and Samuel Waterberg. Ashish set up Invest India Micro Pension Services in 2008. In 2014, Enviu founded People’s Pension Trust in Ghana after vigorous market validation of the solution and appointed Samuel as its CEO. Both companies introduced tailor-made pension products for the informal sector and were amazed by the promising outcomes resulting from their pilots. Ashish recalls victoriously, “One month after we started testing, 20.000 Indian women subscribed to save for a pension.”
Therefore, Samuel advises all upcoming entrepreneurs to ‘just start’: “Don’t wait until all the right tools are in place, but use what is already there and learn by doing. Keep in mind it’s a long-term process.”
2. Develop the market around your product
Even though there was a demand for the product, when both entrepreneurs started, they knew the pension market in their country was young and for the informal sector nearly non-existent. It was up to them to develop the entire eco-system that was needed to reach their customers. With no leading examples available, they needed to build customer awareness, develop processes and best practices, distribution systems, IT-systems and partnerships from scratch.
Samuel’s first steps in developing the micro pension company were therefore to bring on board resourceful partners necessary to mobilize the market.
“We engaged with the government to discuss how to apply pension regulations to the informal sector,” he explains. “Then we needed to find patient investors that are willing to accept the risk, are in it for the long run and can bring in the required expertise. Partnerships with some of the largest pension companies in the Netherlands really created a solid fundament.”
3. Retain your customer through trustworthy partnerships, user-centered product design, and patience
An opened account doesn’t guarantee a saving customer, certainly not for the long run. “But as soon as a customer is saving for more than 5 years, he’ll stay for an unlimited period of time,” Ashish remarks. So how do you gain, and retain customers in a voluntary pension fund?
Firstly, as micro pension companies you have to prove your trustworthiness. “Some of our customers were saving with institutions that defaulted and lost the customers’ savings,” Samuel explains. “As a result, few people trust saving institutions.”
To gain trust, Samuel and Ashish work with respected partners and guarantee transparency. This latter is possible thanks to digitalization. All transactions can be tracked and the customer can see its real-time balances anytime, anywhere. In Ghana, the customer can also withdraw 50% of their annual savings. This helps them to see that withdrawing their money is easy and that their money is still in their account”.
Secondly, both entrepreneurs made it clear ‘you need to manage your customer’: Create understanding, make saving as easy as possible, and offer incentives. Both entrepreneurs offer financial education modules to create awareness and use reminders and digitized payment processes to automatically withdraw the money from someone’s mobile wallet. The product is tailor-made, thus customers have the flexibility to save more or less, even on a daily basis.
Both entrepreneurs tested multiple incentive mechanisms. In some counties, Indian governments double the pension savings of customers and give an insurance guarantee. In Ghana, the company targets saving groups. Samuel explains, “If you see someone else is saving, social pressure makes you to save as well.”
But there is still a long way to go to fully understand the customers. There is no cookie-cutter solution. Therefore you need to be patient to find out what works and what doesn’t. Listen to your customers well and never assume you know better.
4. Deploy available technology
We hinted to it discussing transparency for the customer: Use technology. Digitalization has made it easier to standardize processes and connect with the customer.
From the start, the biometric system in India, and later also in Ghana, had a major role in getting the business up and running. This technology helps to identify customers and so ease withdrawals.
Soon mobile technology also came up, which became a major tool to achieve scale in India and Ghana. “Through the mobile phone, we are able to collect money, to communicate, to advise, and to educate our customers,” Samuel reveals. “We are able to reach our customers everywhere!”
Both features have been, and continue to be key to serve the growing group of customers.
5. Establish long-lasting partnerships
Creating cost-efficiency and understanding the customer needs remain challenging. That is where partnerships come in. Partners who are already involved in the market and that are eager to join you in working towards financial inclusion.
People’s Pension Trust partnered with Ghana’s most popular mobile phone company from the beginning, allowing them to scale their customer reach, and therefore their impact. “Other important partnerships were with Unions, Cooperatives and Community-Based Organizations, which are efficient ways to approach and educate your target group through their leaders,” Samuel adds.
Ashish also used partnerships to develop the product, the IT, the distribution, and the helpline. He explains: “By being the glue of the project, we can control the cost per unit and per product, and work on our cost-efficiency.”
Thus setting up micro pension companies requires a long breath. You manage someone’s savings for a period of 20-30 years. “That is a serious responsibility,” Ashish remarks. “That is why you have to prepare for the long-run from the beginning. In fact, success is your biggest risk.”
Today, Invest India Micro Pension Services serves 800.000 clients and recently merged its operations into UTI Asset Management Company, one of its investors and a key product partner. People’s Pension Trust Ghana serves 10,000 clients and has been growing rapidly since it’s official license late 2016. Both companies are dreaming big and are therefore looking for partnerships, because together is more!
Can’t get enough? You can find the full webinar recording here.
In addition, our friends from BluePrint Pension Services (BPPS) also hosted a webinar during Financial Inclusion Week. BPPS was instrumental in developing the IT backbone for People’s Pension Trust Ghana. Find their webinar recording here.