Does microfinance have established business processes?

by Jorge Perez-Luna : Tuesday, December 8, 2009

Jorge Perez-Luna joined the Bill & Melinda Gates Foundation in January 2008 as the IT Business Partner for Global Development.  Jorge has more than 15 years of international experience leading and managing complex Information Technology organizations in Latin America, USA, Europe, Middle East, Africa and Asia, including key positions within AT&T and Nextel.

If you were to take a tour of the established commercial banks almost anywhere, you would probably find that their business processes are remarkably similar. Wherever banking and financial services are well developed, the drive for efficiency and the need for transparency have moved business processes in a similar direction. Moreover, processes will be well documented and transparent.

Can the same be said of microfinance institutions? Despite the similarity of their basic business, are there any basic processes common throughout the industry? Are business processes determined deliberately and improved consciously? This is not typically the case as there is seemingly infinite variety to the ways that MFIs operate. There is little consistency and too often little attention paid to best practices. Business processes are often the product of a series of accumulated ad hoc decisions rather than the result of deliberation and planning with clear business goals in mind.

What are the implications of this stratified operating environment? How can software providers develop quality products for an industry which operates with such a range of processes? Would automation become easier if MFIs worked to streamline and improve the efficiency of their business processes? Or are the unique natures of business processes the key distinguishing factor between microfinance institutions? Can better designed business processes help MFIs to improve their efficiencies, provide better service and reduce their cost to their poor customers?

CGAP and the Grameen Foundation, with support from the Mastercard Foundation, recently co-organized a workshop to discuss what needs to happen to make appropriate back-office systems (including people and processes as well as technology) more broadly adopted by MFIs.

Dec. 8 and 9 we’re convening a virtual conference here on the CGAP Technology Blog to discuss four themes which emerged from the recent workshop. Today and tomorrow we’ll be joined by several industry experts who will each introduce a theme and moderate a discussion. The objective is to discuss how the theme relates to the broader question at hand, and what each stakeholder group can do to support MFIs.The conference happens here on the blog, no registration is required. Just post your comments using the “Leave a reply” option at the bottom of the thread.

TAGS: Events, MIS

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33 Comments RSS 2.0

  1. December 8th, 2009 at 12:51 pm, Lauren Braniff ()

    Many MFIs say that off-the-shelf software products don’t fit their needs so they find it better to build their own. Many software vendors say that it’s too difficult to build a solution which fits the needs of every MFI so MFIs need to adjust their processes to fit those of the software solution. We’ll talk more about “standards” tomorrow, but would streamlining and standardizing business processes help alleviate the disconnect between supply and demand?

  • December 8th, 2009 at 1:42 pm, jiten patel ()

    Jorge, Lauren … It behooves MFIs to streamline and standardize their business processes, first internally – yes there are MFIs where business process is non-existent or different from branch to branch. So before even contemplating standardization amongst MFIs, one has to look at streamlining and standardizing internally within the MFI. Secondly, this process cannot be just a one-off process, i.e. that one performs once a year or every few years, but it is something that must be proactively managed and maintained as the business, competitive and regulatory environments change.

    Just doing this would be a boon, for this will help with the MFI’s interaction with external parties, be it a vendor, an auditor, or whoever.

  • December 8th, 2009 at 1:43 pm, Jorge Perez-Luna ()

    Other industries such as telecommunications, proved in the 90’s that it is possible to streamline and standardize business processes. One concrete example is the product offer by MNO (Mobile Network Operators) called “roaming”. For MNOs to be able and capable of activating roaming, they must comply with a set of standards and business processes (such as sharing call detail records for billing). We could start by selecting one simple process that could perhaps bring new revenues to MFIs i.e. remittances? Any other suggestions?

  • December 8th, 2009 at 1:56 pm, Jorge Perez-Luna ()

    Jiten,

    I agree, but also think that MFIs need to find an strong “Economic” reason of why they should standardize their business processes. I suggest we need to find one product that can dramatically increase the economies of these MFIs. We have seen that remittances is a very attractive product and that requires great coordination and standardization… any thoughts on that?

