July 7th, 2010 at 8:54 am, David Stoker ()

Training and capacity building. Who?…I agree that it is ultimately the responsibility of the MFI in order to provide a high quality service to their clients but there are additional players who can create an environment that is conducive and sets incentives to focus effort and money on the issue. Two potential partners–

Many IT corporations, Google, Cisco, etc., are on the lookout for meaningful employee volunteer opportunities for employee retention, sabbaticals, furloughs, etc. At Ashoka we have found that employers are willing to pay for this service.

I think partnerships with universities, and I suspect the for-profit universities may be more nimble at this point, should be the training ground for developing the necessary talent and skills for the market. Scholarships/fellowships can be sponsored by foundations, gov’t, or the MFI’s themselves to drive the shift of resources.

July 7th, 2010 at 9:26 am, Christian Rodriguez ()

In terms of what it is the role of TA providers, they can basically provide MFIs with the framework for managing the implementation process. Also, they can play a key role in the selection process of a system. Finally, TA providers should also make sure that they are able and willing to transfer knowledge to the MFI IT staff so that the MFI is capable of managing the software once it goes live.

July 7th, 2010 at 9:47 am, AMIT JAIN ()

point 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?

See it depends on the level on which any vendor can perform. My idea regarding this is if any vendor starts developing the microfinance application. My opinion is take a survey worldwide on summarized points from different MFIs (Survey regarding the detailed modes-operandi). Then experts need to consolidate them and give the attention on most common points. definitely it will take time but the better will come out. In survey take the MFI who works from a long time.

July 7th, 2010 at 10:02 am, AMIT JAIN ()

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?

They have to work jointly as they are doing a project means in a community. Once any project is open VENDOR and MFI should assign their duties and the third person is also appointed for the testing.Secondly, regarding the failure and implementation I suggest the “CLOUDS COMPUTING” where the technical part will be the Vendor`s and the operation and testing part will be on MFIs end.
Every application has two parts one is Technical and second is theoretical. So a vendor can able to perform the theoretical part into a technical way likes a film making where the writer writes the story and the director tell the story on screen.

July 7th, 2010 at 10:19 am, AMIT JAIN ()

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?

In terms of responsibility I think both are responsible on their end. HOW ? From a vendor side he should be responsible “how to play with ?” and from MFI side “how to handle with”. Although MFIs responsible for educating themselves on the business skills in working with technology because they will be the end users. As I told earlier the cloud is the best way to perform.

July 7th, 2010 at 10:36 am, Ingrid Stokstad ()

Lauren, you raise an interesting question on buy-in. How can the donors/investors/stakeholders which often fund technology improvements or interventions at the MFI level better ensure the adequate (and necessary) project output?

Performance based project models could be a good option to explore. By linking project funding disbursement (to the vendor, TA consultant and/or MFI) to performance targets in order to reward positive performance and also incentivize improvement in any non-performing area of the project, the entity funding the work will have a stronger control over the final outcome…or at least helping to keep it from heading too far off track. For example in the CGAP IS Fund case mentioned above, project payouts (to the MFI to fund the IT solution, and to the consultant for the TA) could be linked to pre-determined project outcomes, such as a certain number of MFI staff passing competency tests on the new system. This type of model is in line with CGAP’s recent technical guide on Performance-Based Agreements.

July 7th, 2010 at 10:42 am, Maria Stephens ()

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?

#1. First of all, it’s important to break down MFIs into different “tiered” levels based on their current level of development before making any recommendations for discrete interventions. I will remove the 1-2% of MFIs comprising Tier 1 from my comments on the assumption that they have in place appropriate back office systems, and I will focus more on the bottom half of Tier 2 and upper half of Tier 3 as I think that their institutional and human resource levels will be somewhat comparable. Moreover, my thinking is that these MFIs will be sufficiently motivated to adopt sound back office systems since they are relatively closer to the goal of becoming licensed financial intermediaries.

I am also cutting out the lower half of Tier 3 and all of Tier 4 at this point since their needs in this regard will be more extensive and better kept for a separate discussion. Having said this, I believe that it is important to have that separate discussion on how we as a community can support the building of back office capacity within those MFIs comprising Tier 4 and lower Tier 3 since there will be significant costs associated with such support.

#2: MFIs which are working toward acquiring licensing necessary to mobilize savings will need to factor into their strategic and operational plans the investment resources necessary to incorporate appropriate back office systems and the human resources necessary to maintain these systems on a continuous basis. This is the responsibility of the MFI, and management is ultimately responsible to its Board (and in some cases,its shareholders) for ensuring that the appropriate resources are factored into the business planning process to maintain appropriate back office systems and associated human resource allocation.

