Encik Abdul Rasheed Ghaffour: Revolutionising Microfinance Welcoming remarks by Mr Encik Abdul Rasheed Ghaffour, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Global Symposium on Microfinance, Kuala Lumpur, 22 May 2017. * * * In biology, the transformation of a species is said to happen in rapid bursts. Imagine an ecosystem of marine life along a shoreline. For millions of years, it can remain relatively unchanged. But an extraordinary event – such as a sudden move in sea levels – can alter everything quickly. Within decades, fishes, mollusks and plants alike can dramatically change in size and shape. Ultimately, those that adapt emerge as the stronger species in the ecosystem. We are gathered here today in the very different context of microfinance. Nonetheless, parallels can be drawn with the theme of this event, ”Revolutionising Microfinance”. Think of the incredible pace of technological change in recent years. In 2016 alone, machine prevailed over man in the world’s hardest board game. Reusable rockets became a reality. Twitter helped a nation elect their president. For microfinance, that rapid burst of change is already upon us. It is therefore a great honour for Bank Negara Malaysia to partner with the World Bank in hosting this Global Symposium on Microfinance. We are privileged to have so many learned speakers here with us to share their invaluable insights.

The focus of this Symposium – on insights, inclusion and innovation – underpins this adaptability. Insights – identifying with microentreprenurs As effective policymakers and practitioners, we need to have deep insights of our clients on-theground: the microentrepreneurs. This obligation begins with the awareness that the needs, tradeoffs and circumstances of microentrepreneurs are unique. They face very different financial constraints and in turn, very different choice sets. Hence, effective microfinance design that appeals to microentrepreneurs’ needs will not only require a rooted understanding of whether they have been good paymasters, who their other financiers are and how they conduct business; 1/3  BIS central bankers' speeches  but also their specific background, problems and values. As we speak, predictive credit analytics are being developed using alternative data, such as psychometric assessments and other non-financial information. This may be particularly useful in the microsegment, where traditional data on creditworthiness are usually scarce. These insights can also be leveraged to design products that are tailored towards the distinct needs of microentrepreneurs. Improving user experience and confidence is equally important. Application procedures, user interfaces and operational processes should be simple and seamless. Most importantly, they should be appropriate to the circumstances of microborrowers for whom a loan may well be the first experience with a formal financial institution. How they perceive this experience can have longer term effects on the level of trust they place in financial institutions, and reinforce behaviours that will either encourage them to use financial services, or further distance them from the formal financial system.