  • December 8th, 2009 at 2:05 pm, Jorge Perez-Luna ()

    One of the challenges regarding Business Processes is not only the need to standardize or improve them, but the fact that MFIs just do not have documented business processes at all. Creating new and better MIS technologies would not resolve the main issues. We first need to ensure MFIs have the right documented processes so that people understand their roles and responsibilities and accountabilities. Business processes are a critical component of any enterprise. Computer Systems without business processes in my experience calls for disaster. Any comments on this?

  • December 8th, 2009 at 2:21 pm, Normand Arsenault, Consultant ()

    Good comments Jorge. Some of the MIS system implementation failures occur because the new system’s capabilities are mismatched with the organization’s existing business processes and procedures. Poor software selection occurs when an organization hasn’t adequately documented its business processes. For many MFI selection teams, it’s tempting to select a well-known software vendor. They find some security in the popularity of the software. However management should be clear and decisive about what they want the new software to achieve, and this before selecting any solution.

  • December 8th, 2009 at 2:31 pm, jiten patel ()

    You are on the mark with your comments on the business processes and the importance of it, and the fact that the best software or technologies would not resolve the issues if these processes were not documented and maintained.

    The example you cite about MNO’s is very apt, and the MFIs have to be coaxed and cajoled towards that, and one excellent way is one where donors and capital markets can play a critical role in forcing MFI’s in this direction; where dollars/euros are concerned MFIs do listen albeit little grudgingly.

  • December 8th, 2009 at 3:44 pm, Paschal Konyeaso ()

    The benefits of implementing a customizable off-the-shelf software with detailed business workflow has advantages over creating a totally new application. First, an existing application would have gone through numerous upgrades and should have core functions required by the MFI. Secondly, it reduces the implementation timeframe.

    The mistake often made by software vendors is they often spend more time explaining the robust functionalities of their applications instead of focusing on the narrow requirements of the MFI.

  • December 8th, 2009 at 2:45 pm, Jorge Perez-Luna ()

    How do you think we can create some kind of “movement” in which the main goal is first to “simplify” and document the “how” MFIs do their work? I totally agree that MFIs prefer to select well known software packages because of “fear” of failure. Unfortunately we have seen that once they have the new software, then they need to adapt this to their poor designed business processes. This effort by itself sometimes is more expensive than the system. Focusing only on the technology without first streaming the “how” MFIs work is a big mistake. we have seen already many failures for this exact reason.

  • December 8th, 2009 at 2:52 pm, jiten patel ()

    Only way I know to force the issue is that “money talks” – by offering financial incentives spread over time … this would entice MFIs to engage and maintain.

  • December 8th, 2009 at 3:10 pm, Jorge Perez-Luna ()

    I agree that “money talks.” Could perhaps an initiative similar to “roaming” for the Mobile Operators exists for MFIs? Another example is is the retail industry forcing all vendors to comply with a set of standards and business processes such as Barcode tags and product IDs? Manufacturing companies need to comply on ISO 9000 in Europe or they will get no customers? What could be the “use case” of the microfinance industry?

  • December 8th, 2009 at 3:14 pm, Allan Kyle ()

    I spent a bunch of time trying to get process agreement on a remittance system with our sponsor and certain Indian mobile operators and FS instiutions. Ultimately it broke down on security standards.

    After that experience, I would expand on Jiten’s comment to suggest that money could be used to develop a standard offering (e.g. remittance clearinghouse). Since it would be subsidized, the offering would be financially attractive to MFI’s to use, and would incent them to all move to consistent (external) processing. Forcing internal consistency is a whole different subject, and often beyond the scope of most remits.

    Start with consistent inter organization standards. Could foundations such as the B&MGF get into that space or would another organization need to drive and get funding?

  • December 8th, 2009 at 3:23 pm, Normand Arsenault, Consultant ()

    Regarding your question “How do you think we can create some kind of “movement” in which the main goal is first to “simplify” and document the “how” MFIs do their work?”.

