On Monday, Aug. 2 CGAP’s own Kabir Kumar will take the stage at “Tech@State: Mobile Money,” an event hosted by the  U.S. State Department in Washington with an exciting line-up of mobile money practitioners from around the globe. Questions to tackle include:

-How do we scale the mobile frontier, leveraging technology and partnership for sustainable development and financial inclusion?
-What do case studies reveal about success and failure?
-What are the applications of mobile money and its implications for U.S. foreign policy?

We’ll have a write-up afterwards, and you can watch the event live online starting at 8am ET.

-Jim Rosenberg

We kicked off July in China, with my interview with Wokai founder Casey Wilson:

One interesting challenge that we navigate on a daily basis operating in China is the regulatory landscape. Microfinance was late to develop in China, only starting in 1994, in contrast to 1976 in Bangladesh. Regulations prohibit MFIs from accessing debt and equity investment, leaving them completely reliant on donor funding which is decreasing rapidly as the outside world sees China as an economic superpower rather than a country in need of aid.

When we first started Wokai, we aimed to create a Kiva-like model in which lenders from all over the world could lend no interest capital that when then go to our MFI Field Partners, and, finally, be lent out to the end borrowers on the ground. Once the borrowers repaid their loans to our Field Partners, the capital would then be repaid to lenders online.

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The UN estimates that there are approximately 800 million illiterate consumers worldwide and in addition not all consumers use products that support their primary language. To what extent do designs need to cater for, or specifically design for the illiterate?
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For many living on the edge of the grid, power comes in the form of a car battery which in domestic contexts can last up to one month to run a light bulb or two; keep a radio and mobile phone charged; and for occasional television use. Refrigerators are not worth purchasing unless there is continued access to electricity. Charging a car battery take ~3 days: one day to pick up and drop off; a day to charge, and this can take significantly longer if the locale where it is normally charged does not itself have electricity.

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Is it possible to experience the core benefits of mobile phone ownership without having a mobile phone?

In contexts where income is highly variable people living on the poverty line are more likely to be forced to sell off assets in order to buy essentials such as food. The mobile phone is such an asset. The net result is that there are people with a sufficient technological literacy to understand what a phone can do, a nuanced understanding of the communication norms, own an active SIM card but no mobile phone and most likely live in a community where people understand the variability of income and ownership. In these contexts it can be socially acceptable to ask peers, even strangers to borrow their phone, take out their SIM, insert their own and send off text messages or make calls – since the monetary costs are passed on the SIM card owner.

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Casey Wilson is the Co-founder and CEO of Wokai, the first person-to-person microfinance platform for China. Wokai - 我开 - means “I start” in Mandarin.

What’s happening in China?
China has the second largest potential microcredit demand in the world, next to India. Yet the total loan portfolio of China’s non-government microfinance sector is only $200 million, in contrast to India, whose microfinance sector is projected to reach $3 billion by the beginning of 2010.

Founded in 2007, Wokai  aims to create a sustainable source of capital to grow China’s microfinance sector by connecting individual contributors around the world with borrowers in rural China. Our website offers users a transparent and secure way to give as little as $10 dollars to support the loans of micro-entrepreneurs in China to start small businesses and lift themselves out of poverty.

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CGAP and Grameen Foundation would like to thank you for participating in this week’s virtual conference. There have been a lot of valuable contributions and new ideas which I hope we’ll all continue to explore at our respective organizations. While the official conference period has ended, comments will remain open and we invite you to continue sharing your thoughts on these topics.

Day 1 discussed capacity building in technology and brought up a variety of points that help to shape solutions-oriented thinking around how to improve the ability of both MFIs and vendors to implement and use back end systems more effectively.

