It can be hard to differentiate what your firm does from how it does it — and that means finding new ways of accomplishing your core mission can be hard. For Accion, a nonprofit that had pioneered the commercial model of microfinance, its identity was bound up with its role as a leader in its field. But when new technology made it possible to achieve its mission through different means, it needed to decide whether its history as a microfinance innovator would prevent it from investing in fintech. Its CEO explains how — and why — the organization was able to make major changes to its approach while remaining firmly grounded in its mission.
A company’s digital evolution can result in startling changes. Shopify, for instance, started out as an online store for snowboard equipment and is now an e-commerce platform worth billions, used by small businesses globally. For mission-driven organizations, a digital pivot can offer a similarly powerful opportunity to maximize impact. But bold moves can also cause mission drift: diluting or distorting an organization’s core work to create positive change in the world.
This is something we grappled with at Accion through our own digital journey. Today, we are a leader in harnessing fintech for inclusion. As a global nonprofit, we find, invest in, and support disruptive and innovative early-stage companies, all working to address the financial needs of 3 billion people for whom the financial system fails. We are leveraging the power of technology to dramatically reduce costs, create new touchpoints, and reach people we’ve never been able to reach before.
But only a dozen years ago, Accion was a very different organization. Since the early 1970s, Accion had pioneered the commercial model of microfinance, harnessing the power of the capital markets to build some of the most successful microfinance institutions throughout Latin America. Accion saw itself as a leader in this field, and the effectiveness of microfinance in addressing the financial needs of the poor was a major part of Accion’s success as an international NGO. Microfinance institutions aspired to fill the enormous gaps in the banking system, and the industry has grown to reach hundreds of millions of low-income people globally. But as the economy moved online, we had to ask ourselves whether this was the best way to fulfill our mission — microfinance institutions are labor-intensive, paper-intensive, branch-intensive, and a relatively high-cost approach.
Accion’s metamorphosis from a traditional NGO focused on microfinance to global leader in fintech innovation required difficult choices, including making major investments with potentially significant risk. We had to confront perceived threats to Accion’s longstanding commitment to the cash-based, high-touch model of microfinance that had been the core feature of our strategy for decades. It also meant taking a hard look at our identity and understanding how we could better incorporate radical innovation into our mission to help the world’s most vulnerable people.
Here’s how we did it.
A legacy of change
A culture of experimentation and evolution can lay the foundation for a transformational pivot. By pointing to the times Accion had taken big risks to stay on the forefront of industry shifts, we solidified our culture and affirmed that change was very much integral to our identity.
Founded in 1961, Accion began as a humanitarian NGO focused on community development in Latin America, relying on a model similar to the Peace Corps (which began the same year). Years later, Accion staff started making small loans to individuals and small businesses, with encouraging results. Accion went on to build a network of NGOs focused on microcredit in Latin America. This network relied on branches, agents, and in-person transactions to provide small loans, often as little as USD $100, to micro and small business owners historically overlooked or ignored by traditional banks.
To help microfinance institutions tap the power of capital markets and reach millions more low-income customers, Accion sought to transform these NGOs into regulated banks and finance companies operating under the rules of the banking system. This strategy made history in 1992 when Accion established BancoSol in Bolivia, effectively inventing a socially responsible, financially viable model for microfinance that has been replicated around the world and today impacts the lives of hundreds of millions of families and small businesses.
Of course, we weren’t the only ones innovating. As commercial microfinance grew, the digital era created countless new ways to rapidly expand the reach, quality, and affordability of financial services. Founded in 2007, the mobile money provider M-Pesa exploded in Kenya, showing how emerging markets could leapfrog traditional bank and branch infrastructure to rapidly expand access to financial tools via mobile phones. By the end of 2016, two thirds of the world’s population had access to a mobile phone, and more than 90 countries boasted mobile money services. Digital innovators were (and still are) finding ways to instantly cross distances once seen as insurmountable, focus on tiny transactions once seen as unprofitable, and reach women, cash-reliant businesses, smallholder farmers, and other underserved groups often excluded from opportunities.
When I became CEO of Accion in 2009, I made it a priority to expand its focus on innovation and find new ways to accelerate our work. At the time, our impact investing efforts were broken into two categories: microfinance and “other,” which was a test-and-learn avenue to explore alternative business models and companies that were not regulated lenders.
Over time, “other” became fintech. We expanded our teams that initially put fintech on Accion’s radar. Just six years after launch, our seed-stage fintech venture initiative, Accion Venture Lab, had successfully invested in more than 40 seed-stage fintech companies around the world, and offered coaching and strategic support to these companies. We also partnered with Quona Capital, an independent investment firm co-founded by former Accion employees, to create the world’s first global fintech fund for the underserved, with a focus on growth-stage companies. The fund was significantly oversubscribed, strengthening its goal to accelerate more proven revenue models with success in reaching underserved clients.
In 2018, after several years of these highly successful forays into fintech, we faced a crossroads: proceed deeper into fintech, or invest in the digital transformation of legacy microfinance institutions. The fintech route would involve two proposed funds, backed by major investments by Accion, to energize fintech companies leveraging technologies like AI, satellite imaging, data analytics, and mobile platforms to revolutionize financial services for the underserved. It would allow us to find and grow promising new products, platforms, and business models that could quickly scale, but would also cement a major shift in our institutional identity.
