Microfinance: Leveraging ICTs - Part I
In the first part of this two part series - The author suggests the ways through which the existing ICT tools and technologies can bring the poorer section of the society in the ambit of the microfinance services.
Over the last decade or so, the world seemed to have woken up to the reality that to empower the rural marginalised communities and to alleviate the poverty scenario in the world, they need to be given opportunities to save, borrow and repay loans. Till a few years back, banking institutions, for the purpose of offering banking services to the marginalised, experimented with subsidised credit which affected the overall performance of the banks and contributed to the rise in Non-Performing Assets (NPA). Thus subsidised credit as an option gradually lost its popularity among banks. Moreover more than the cost of credit, it was access to credit which was considered as the major barrier for the poor. With little or no means to afford the collaterals/mortgages, the poorer section of the society had to resort to unscrupulous moneylenders for loans which pushed them further into the vicious cycle of indebtedness. The reason behind this was access or the lack of it and not interest rate.
Microfinance has come to be recognised as the most viable, efficient and result-oriented mode of financially empowering the poor. For Robinson "Microfinance refers to small scale financial services for both credits and deposits ? that are provided to people who farm or fish or herd; operate small or microenterprises where goods are produced, recycled, repaired, or traded; provide services; work for wages or commissions; gain income from renting out small amounts of lands; vehicles, draft animals, or machinery and tools; and to other individuals and local groups in developing countries, in both rural and urban areas".1 Microfinance also entails the condition of sustainably delivering the services and is not merely confined to credit (microcredit) but encompasses in its range savings, insurance, and fund transfers. In the last few years of its existence, many organisations have jumped onto the microfinance bandwagon which includes not-for profit NGOs, development professionals, corporates, commercial banks, international donor agencies, etc. The reasons for the enthusiasm varies from the belief that microfinance offers a good developmental alternative to the belief, especially among the commercial banks, who have opened microfinance branches for their microfinance operations, that microfinance offers a good, sound banking option. The government has also routed various developmental schemes through microfinance. Microfinance leaders are gaining prominence and it is said that some of the leaders, particularly women, have been taking a more active role in other social spheres, including contesting elections for the panchayat and so on.
The microfinance sector has grown exponentially over the past few years and the World Bank estimates that there are now over 7000 Microfinance Institutions (MFIs), serving some 16 million poor people in developing countries. The total cash turnover of MFIs worldwide is estimated at US$2.5 billion and the potential for new growth is outstanding. It is estimated that worldwide, there are 13 million microcredit borrowers, with USD 7 billion in outstanding loans, and generating repayment rates of 97 percent. It has been growing at a rate of 30 percent annual growth.
However, several issues and impediments to the success of microfinance as an industry have cropped up, the primary of them being: scalability and sustainiblity of MFIs, and outreach and impact of the microfinance initiatives. Thousands of MFIs around the globe are realising that the solution for the scaling up, and ensuring maximum outreach and sustainability of MFIs lies in leveraging the benefits of technology, more specifically information and communication technologies (ICTs). ICTs have opened new window of opportunities for the MFIs to reach out to more people, controlling the risks making the business sustainable, and bringing down the costs of operation. With new softwares specially designed to cater to the needs of the MFIs, mobile phones, efficient Management Information Systems, among others, technology can and will in the near future bring about a paradigm shift in the domain of microfinance.
ICT usage for MFIs
The current discourse on and practice of microfinance has inevitably redirected itself through the ICT route for maximising outreach and ensuring sustainability. Adoption of ICTs also brings about business processes re-engineering because they povice efficient, transparent and cost-effective mechanisms to run the business of MFIs. MFIs have readily adopted ICTs for they have been looking for a change agent that will harness the benefits of ICT tools for best possible management and reduce costs, time and efforts.
Management Information Systems (MIS)
To monitor the quality, sustainability, and efficiency of the loan portfolio, to measure its development impact, and properly manage the administration tasks of an MFI, computerised Management Information Systems comes in very handy. MIS are the most fundamental aspect of an MFI's hi-tech infrastructure and it is difficult for an MFI to upscale significantly and maintain the accuracy and transparency of its loan portfolio without an MIS that can grow with the institution. There is no denying the fact that an appropriate backoffice MIS is the backbone of ICT innovation for the delivery of microfinance services.
However, for MIS to really contribute to the efficiency of the MFI, it has to be accurate, and up to date. MFIs find it difficult to maintain updated records as they have their offices in remote locations which rely on manual data-entry and paper based transaction records. ICT innovations like mobile computing applications and palmtops at the hands of the loan officers who can directly record the transaction into the MIS can make this system more efficient and up to date. The data entered into the palmtop computers is typically uploaded to the MIS at the end of the day, either directly in the branch office or via a remote communications link. Furthermore, the roll-out of wireless broadband infrastructure will enable these systems to be always online resulting in true real-time data collection and monitoring of the loan portfolio at branch and institutional levels.