There was some good thinking on the methods that MFIs and vendors can use to access some capacity building, such as:
- Use TA Providers to train staff when they are onsite for a project (with discussion on how better to make this happen)
- Reach out to resources in the community such as private company volunteers, academic courses in the local marketplace
- Have Tier I MFIs impart some of their knowledge and experience to smaller MFIs

Some points were raised also about the roles that investors can play:
- Provide incentives to use the technology more effectively
- Provide challenge grants to develop better software solutions and to encourage software vendors to enter the market
- Structure performance based project models
- Support technology capacity building financially at the MFI as a protection to the investment
- Cheaper and easier access to capital tied to a sound infrastructure and reporting abilities

In terms of responsibility for increasing capacity, it seems clear that it falls on all involved stakeholders: the MFIs themselves, the vendors, TA Providers, networks and investors Many contributors felt the onus relies on the MFI itself if it wishes to be competitive in the market. That said, these other stakeholders can be supportive by offering the skills, funding and tied-in incentives. It is felt that vendors to have a responsibility also to learn the business to work more effectively with the MFI needs.

On the question of funding the costs of the capacity building, there were a number of ideas.
- it should be included as part of the standard operating budget of the MFI…viewed as an investment and not expense
- vendors should contribute in providing some basic skills in IT Strategy
- CGAP and other such organizations to provide training in IT business skills
- investors – but with much greater level of oversight on how capacity building money is spent

Finally, related to this and the question of a market failure that might fail to properly incentivize vendors to engage more in the space, there was some thought that perhaps MFIs need to better understand the roles and limitations of a back-end system. If they could better understand that a system may not necessarily be equipped, cost-effective or even possible to mimic all operations tasks and that some standardization is necessary. This was a common comment made through the regional workshops – especially by vendors – and in today’s discussion.

Day 2 solicited new ideas for helping MFIs move past the technology hurdles which have hindered so many MFIs in the past. Some of the key topics discussed:

- Outsourced models, such as Software as a Service (SaaS) or “managed services.” There’s been quite a lot of discussion of these models recently and certainly the theory sounds promising as a way of reducing both cost and hassle for MFIs. However, the infrastructure in a lot of countries may not be sufficient to support hosted solutions, and in some countries there may be regulatory concerns if client data is stored in other countries. It seems that more information is needed and case studies of actual implementations would be a useful contribution.

- Other ways of bringing down cost might include some sort of group purchasing arrangement, so MFIs could collectively negotiate with vendors to get favorable licensing rates.

- Both outsourced models and a group licensing arrangement would require standardization of MFIs to some extent. This could potentially be facilitated by donors and investors who have a natural incentive to see their partners succeed.  Several approaches to issuing standards were identified: conduct process mapping of a sample of MFIs and issue best practices, encourage MFIs to adopt off-the-shelf packages and adjust their processes accordingly. Any standardization effort could be coupled with research demonstrating the financial benefits of standardization vs customization.

-Certification of software solutions by an organization like CGAP could encourage compliance with standards. Similarly, donors/investors/networks could encourage the use of solutions which comply with standards or hold a certification.

Visit our website for more information on the IS workshop series.

Today’s conversation is moderated by Xavier Faz and Lauren Braniff of CGAP.

Do we need a paradigm shift in the information systems conversation?

As concerns grow in the microfinance community about delinquency crises, responsible finance, client over indebtedness, and social performance management, it becomes increasingly important for MFIs to have solid systems in place to manage their business and understand clients.

The series of workshops held over the past year by CGAP and Grameen Foundation revealed two especially important points:

1. Participants were anxious to talk about a topic which has been eclipsed in recent years by other exciting technology developments such as branchless banking. The workshops revealed that this topic is still front and center at many MFIs, both large and small.
2. The conversation does not seem to have progressed beyond where it was 15 years ago. That is to say, MFIs still require support in the area of capacity building, vendors still need to better understand the business of MFIs, and many funders, associations, and other support networks for microfinance are not sure where they are best placed to help.

How do we advance this conversation to bring about better use of technology at MFIs? What new ideas would help catapult MFIs past this stalemate?

Here a few ideas discussed at the workshops (view the complete list):

1. Explore new business models. Commission research to clearly define Software as a Service (SaaS) opportunity for MFIs, identify possible providers, and undertake case studies to understand how/if this is a viable model for microfinance.
2. Define standards to bring together the fragmented microfinance market. Standards would help software vendors develop products which work for a variety of MFIs.
3. Donors and investors could condition funding and allocate a greater proportion of technical assistance to getting MFI systems in order. Growing appetite to invest in tier 2 or 3 MFIs may yield better results if efforts are placed in helping these MFIs improve their core systems.