#2. National MFI networks which have the capacity themselves to provide training to members (and even non-members) on a fee-for-service basis can act as an effective link between the MFI and vendor communities by bringing both groups together a) to educate MFIs on the importance of investing in appropriate back office systems and human resources; b) to provide basic guidelines on how best to identify an appropriate vendor with whom to partner to acquire in-house products and services, or with whom to outsource its back office function; and c) to provide vendors with information about representative MFI products, services, and clients that could help them develop products that best meet the needs of the largest group of potential MFI clients.

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?

#1. See above regarding possible role for national MFI networks.

#2. Ultimately it is the responsibility of the vendors, like any business, to undertake the necessary market research before getting into this “space.” Luckily for them, there is a plethora of tremendous (and free) resources available for their use, such as MIX data, SEEP Network tools and resources, CGAP’s abundant resources, USAID’s on-line resources, ACCION’s Center for Financial Inclusion resources, and newer “products” emerging from Gates, Mastercard Foundation, and Citi Foundation initiatives.

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?

#1. If a set of MFIs comprising a strong MFI national network could agree that there is a core set of common characteristics binding together their products, services, and client bases, then an MFI vendor could (I would imagine) develop a core MIS that would meet the bulk of these needs, and could offer this core package at a bulk (read: reduced) rate through an MFI network that is acting as an “honest broker” in the transaction. Those MFIs that are insistent on adding different and unique characteristics to their product line should be willing to pay additional fees for these features. In this way, the MFIs could obtain a basic operating system that meets the bulk of their needs at a reduced cost, and the vendor could provide such a service and stay in business.

#2. Effective back office systems are necessary not only for internal MFI management and operations, but are also necessary to collect, process, and report out the types of data and information required by national regulators, rating agencies, donors and investors, and others supporting the MFI industry at large. As such, we all have a vested interest in seeing that MFIs are able to adopt and maintain appropriate back end systems. One suggestion might be for foundations such as Gates, Citi, and Mastercard (or donors) to consider setting up innovation grant programs that would encourage innovative pilots related directly or indirectly to back office system development (and standardized reporting in general) and the development of sound case studies the would provide the broader MFI and development community with information on which systems work well, and why. Case studies could also focus on identifying the real and implicit costs that are associated with MFIs not adopting sound back office systems into their operations.

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?

#1. See above. Both MFIs and vendors are, at their core, business units. If they plan to stay in business, then they must factor into their operations the investment resources (human and financial) that are necessary to put into place the infrastructure that is needed to support their respective business plans. Investors have an interest in mitigating risks associated with their investments, and so they might want to factor into their investment agreements some elements of support (in-kind or financial) that would focus on building back office capacity in those MFIs they are supporting. Donors and foundations might consider supporting pilots that would promote the development of a broad-based XBRL system that would further standardize MFI reporting output. Finally, national regulators within many central banks require capacity building related to the development of MFI reporting systems.

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?

#1. See comments above.

6.How could TA Providers play a stronger role?

#1. Technical assistance providers could play a more effective role in providing support for back office development by viewing their support within a broader development context. For example, TA providers could get involved with broader MF industry initiatives that are related directly or indirectly to back office system capacity, such as the SEEP Microfinance Standards Reporting Initiative, as a way to show the importance of sound back office systems in the process of developing sound reports. Similarly, those TA providers who are currently working with MFIs (or other entitites) to encourage or promote the adoption of alternative delivery channels, such as mobile phone banking, should reinforce with MFIs the necessary role that back office systems plays in an MFI’s effort to adopt front end technologies.

July 7th, 2010 at 12:52 pm, George Conard ()

Hi everyone –

Thanks for the great comments and dialogue on this important topic. As one of the co-moderators, I’ll jump in a few times through the day.

As a starting point, I’d like to pose a follow-up question to the comments on who pays for what: is there a market failure in this space?

I think of a market failure as a situation where there is a need (in this case, strong back-end systems that drive social impact and effectiveness for MFIs) that the private sector will not meet. In the case of technology for microfinance, this might boil down to the following question: can private sector vendors net sufficient reward to justify the investment required (in software, support, and social impact tools) to meet the true needs of the sector?

Thoughts?

July 7th, 2010 at 1:39 pm, Maria Stephens ()

You are bringing up a really important point, George. Your question raises an embedded question, namely what is the possible role for donors or social investors in assuming some of the inherent risks involved in addressing this clear and understandable market failure? While I do not think that it would be appropriate for donors to fund the development of software licensing, perhaps a more appropriate role might be to set up challenge grants or other facilities through which research could be undertaken, and resulting information shared as a way to offset some of the financial (and other) risks associated with vendors entering this space. In other words, reducing the asymmetric information that could be at least in part responsible for this market failure could encourage vendors to enter into the MF sphere. Impartial information offered as a public good that relates to various back office system options, and the readiness of select MFIs to adopt these systems, would be valuable for both vendors and MFIs on both sides of the equation as this can help parties make informed decisions by reducing the level of asymmetric information shared between these groups.

