Anyone following microfinance news will have seen the recent reports on portfolio crises emerging in several markets. A recent CGAP publication and blog post identified weak systems as a key vulnerability in the microfinance sector and leading cause of the crises. I recently spoke with consultant Normand Arsenault to learn more about the role of management information systems (MIS) in the Morocco crisis.

How did MIS play a role in the deteriorating portfolios of Moroccan microfinance institutions (MFIs)?

MFIs need highly efficient information systems to scale up in a sustainable manner. An MFI can expand rapidly if it maintains control over its portfolio with:

1. Well defined credit policies and procedures
2. Strong management of loan products
3. Firm and appropriate internal control procedures and internal audit
4. Solid delinquency management
5. And finally, a solid MIS supporting points 1, 2, 3, and 4 above

Many MFIs in Morocco grew quickly without adequate and appropriate information systems. This represents a huge risk as financial institutions are fundamentally information businesses.

Why did many MIS initiatives fail to live up to their full potential?
Project teams tend to focus on technical details at the expense of understanding how people will use the system to perform their jobs. How many times have we seen an IT expert being the MIS project “champion” while employees hardly know there is a MIS project in their institution? Business processes, people and information management are neglected and not addressed properly. In the end, the new technology is installed, the IT department cheers, but employees and managers continue to work manually struggling with paper and Excel based systems.

What can be done to ensure success of an MIS implementation in a microfinance organization?
Before even thinking about solutions, MFIs should first carry out a proper needs assessment, including:

• Review of organizational structure and workforce management
• Comprehensive analysis of work and information flows
• Definitions of key functional and technical requirements
• Evaluation of internal controls

Finally, a key issue is choosing appropriate technologies. Selecting a software solution suited to the institution is critical but equally important is the network structure. Some platforms and architectures aren’t appropriate for MFIs using a decentralized methodology and may not be suited to the telecommunications infrastructure. In Morocco, for example, MFIs experience routine telecommunications outages. Saturation of bandwidth during the day often slows or delays fieldwork resulting in frustrations for the employees, especially in cases where they have to work at night or during weekends to compensate for deficiencies in the system.

Do you have any comments on the strategy to restore the situation in the Moroccan microfinance sector?
Understanding the critical role that inadequate information systems played in the crisis would be a good first step to resolving the issues. Appropriate systems need to be put in place to maintain strict control over MFI portfolios.

How can donors help MFIs improve their MIS?
Donor agencies continue to play an important role in the development of the microfinance industry. In terms of MIS, there are a few opportunities for donor support:

1. Finance consultants to provide tools and support to help MFI management conduct a thorough needs assessment and develop a technology strategy which supports the business plan, and help select technology solutions which are best suited to their needs.
2. Finance local IT consultants to install and operate networking systems for microfinance institutions. Local consultants know the operating context and can best support MFIs with these technical solutions. There are plenty of knowledgeable and experienced IT experts in developing countries.

I’ve seen good examples in India, Bangladesh, Indonesia, and the Philippines. Donors could develop case studies to draw from these experiences to find successful ways of supporting microfinance institutions.

Normand Arsenault is an independent consultant with executive management experience in private financial institutions, with particular specialty in internal systems and management control. He works closely with organizations’ management and staff to evaluate, design and implement strong information systems. Prior to being an independent consultant, Mr. Arsenault had a career of 20 years with the Desjardins Group, a leading Canadian financial institution. He is a Member of the Canadian Institute of Chartered Accountants.

-Lauren Braniff