He urged writers to “throw away anything that is false, no matter how much he might love that page or paragraph”. In a similar vein, Malaysia’s microfinance journey has been one of trial and error, as we continuously strived to increase the social and economic impact of microfinance, sometimes working against the tide of popular thinking. This has led to a more nuanced approach to the development of microfinance over time, and an ongoing process of rethinking norms which we may take for granted today. Today, I would like to talk about three perspectives that have shaped the way we approach and implement microfinance in Malaysia. First, technology when used in a clever way, can be of great use. While technological advancements hold great promise for expanding access to financial services for the poor, we need to invest time and resources to understand the factors that affect the poor, and the suitable approach to generate income and create wealth. These insights are what will determine whether technology is central or peripheral to the inclusion agenda. Second, the tradeoffs between financial stability and inclusion requires smart management. A microfinance strategy that focuses largely or wholly on providing credit to the unserved is almost destined to fail, potentially leaving communities worse off from excessive debt burdens. Instead, implementation strategies should ensure that the provision of credit are complemented by the necessary safeguards and financial education.

Third, successful microfinance programs are fundamentally compatible with sound commercial and management principles and practice, and normally have two things in common; an obsessive focus on operational innovations and the ability to create powerful synergies. We have built on these premises to continuously adapt, amplify and align our approach. This year, we have embarked on an initiative, working with the Credit Guarantee Corporation in Malaysia, to develop behavioral insights that will enable microfinance providers to integrate business and technological strategies that best serve the poor. The initiative will leverage on analytics to identify drivers of borrower behavior, and expand the use of psychometric tools by financial providers to develop financial solutions that are more responsive to the needs and circumstances of micro borrowers. A deeper understanding of borrower behaviors also provides a solid foundation for executing successful operational strategies. In fact, operational innovations – even those that represent small adjustments to existing processes – can have a far more important impact on smart design than a costly, hi-tech re-tooling of financial services. Our experience in Malaysia suggests that simple changes in application procedures and faster processing times have encouraged a higher take-up of microfinance. Flexible repayment schedules have also enabled borrowers to better manage irregular cashflows while continuing to meet their repayment commitments. Repayment reminders, delivered in ways that are relatable 2/4  BIS central bankers' speeches  to the poor (for example, “your repayment can help your friend in need”), can help keep repayments current.