July 7th, 2010 at 3:07 pm, Charlene Balick ()

I’d like to explore further the content of and delivery mechanisms of capacity building – especially at the operational leadership level in both MFIs and vendors. Some local markets might have actual courses available in the local marketplace, (i.e. training for project management, vendor management, business process mapping and re-engineering). In other markets can MFI leadership may turn to the vendor themselves for help. Or a TA Provider/consultant. The thing is – there are a variety of techniques to go about building capacity and an MFI and vendor will probably need to use a combination or resources.

If a strong, ongoing project manager has been selected to oversee the implementation and ongoing upkeep of a system, where does that person turn to for gaining the skills necessary to successfully manage the project- and enable others to do the process mapping (and changes) to ensure a system is being designed and implemented effectively?
• Christian brought up the fact that the knowledge transfer needs to occur throughout the life of the project – that the IT consultant can play a knowledge transfer role. That indeed can be an important and effective way to get at acquiring some of the skills.
• David Stoker brought up some other creative options – non-related companies such as Cisco or Google who have employees who want to do volunteer work. And local universities.

Where can a vendor turn to better learn about MFI operations and to more effectively work with MFIs to address their unique needs? Christian raised the point that sometimes vendors learn through jumping in and learning lessons learned in project failures and challenges – but that this can be very costly and can leave a bad taste in everyone’s mouth.

I welcome more suggestions to where both MFIs and vendors can avail of the capacity building.

July 7th, 2010 at 4:03 pm, Christian Rodriguez ()

Charlene, this is a really good comment. I consider that TA providers are still a viable approach for building the IT capacity of MFI staff. A good TA provider should act as the coordinator between the MFI and the technology vendor, helping the two parties understand the different challenges of implementation and managing a back-end system. Furthermore, TA providers could also potentially partner with technology vendors to help them refine and further develop their software solutions.

TA providers and organizations like CGAP could also act as a bridge between organizations such as Cisco or Google and MFIs/vendors. In the case of organizations like CGAP, they could organize workshops/seminars to help volunteers from Cisco/Google/Microsoft/etc (which might not be aware of the realities of working in microfinance) understand the basics about microfinance and the challenges on working with MFIs and microfinance IT vendors. Similarly, TA providers should help these potential volunteer resources by providing guidance during their field assignments.

Another interesting idea would be to engage large/mature MFIs (probably Tier 1) to share their experiences and expertise about building their internal IT capacity. Some large/mature MFIs already have been able to put in place strong back-end systems and have enough experience in working with IT vendors. It will be interesting for them to play a sort of “big brother” role in which other MFIs could learn some best practices.

July 7th, 2010 at 6:33 pm, Charu Adesnik ()

Economic empowerment, including human capital development and access to finance/financial services is one of Cisco’s key investment areas. Our approach is to leverage the full breadth and depth of Cisco resources – people, product, and cash – to support non-profit organizations. Interested non-profit MFIs can apply for product grants, or submit requests for Cisco employee volunteers to assist with IT strategy et al.

July 8th, 2010 at 8:10 pm, George Staicu ()

ONE IMPORTANT QUESTION: WHO SHOULD FACILITATE THE IMPLEMENTATION OF INFORMATION TECHNOLOGY INTO MICRO FINANCE INSTITUTIONS ?

This comment relates to the following excerpt from Lauren Braniff’s introductory text of this 1st videoconference concerning the “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”

During my consulting assignments I was often asked the following question: who should facilitate the implementation of information technology (including MIS) into the Micro Finance Institutions ?
Through this comment I would like to share my answer/thoughts related to this important area that has direct implications to the normal operation of a MFI as well as to the achievement of its poverty alleviation social mission, financial/operational sustainability, and financial and risk management strategic objectives.

My opinion is that the founders/owners, as well as the donors/investors, the Board and the executive management (CEO, CFO, COO) of a Micro Finance Institution MUST BE THE FIRST FACILITATORS/SPONSORS of the Information Technology infrastructure (hardware, software, communication, etc.) investment process.
It is only through the existence / implementation of a reliable, accurate and performant Information Technology infrastructure the founders / owners/ donors/ investors / Board members / executive management can be sure that the accounting (financial statements), loan tracking, budget execution, financial and risk management information / reports are correct and reflect the actual performance of a MFI (self-sustainable or not).

Therefore all these DECISION MAKERS should set the Information Technology as an important STRATEGIC OBJECTIVE of the respective MFI’s business strategy. Of course, this strategic objective MUST be related both to the respective MFI’ s development stage as well as to the other strategic objectives (loan portfolio growth, loan portfolio quality-PAR, etc/). It’s one thing if the respective MFI it’s at its early stage (one office and a few employees) where it can use 2-3 PCs with the accounting, micro-loan portfolio (and micro-insurance portfolio) that could be managed with the Microsoft Excel application, and it’s a different “ball game” if we are talking about a MFI with 2-4 years of activity, several offices and employees where the obvious need is for a vendor application providing an advanced solution for accounting, loan tracking, asset depreciation, payroll, management reporting for internal and external (owners /donors / investors / central bank supervision) purposes.

