COVID 19 has created unprecedented disruptions in life. Human interactions would be significantly curtailed due to ‘Social
distancing’ that considers as one of the options for non-contamination and recovery. People in general won’t be encouraged to
have gathering in public places! The ‘new normal’ would be less proximity, more virtual interactions and these going to impact
the emotional part of ‘touch and feel’ of our dealing in human society.
Businesses would be impacted immensely. Enterprises need to adjust to this new normal with new innovations and solutions.
Online interactions would be one of the most preferred solutions and many businesses across globe are devising online
strategies to carry out operations. The surge in online based approaches is clearly discernible. Online approaches won’t help
every segment of the business equally, particularly where business outcomes actually depend on ‘proximity to customers’!
Financial Institutions (BFSI1
) being one of the critical sectors that would be affected most in this case. Widespread lock down
forced minimal economic activities resulting to erosion of working capital and precarious cash flow to almost all the enterprises.
The worst hit would be Micro Small & Medium Enterprise (MSME) sector! BFSI in this juncture is facing significant challenges to
have topline growth of the business, managing provisions of the existing clients to address NPA2
etc. How the collection of
payments would be done remotely as large number of customers are not used to full online interactions. Converting these
customers into online would take place fairly quickly for sure, but understanding customer’s behavior in terms of her/ his
‘willingness to pay’ as well as ‘ability to pay would remain the most critical issue particularly when proximity (visiting the
customer) is severely challenged and limited.
Let’s consider the impact on Micro Finance Institution! These institutions generally offer credit to a group using the concept of
Joint Liability Group. Many of these organizations target marginal communities where social distancing is a mere sad joke! The
repayment collection (weekly or monthly installment) is done physically involving all the group members. The staff of these
institutions would reach out to the borrowers and during face-to-face interactions do significant trouble shooting using
collective wisdom. Now all these going to change primarily ‘the fear of getting infected’ would loom large!
Due diligence process to issue a new loan, payment of installments etc., for sure could be conducted online. But the
experiences show that absence of face-to-face interactions might affect the bottom line of the companies significantly. The final
due diligence quite often is based on the staff’s final physical assessment of the socio-economic context and physical conditions
of the customers. Is there a way, that could not only complement the current process also help the organizations?
Is there a solution to assess customer’s behavior remotely? Predicting customer’s behavior and creating appropriate incentives
based on the behavior trends to encourage her/ him to pay or buy would be quite useful. Behavioral economics in this context
would come in handy. Behavioral economics today deciphers the consumer’s behavior from the standpoint of how choices are
made in complex situations, many a time it may appear irrational!
The answer lies with the fact that knowing customer’s behavioral competence both on her/his ability to do business resulting to
the ability to generate revenues as well as her/ his creditworthiness beforehand would be effectively useful. The assessment to
know these qualities could be done remotely! This would complement the existing due diligence (credit rating!). It would help
organizations to optimize the due diligence process with minimal physical interactions. It would also help agencies to know it
customers better in terms of her/ his entrepreneurial capabilities and creditworthiness so that monitoring remotely would be
easier. A global Advisory Firm has shown that if the candidates are selected through psychometric testing, the default rates
could be reduced by 25–40 per cent without any banker supervision. Even the overall due diligence cost is reduced by 55%!
The mpower-u is one such solution that solution ‘quantitatively’ and ‘objectively’ assesses ‘entrepreneurial capabilities’ and
‘creditworthiness’ of MSME using principles of behavioral economics, neuroscience and data science. The mpower-u solution
has identified, through a combination of secondary research and extensive field-testing, the set of necessary traits expressing
entrepreneurial and creditworthiness attributes. These have been used to develop the Business Excellence Index (BXI) and
Creditworthiness Excellence Index (CXI). The measurement process is guided by the benchmark relevant to specific occupation
role through a well calibrated test backed up by an advanced mathematical model that is both reliable and accurate – 95%
accuracy is our aim based on past performance. It captures primary behavioral data through various modules comprised of a
set of non-technical, non-intrusive, non-directional and culture free statements written in local languages using multiple-choice
format.
Author: Subrata Rana is a Former World Bank staffer. Worked in various international and inter-government agencies across various
geographies for over twenty-five years. A Behavioral Economist by training, alumnus of India Institute of Technology, India and University of
Stanford, US.