Would these actions bring about significant change which would help MFIs make better use of technology? What other suggestions do you have?

Today’s conversation is moderated by George Conard and Charlene Balick of the Grameen Foundation.

During our recent workshop series, a consistent theme across all regions was the notion that adoption and usage of back end systems could be done more successfully and for less money if (a) MFIs had better internal skills to work with technology and (b) if vendors gained a more intimate knowledge of MFI operations and requirements. Would capacity building at MFIs and vendors help alleviate technology headaches at MFIs?

Participants repeatedly expressed that costs could be reduced if MFIs had improved capacity both among managers and staff. MFI leadership needs to be able to better plan for and work with technology, both at initial phases of a project and on an ongoing basis as the business changes and expands. Likewise, MFI staff need to be better equipped to work with technology and technology vendors.

Examples of skills needed at MFIs:

• Being able to link technology to business goals and strategy – having an improved IT strategy (or one at all!)
• A champion at the executive level with enough knowledge of the technology project to help advocate for the best investment
• A knowledgeable and dedicated project manager for IT projects
• Ability to clearly express business requirements to the vendor as linked to well-defined operational process
• Ability to review and negotiate a contract and plan for an ongoing relationship with a vendor

Conversely, it was commonly expressed that many vendors working in the microfinance space have a limited knowledge of the unique characteristics and intricacies of microfinance products, business operations and characteristics. If the vendors knew the business better, costs could be reduced and back end systems could be designed better and implemented and utilized more successfully.

How can the working relationship between vendors and MFIs be improved – especially with an eye to avoiding large cost overruns and enabling MFIs to effectively use back end systems to achieve growth and operational efficiencies and cost reduction goals?

Please share your thoughts and ideas:

1. If training and capacity building is needed at the MFI level to better work with technology, who is responsible for providing it and where can funding to pay for this training come from?
2. What are some ideas for how vendors can better learn the MFI space? Who is responsible for teaching them? What are some ways that they can learn on their own?
3. What other ideas do you have to improve the interactions between vendors and MFIs – especially with an eye to reducing costs, capturing greater value from the system, and reducing the risks that can come with failure of system implementation or the wrong system in use?
4. Where does the responsibility lie: Are MFIs responsible for educating themselves on the business skills in working with technology? Or are vendors responsible? Who else can play a key role and how? How can this skill building be paid for?
5. What do you think about investors and funders setting aside a portion of the funds to pay for training and capacity building – as a protection to their investment?
6. How could TA Providers play a stronger role?

Welcome to CGAP and Grameen Foundation’s Virtual Conference, “Getting past the technology hurdles at MFIs.”

Recap of the discussion

Over the past several months, CGAP and Grameen Foundation, with support from the MasterCard Foundation and the EU/ACP Microfinance Programme, hosted a series of four workshops to discuss the back office challenges at MFIs. Workshops took place in Washington, DC, Kenya, India, and Peru in an attempt to understand the issues at both a global and regional level. Proceedings from all workshops are available on the CGAP website.

The key question posed was “Why do MFIs struggle with technology and what can MFIs, donors, investors, software vendors and others do to improve the situation?”

At each workshop, we challenged participants to not only discuss the challenges they face, but also solutions to help the microfinance community move toward improved use of technology. We invite you to take a look at the consolidated recommendations for an overview of the recommendations discussed at the workshops, and participate in the virtual conference to share your opinions.

1. July 7 (starting at 9 am EST): Capacity building to improve vendor/MFI relations and outcomes. Training for both MFIs and vendors would promote greater preparation on the part of MFIs and better understanding of the microfinance business on the part of the vendors. But what type of training is necessary and by whom? What other steps could be taken to ease the technology challenges at MFIs?
2. July 8: New ideas to propel the use of technology at MFIs. Will new business models, such as Software as a Service (SaaS), change the way MFIs interact with technology? Would increased use of standards improve the quality of software products available to MFIs? Would greater involvement by funders lead to better systems outcomes at MFIs? What other ideas would help move the microfinance industry past this information systems challenge?

The conference will take place right here on the blog, no registration is required. Just post your comments using the “Leave a reply” option at the bottom of each thread.