Then, the respective decision makers should identify the possible SOURCES OF FUNDING THE RESPECTIVE IT INVESTMENT. These could be represented by additional founders/owners capital, the MFI’s net profit, the equity provided by investors, the funds that can be obtained from international organizations focusing on microfinance development. Without such funding there can not be any facilitation of an IT development.

I should also stress that the respective DECISION MAKERS MUST ALSO HAVE THE NECESSARY IT KNOWLEDGE in order to be able to prepare the Terms of Reference (Request for Proposal) for the procurement of a software vendor solution. In other words the respective decision makers MUST know WHAT TO ASK (technical and functional requirements / specifications) to the software vendor so that the respective IT solution fully matches both the MFI’s current needs and future business development needs. If the respective decision makers do not have the necessary IT knowledge /expertise then they can hire the services of a microfinance consultant that can, indeed, FACILITATE the introduction of Information Technology through the undertaking of an IT business needs analysis/assessment and of the resulting Terms of Reference (Request for Proposal). The respective consultant could also be hired for the whole timeframe related to the IT solution selection and implementation (that can act as a member of the IT tender selection committee, member of the IT implementation monitoring team, member of the team in charge with the final reception of the IT solution).

One important issue is the possible necessary customization of the selected IT solution. Here there are two approaches:

THE FIRST IT CUSTOMIZATION APPROACH

a) the vendors approach that intends to do as little customization as possible to its IT solution, insisting that the MFIs written policies and procedures (finance-accounting policy; loan portfolio management policy; risk management policy, etc.) to be customized/adjusted to the specifications of its own solution. A such approach could be acceptable if the vendor’s IT solution has a long track record and has been proved adequate and successful in the international microfinance market (i.e. their IT solution has been implemented in many MFIs around the world). Otherwise if the vendor and its IT solution has little or no track record in the microfinance market there is a major danger that changes to the MFI’s internal policies (that proved to be effective and successful before the implementation of the IT solution) may represent an important risk and distress to the respective MFI negatively affecting the normal and smooth development of its activities/operations.

THE SECOND CUSTOMIZATION APPROACH

b) the MFI approach that requires for the vendor’s IT solution to be customized according to its own policies and procedures as well as to the local country accounting, fiscal, and supervision reporting laws and regulations. This approach is especially recommended for those MFIs whose internal policies and procedures ensured both a normal running of their activities/operations (especially a good quality of the micro-loan portfolio – reduced PAR) , the compliance with the local country laws, regulations and standards as well as with the international best practices and standards (IAS/IFRS, audit standards, etc.). As such the vendor MUST fully customize its solution both according to the MFI’s current and future strategic needs as well as to the MFI’s internal policies and procedures.

As a conclusion I would only add that the introduction / implementation of an IT project (selection of an IT consultant and of the IT solution: hardware – servers, PCs, micro-banking software, communication network, etc.) MUST be VERY CAREFULLY PLANNED, ORGANIZED AND MONITORED in order to ensure the full achievement of all the clauses (i.e. the MFI’s IT current and strategic needs) of the contract concluded between the MFI and the software vendor. My own experience in the banking and MFI industries as well as other consultant’s experience shows that many banks and even more MFIs have end up “facilitating” the introduction of worthless Information Technology, with negative impact on a financial institution institutional development.

Finally I have to stress/repeat again the fact that ONLY THROUGH THE EXISTENCE / IMPLEMENTATION OF A RELIABLE, ACCURATE AND PERFORMANT INFORMATION TECHNOLOGY INFRASTRUCTURE, THE FOUNDERS / OWNERS/ DONORS/ INVESTORS COULD GAIN THE ASSURANCE THAT THE ACCOUNTING (FINANCIAL STATEMENTS), LOAN TRACKING, BUDGET EXECUTION, FINANCIAL AND RISK MANAGEMENT, ASSET & LIABILITY MANAGEMENT INFORMATION and REPORTS ARE CORRECT, REFLECTING ACCURATELY BOTH THE OBJECTIVE / REAL SITUATION / PERFORMANCE OF A MFI (SELF-SUSTAINABLE OR NOT) AS WELL AS THE FULFILLMENT OF THE MFI’s VISION, MISSION AND STRATEGIC OBJECTIVES FOR WHICH THE RESPECTIVE FINANCIAL INSTITUTION WAS ESTABLISHED BY ITS FOUNDERS / OWNERS.

George Staicu
Senior banking & microfinance consultant
Bucharest – Romania