    I believe it can be done by providing MFIs with a simple and quick tool to carry out processes and information flow mapping of the actual and desired system. This is what I call the Information/Work Flow description. It provides a summary of the existing business processes that the software will affect. Of course it can be used for software selection but also for determining which activities will be automated and which one will be kept manual, for software configuration and installation, for making adjustments to processes to integrate the software into MFI operations, for optimization and streamlining of operations, and for preparing documentation on procedures and users training as well as communication material. The tool will also serve as a basic reference guide during any future development of the MIS.

  • December 8th, 2009 at 3:44 pm, Jorge Perez-Luna ()

    All very good and valid points. However, I think that at the end of the day managers of MFIs need to understand that in order to have a sustainable and profitable business they need first to clearly define and simplify their business practices. What is the business case in order to “convince” MFIs that this is something very good for their future? What are the economics around the decision to improve their business processes? Why do business people buy technology to automate business processes that do not do the job required to satisfy the customer or to satisfy the demands of government institutions?

  • December 8th, 2009 at 3:55 pm, Jorge Perez-Luna ()

    Paschal,

    Do you think that perhaps vendor software companies could use new technology innovations such as BPM (Business Process Management) in order to enable the flexibility required by the many different MFIs needs? You have a great point in that vendors focus their attention more in the functionality rather than focusing the attention on what is the functionality that would make the biggest positive impact for the MFI (the ecomomics). Any comments on this?

  • December 8th, 2009 at 4:03 pm, Normand Arsenault, Consultant ()

    Maybe we need business cases that show the business benefits of mapping processes. Business cases that demonstrate that management and staff work will be easier, that client satisfaction will be higher, that cost will be reduced, that internal control will be easier, etc.

  • December 8th, 2009 at 4:17 pm, Jorge Perez-Luna ()

    On the suggestion for a Tool to carry out business processes; are you referring perhaps to how to map these business processes?, Are you talking about notation? Is the Business Process Management Notation (BPMN) Initiative an example of such a tool for MFIs? Is it a software tool to help MFIs to map their business processes?

  • December 8th, 2009 at 4:39 pm, Jorge Perez-Luna ()

    Any suggestions in how to create these business cases? How can MFIs do a better job in documenting their needs based on business processes that can bring the biggest impacts? How then can software vendors develop simpler and lower cost solutions with great flexibility to accommodate the needs of different business processes? Perhaps we need more flexibility for business processes with just the “right functionality”?

  • December 8th, 2009 at 4:47 pm, Normand Arsenault, Consultant ()

    I am referring to how to map simply and quickly an MFI’s business processes. The Business Process Management Notation (BPMN) Initiative is maybe a bit complex. This processes mapping can be done manually and does not need a software application. I’m talking about a simple business process mapping tool aimed specifically at MFIs. I have used it successfully already. I can provide you with an example.

  • December 8th, 2009 at 5:23 pm, Jorge Perez-Luna ()

    Yes, good idea for all participants to see your examples.

  • December 8th, 2009 at 5:38 pm, Normand Arsenault, Consultant ()

    I have used my mapping processes tool recently in Afghanistan under contract with ACDI-VOCA. I will have to have ACDI-VOCA’s authorization to show you and participants a copy of the work I have done in Afghanistan.

  • December 8th, 2009 at 5:40 pm, Bryan Barnett ()

    The mention of BPMN puts me in mind of something. In many areas of business there are process methodologies and standards widely used in the developed world that are too complex and too difficult to use in developing contexts. On the other hand, they offer an established pattern that, if simplified, could be immediately useful. In the same way that XML is a simplified (and highly versatile) subset of SGML, would it not be possible to identify some process mapping tools and methodologies that could be adapted for use by MFIs and field test them for usability? Tools and methods are needed, but they need to be adapted to the intended users.

  • December 8th, 2009 at 5:56 pm, Normand Arsenault, Consultant ()

    Bryan,
    I could not agree more with you that tools and methods adapted to the intended users are needed.

  • December 8th, 2009 at 6:27 pm, Jorge Perez-Luna ()

    Does anybody know of any tools and methods that are very simple so that MFIs could map their business processes? This should help them to see the “as is” and have the opportunity to create a new and better process?

