Technology will be important for MFIs' dynamism
Thursday, 9 August 2007
S. M. Rahman
INFORMATION and communication technology (ICT) environment is, however, slowly gaining currency. Potentials exist for low cost ATM booths that could be opened in the urban and the rural areas as well. We should contemplate and explore the issue seriously. The development initiative has to be accelerated so that a full ICT environment is created to introduce the innovative products like ATM cards, SMART cards, PDAs, etc. Some piloting would be worthwhile in this respect. Countries like Bolivia, South Africa, Philippines, Peru and India are moving ahead. Their experience will be illuminating to chart the course of our intervention.
Global Experience in ICT use: Providing faster access is the key to the competitive next phase of the microfinance movement, which aims for more innovative use of technology and the stronger institutions that come with it. A survey conducted by Consultative Group to Assist the Poor (CGAP) shows that several hundred MFIs have been earning profits and sustaining growth over the past decade, sometimes at considerably higher rates than mainstream banks and established financial institutions. One factor separating many of the top MFIs from their peers is the effective use of technology to standardise processes and reduce the costs of operation.
"Leading MFIs around the globe are already beginning to provide services to millions of poor with the delivery of technologies such as automated teller machine (ATM) and point-of-sale (POS) networks, particularly in Africa and Latin America," says Gautam Ivatury, Manager of CGAP's Microfinance Technology Programme. Technology appears to be a promising solution to this problem. ATM transaction costs are as much as five times less expensive than those of a bank teller. Other technologies, particularly mobile phones, are now widely used among poor people across Africa, for example. And inexpensive POS devices which read debit and credit cards can now be used without constant telecommunications and electricity connections. According to Ivatury, "One challenge will be to convert hardware and software technologies that process zeros and ones, into information that financial institutions can use to deliver a range of financial services."
The most powerful approach may be to use technology to create partnerships between banks, MFIs and retail outlets to achieve this, such as through a CGAP-sponsored pilot project with ICICI, India's second-largest bank, and VISA. Innovation is taking place worldwide. SMART, a leading mobile phone operator in the Philippines is already processing two million mobile banking transactions a day. All of this is good news for scaling up microfinance, notes Ivatury. "Technology has the potential to open new markets for microfinance in hard-to-reach areas, especially if these technologies are integrated into existing large-scale networks." He cites, for example, India's 1.3 million manned public phone booths, which, with the right technology, can offer POS service to millions more microfinance clients. The MFIs there are using new information and communication technologies to improve their operations in three main areas: expanding their customer base and extending their reach into undeserved areas, establishing secure identities for customers, and lowering transaction costs.
ICTs will continue to impact microfinance operations worldwide. As prices of relevant technology like ATMs, biometrics, voice recognition, smart-cards, and PDAs continue to fall, more MFIs will be able to take advantage of the benefits they offer. New technologies and applications are constantly being developed aimed at increasing the reach and efficiency of microfinance organisations.
Improvements will make operations more secure, increase transparency (and thus scalability), reduce repetitive tasks, and provide data mining capabilities that will allow MFIs to compete effectively and better manage their operations. Together, ICTs are helping MFIs to finally meet the unmet demand for microcredit throughout the developing world.
Larger banks, whose access to capital, scale, reach, and expertise could alleviate many of the problems associated with microfinance, have been reluctant to respond to the unmet demand for microfinance services due to the large costs of building and maintaining physical bank branches, and the high transaction costs and low profit margin on small loans.
With this in mind, many initiatives are currently using new information and communication technologies (ICTs), such as smart cards, handholds, and modified ATMs, to bypass the traditional methods of providing bank services. In doing so, they are lowering their overhead costs and expanding their reach, helping to extend the availability of microfinance. In Bolivia, one MFI is providing ATM-enabled banking services to Bolivians that do not have access to the traditional banking system. PRODEM FFP was established as an NGO in 1986 by ACCION International. Since 1999, it has been a regulated, privately held financial fund focused on bringing microfinance services to undeserved communities, both rural and urban.
In a country where 70% of the general population and 94% of the rural population are classified as poor, PRODEM has designed its own ATM, tailored to meet the needs of its rural customers. The company provides its customers with a smart card, so that the ATMs are able to verify the customer's identity and complete transactions without being electronically connected to the central office, thereby allowing PRODEM to expand its reach into remote areas. PRODEM finds that the ATMs allow it to serve customers who cannot come to their branches during normal business hours.
Moreover, the ATMs are capable of "speaking" to their users in their local language, thus enabling illiterate customers to access their services. Audio instructions are currently available in Spanish, Quechua, or Aymara. Combined with a touch screen interface, customers are able to deposit and withdraw funds without filling out a deposit slip or withdrawal form. Additionally, the ATMs facilitate money transfers, provide access to government programmes that provide work for low-skill workers, and make payments to senior citizens.