The alternate approach would seek to modernize microfinance institutions that often possess skeptical relationships with technology, since they’ve succeeded through branch-based banking and face-to-face interactions. This would require significant investment and effort to build tech-friendly institutional cultures, optimize organizational design, and help these institutions navigate their clients’ own skepticism of digital tools.
Some staff and board members were concerned that going deeper into fintech could cause mission drift. Many microfinance institutions started as NGOs with clear social missions, which enabled them to develop a strong system of human touchpoints that low-income people need to learn about and apply financial tools. On the other hand, fintech models often start with people who already have a smartphone and are digitally or financially included, and they have a smaller presence in extremely low-income communities in emerging markets. And if Accion more fully turned toward startups, some asked if this would come at the expense of investing in the digital transformation of our microfinance partners, who could use digital platforms to strengthen and expand their work. Furthermore, early-stage companies are inherently risky, while the dividends and sales of Accion’s shares in microfinance institutions provide predictable revenue for Accion to reinvest in its mission.
These concerns raised doubts around fintech’s efficacy and potential impact on our identity as an organization. But our culture and pioneering history enabled us to find answers that illuminated a path forward and allowed us to evolve naturally. We embraced fintech for inclusion and the creation of the new fintech funds — and we also committed to launch new programs to modernize and upgrade legacy financial institutions. This multi-pronged approach ensured that we were maximizing technology’s potential to improve the reach, quality, and affordability of financial services at scale. We committed to building the necessary safeguards to protect digital customers and ensure progress was achieved responsibly.
In this new era, we would no longer be the NGO focused on high-touch, cash-based microbanking. We would become a nonprofit that takes risks that commercial players can’t or won’t take — combining our insights on the needs of the poor with cutting-edge technologies to revolutionize financial services for those who’ve been left out.
Our approach was quickly validated by external responses — and by unprecedented shifts we couldn’t begin to anticipate. Our new efforts focused on inclusive fintech and modernizing financial instutions were met with significant demand, allowing us to broaden our reach and deepen our impact. We exported the most powerful insights in digital innovation across our internal and external networks of microfinance banks, fintech startups, investors, funders, and policymakers to build inclusive financial ecosystems for those who’ve been left out. And when the pandemic upended every aspect of life, fintech’s digital-first solutions suddenly became vital for families and small businesses to continue operating, save money, purchase insurance, and survive. Fledgling fintech companies managed shifting demands and strains on human resources, and the entire sector grew by 13% in 2020. Now, these companies are empowering entrepreneurs to use digital tools to grow their businesses, helping farmers access crop insurance and customized advice, and embedding financial services in every type of business to drastically expand their reach, availability, and use-cases for clients.
The Parts of a Pivot
This wasn’t an easy process. There’s always going to be a strong case for sticking with an approach that has proven successful. A few factors allowed us to make this pivot successfully.
Foster a culture of innovation.
Accion’s transformational embrace of fintech wouldn’t have been possible without a culture that gave us permission to experiment — and potentially fail. This culture is built from the top down and bottom up: by creating the time and space for every employee to try new things, and by the board ensuring their CEO has permission and support they need to take risks.
Leaders who feel they lack this cultural component can weave together previous risks, experiments, and stories of success to create a narrative that complements your mission and opens an exciting path forward. For Accion, this meant tapping into the innovative spirit that drove our initial transformation from a humanitarian NGO into a pioneer in inclusive finance and impact investing. It also meant acknowledging the success of fintech disruptors, including those we’d already engaged with and supported through our initial forays in investing in fintech for inclusion.
Build a deep understanding of the opportunities and risks brought by digital disruptions.
By following the successes and failures of digital innovators in your field, you can apply lessons to your mission and take a test-and-learn approach to harnessing digital innovation. At Accion, we paid attention to game-changing moments like the explosion of M-Pesa in Kenya, which undeniably demonstrated the power of digital financial tools to expand access to financial services and improve the lives of poor clients.
But at the same time, we paid attention to valid criticism, including increased threats to consumers’ interests, rights, and privacy. We established a thorough due-diligence process to ensure our investees were committed to inclusion and clients’ best interests, and through portfolio engagement, we gave companies the support and advice they needed to focus on meeting their clients’ needs.
Finally, remember that difficult choices often don’t require a zero-sum approach.
Leaders can smoothly transition into new strategies while slowly transitioning out of older ones — or while adapting legacy strategies to better harmonize with newer goals. While establishing our new fintech fund in 2018 represented a dramatic shift for our overall strategy, it didn’t require weakening our relationship with microfinance institutions or abandoning efforts to digitally transform them to succeed in the modern economy. Indeed, Accion is actively engaged in the digital transformation of microfinance institutions around the world, as well as the millions of small businesses that rely on them for financial services.
Leaders should ask if a strategic pivot is a truly binary choice or whether there is more value in a multi-pronged approach. This can help organizations foster the next generation of innovation while accommodating the clients and other stakeholders benefitting from the prevailing strategy.
Organizations of every kind and in every place will continue to work to understand where they belong in a constantly evolving, digital-first landscape. At Accion, we are focused on ensuring that the latest digital innovations can empower the world’s most vulnerable people to adapt, rebuild, and thrive. And we are now able to anticipate and address the increasing speed of change that is happening in our sector. I hope our experience navigating a difficult strategic shift can inform similar organizations grappling with how to change in ways that make sense for their mission and their clients, who are confronting unprecedented challenges of their own.