  • December 8th, 2009 at 8:22 pm, lee Kironget ()

    ITU recently announced that several Mobile phone manufacturing companies are agreed on a standard Charger to cut costs and help recycling. Throughout the history of technology, when a sector comes to age, standardization is the natural “next step”. MFI`s have always argued that they want to be different from the competition that`s why most find off the shelf software “rigid”. My recent (and continuing) experience in Pakistan and Afghanistan indicates that the key is in convincing MFIs that the Speed to Market and KYC principles are basically the same across.

  • December 8th, 2009 at 9:23 pm, Paschal Konyeaso ()

    Jorge,

    One thing to bear in mind is MFIs will ultimately handle backoffice operations and setup interfaces to meet the requirements of branchless entities. This means business automation must be taken very seriously. Obviously not all BPMs are equal. A good BPM could be fine. I would agree that learning more from business cases would be helpful.

  • December 9th, 2009 at 2:37 am, Kimani E ()

    It seems that the need for process mapping for MFI’s applies across board. The process mapping tool is a great idea, however in Africa, cost is always an issue. Many MFI’s struggle to acquire and implement IT systems, how much more process mapping tools? Anyone from Africa can share their experience on affordable alternatives?

    Secondly, I could suggest that this group comes up with a business case for process mapping which can then be used to sensitize MFI’s on the benefits of process mapping.

  • December 9th, 2009 at 7:42 am, Cicely Brown, Fantsuam Foundation ()

    I would be very interested in “a simple and quick tool to carry out processes and information flow mapping of the actual and desired system” (Norman Arsenault). Is there something that Mifos/Grameen has developed?

    Specifying business processes is a critical first step to building an appropriate MIS. My organisation, Fantsuam Foundation in Kaduna State Nigeria, is embarking on a journey to keep records electronically, automate back-office processes and streamline operations where possible in order to make micro loans more affordable.

    We are looking to recruit a specialist volunteer to help us build the system but would like to undertake some of the ground work in preparation for their arrival, we hope early next year.

    If such a tool exists – we’d be really interested in using it.

  • December 9th, 2009 at 7:54 am, Peter Magnaye ()

    A business process document is a great communication tool. To external parties (vendors, donors, investors, etc.) it allows a view into the MFI. For internal parties (staff, management, etc.) it allows a common reference model that is used for strategy, planning, and operational purposes.

    For a technology solution, a business process document is a key prerequisite. A definition of a technology solution (software, hardware, etc.) is that it “automates a business process”. A technology solution will not be effective and efficient if it does not have the business process clearly articulated.

    From an implementation perspective, I think we should use a federated approach. We can define a key set of common processes that all financial institutions follow, extend this to be specific to the microfinance industry, extend to regional/country differences, etc.

    BPMN is a means to an end and we should be careful in positioning this as the end.

  • December 9th, 2009 at 12:38 pm, Jorge Perez-Luna ()

    I think there’s agreement in the conversation that business process mapping is essential, but that a lot of MFIs don’t currently do this -in general or as part of a systems implementation. What can we do to change that? I agree that finding the right tool is a means to an end. I would like to suggest that the main objective should be that MFIs need to map their business processes, understand their inefficiencies and needs, create the business case based on these needs and use this framework to design the systems of the future. These systems should be flexible (BPM enabled), very simple (just the right functionality), and very low cost. If we can then create a MAP of processes, then MFIs could perhaps use this MAP to improve how they do their work? Any suggestions in how we can do this? Any tools available? Any actionable steps?

  • December 9th, 2009 at 1:46 pm, Eamon Scullin ()

    We use a very simple BPM software package – see http://www.processmaster.com/ Easy to use and self documenting.

  • December 9th, 2009 at 3:58 pm, Jorge Perez-Luna ()

    Do we have any cases of MFIs using a BPM solution? My concern is that the BPM solutions would work as long as the MFI would first have the discipline to document the processes and then find ways to improve it using the BPM solution. How can we make sure that both work? Anybody has a success case ?

  • February 3rd, 2010 at 5:50 pm, Business Process Mapping - Topic Research, Trends and Surveys ()

    [...] which took place in Manila, Philippines on … market research, surveys and trends Does microfinance have established business processes? in January 2008 as the IT Business Partner for Global Development.  Jorge has more than 15 years [...]

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