PRODEM's ATM software was developed by a subsidiary of PRODEM, Innova Empresarial. Innova is in the process of developing Palm technology that would enable PRODEM to take their financial services, via a handheld, into local homes and businesses of their customers. ICTs are also being used by VOXIVA to allow MFIs located in Peru to expand their reach. The company uses a phone-based system with voice prompts to expand microfinance networks into rural areas that have high numbers of illiterate people. The service reduces operating and transaction costs, resulting in savings that can be passed on to the borrower.
ICTs also allow microfinance organisations to increase their efficiency, thereby lowering their overhead costs, and helping them to achieve sustainability. The Dhan Foundation in India, for example, is streamlining its microfinance activities using a combination of handhelds and smart cards. The technology results in time savings for loan officers, while also ensuring more accurate accounting and record keeping. Because all the information is stored on a smart card, field officers can make decisions on the spot, reducing the number of visits required to complete a transaction. BASIX, India's largest microfinance organisation, is experimenting with handhelds and smart card technology to automate the loan process and keep track of repayments, in order to reduce labour and cash handling costs. BASIX's Mobile Portfolio Management System also helps to minimise accounting errors. Swayamkrushi, a women's lending cooperative in India, has also experienced an increase in efficiency since it computerised its operations.
In addition, the computers used in the microfinance operations are being used by members to access the Internet, providing additional benefits to the women. Pride Africa, a cluster of MFIs currently operating in five sub-Saharan African countries, is using IT for increased efficiency and faster growth. In Kenya, it has launched an experimental portal, DrumNet, which stores information on the buying and business habits of Pride clients in order to group the purchasing power of thousands of small entrepreneurs.
Conclusion: Candidly speaking, MFIs in Bangladesh were not culturally ready to adopt fast technology within their organisations although the ice has begun melting. ICT is not to be seen as a nightmare given the development going on around the globe. To address this deficiency, it's time that we stir up and organise debate and discussions sharing others experience on the ICT's role and its viability considering prevailing constraints. The overseas experience in this regard will be a good learning for us and enrich our current steps.
At any rate, the low income clients (who form the bulk of the masses) should not be kept outside the domain of the emerging technological innovations and development. The experience of PRODEM using ATM for its overwhelming rural population appears very entrancing. The Microcredit Regulatory Authority (MRA) in the country should cull useful overseas experience and encourage the MFIs to forge ahead. Donors might ponder investing requisite resources in developing necessary ICT infrastructure and promote e-literacy in the country. Concluded
The writer is a Microfinance Specialist.
INFORMATION and communication technology (ICT) environment is, however, slowly gaining currency. Potentials exist for low cost ATM booths that could be opened in the urban and the rural areas as well. We should contemplate and explore the issue seriously. The development initiative has to be accelerated so that a full ICT environment is created to introduce the innovative products like ATM cards, SMART cards, PDAs, etc. Some piloting would be worthwhile in this respect. Countries like Bolivia, South Africa, Philippines, Peru and India are moving ahead. Their experience will be illuminating to chart the course of our intervention.
Global Experience in ICT use: Providing faster access is the key to the competitive next phase of the microfinance movement, which aims for more innovative use of technology and the stronger institutions that come with it. A survey conducted by Consultative Group to Assist the Poor (CGAP) shows that several hundred MFIs have been earning profits and sustaining growth over the past decade, sometimes at considerably higher rates than mainstream banks and established financial institutions. One factor separating many of the top MFIs from their peers is the effective use of technology to standardise processes and reduce the costs of operation.
"Leading MFIs around the globe are already beginning to provide services to millions of poor with the delivery of technologies such as automated teller machine (ATM) and point-of-sale (POS) networks, particularly in Africa and Latin America," says Gautam Ivatury, Manager of CGAP's Microfinance Technology Programme. Technology appears to be a promising solution to this problem. ATM transaction costs are as much as five times less expensive than those of a bank teller. Other technologies, particularly mobile phones, are now widely used among poor people across Africa, for example. And inexpensive POS devices which read debit and credit cards can now be used without constant telecommunications and electricity connections. According to Ivatury, "One challenge will be to convert hardware and software technologies that process zeros and ones, into information that financial institutions can use to deliver a range of financial services."
The most powerful approach may be to use technology to create partnerships between banks, MFIs and retail outlets to achieve this, such as through a CGAP-sponsored pilot project with ICICI, India's second-largest bank, and VISA. Innovation is taking place worldwide. SMART, a leading mobile phone operator in the Philippines is already processing two million mobile banking transactions a day. All of this is good news for scaling up microfinance, notes Ivatury. "Technology has the potential to open new markets for microfinance in hard-to-reach areas, especially if these technologies are integrated into existing large-scale networks." He cites, for example, India's 1.3 million manned public phone booths, which, with the right technology, can offer POS service to millions more microfinance clients. The MFIs there are using new information and communication technologies to improve their operations in three main areas: expanding their customer base and extending their reach into undeserved areas, establishing secure identities for customers, and lowering transaction costs.
ICTs will continue to impact microfinance operations worldwide. As prices of relevant technology like ATMs, biometrics, voice recognition, smart-cards, and PDAs continue to fall, more MFIs will be able to take advantage of the benefits they offer. New technologies and applications are constantly being developed aimed at increasing the reach and efficiency of microfinance organisations.
Improvements will make operations more secure, increase transparency (and thus scalability), reduce repetitive tasks, and provide data mining capabilities that will allow MFIs to compete effectively and better manage their operations. Together, ICTs are helping MFIs to finally meet the unmet demand for microcredit throughout the developing world.
Larger banks, whose access to capital, scale, reach, and expertise could alleviate many of the problems associated with microfinance, have been reluctant to respond to the unmet demand for microfinance services due to the large costs of building and maintaining physical bank branches, and the high transaction costs and low profit margin on small loans.
With this in mind, many initiatives are currently using new information and communication technologies (ICTs), such as smart cards, handholds, and modified ATMs, to bypass the traditional methods of providing bank services. In doing so, they are lowering their overhead costs and expanding their reach, helping to extend the availability of microfinance. In Bolivia, one MFI is providing ATM-enabled banking services to Bolivians that do not have access to the traditional banking system. PRODEM FFP was established as an NGO in 1986 by ACCION International. Since 1999, it has been a regulated, privately held financial fund focused on bringing microfinance services to undeserved communities, both rural and urban.
In a country where 70% of the general population and 94% of the rural population are classified as poor, PRODEM has designed its own ATM, tailored to meet the needs of its rural customers. The company provides its customers with a smart card, so that the ATMs are able to verify the customer's identity and complete transactions without being electronically connected to the central office, thereby allowing PRODEM to expand its reach into remote areas. PRODEM finds that the ATMs allow it to serve customers who cannot come to their branches during normal business hours.
Moreover, the ATMs are capable of "speaking" to their users in their local language, thus enabling illiterate customers to access their services. Audio instructions are currently available in Spanish, Quechua, or Aymara. Combined with a touch screen interface, customers are able to deposit and withdraw funds without filling out a deposit slip or withdrawal form. Additionally, the ATMs facilitate money transfers, provide access to government programmes that provide work for low-skill workers, and make payments to senior citizens.
PRODEM's ATM software was developed by a subsidiary of PRODEM, Innova Empresarial. Innova is in the process of developing Palm technology that would enable PRODEM to take their financial services, via a handheld, into local homes and businesses of their customers. ICTs are also being used by VOXIVA to allow MFIs located in Peru to expand their reach. The company uses a phone-based system with voice prompts to expand microfinance networks into rural areas that have high numbers of illiterate people. The service reduces operating and transaction costs, resulting in savings that can be passed on to the borrower.
ICTs also allow microfinance organisations to increase their efficiency, thereby lowering their overhead costs, and helping them to achieve sustainability. The Dhan Foundation in India, for example, is streamlining its microfinance activities using a combination of handhelds and smart cards. The technology results in time savings for loan officers, while also ensuring more accurate accounting and record keeping. Because all the information is stored on a smart card, field officers can make decisions on the spot, reducing the number of visits required to complete a transaction. BASIX, India's largest microfinance organisation, is experimenting with handhelds and smart card technology to automate the loan process and keep track of repayments, in order to reduce labour and cash handling costs. BASIX's Mobile Portfolio Management System also helps to minimise accounting errors. Swayamkrushi, a women's lending cooperative in India, has also experienced an increase in efficiency since it computerised its operations.
In addition, the computers used in the microfinance operations are being used by members to access the Internet, providing additional benefits to the women. Pride Africa, a cluster of MFIs currently operating in five sub-Saharan African countries, is using IT for increased efficiency and faster growth. In Kenya, it has launched an experimental portal, DrumNet, which stores information on the buying and business habits of Pride clients in order to group the purchasing power of thousands of small entrepreneurs.
Conclusion: Candidly speaking, MFIs in Bangladesh were not culturally ready to adopt fast technology within their organisations although the ice has begun melting. ICT is not to be seen as a nightmare given the development going on around the globe. To address this deficiency, it's time that we stir up and organise debate and discussions sharing others experience on the ICT's role and its viability considering prevailing constraints. The overseas experience in this regard will be a good learning for us and enrich our current steps.
At any rate, the low income clients (who form the bulk of the masses) should not be kept outside the domain of the emerging technological innovations and development. The experience of PRODEM using ATM for its overwhelming rural population appears very entrancing. The Microcredit Regulatory Authority (MRA) in the country should cull useful overseas experience and encourage the MFIs to forge ahead. Donors might ponder investing requisite resources in developing necessary ICT infrastructure and promote e-literacy in the country. Concluded
The writer is a Microfinance Specialist.