Virtual Conference Day 2: Getting past the same old conversation

by Lauren Braniff : Thursday, July 8, 2010

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?

TAGS: Events, MIS

Comments: Comments and trackbacks are open.

17 Comments RSS 2.0

  1. July 8th, 2010 at 9:03 am, David Stoker ()

    Are there group purchasing organizations for MFI’s? If not, that is one solution to attracting more vendors and also a point at which you could set standards on the MFI’s to gain access to the group.

    What software has the greatest market share currently?

    What MFI’s are using software and IT solutions most effectively, SKS?

    Donors and Investors can really drive MFI’s to adopt such technologies.

  • July 8th, 2010 at 9:22 am, Lauren Braniff ()

    Thanks for getting the conversation going today, David. Group purchasing is an interesting concept. In cloud computing or SaaS options, the theory goes that shared infrastructure should help bring costs down. Perhaps the same could be true about shared or jointly negotiated licensing fees. The trick would be finding a group of MFIs similar enough such that adherence to a set of standards is relatively easy.

    Any experiences with this?

  • July 8th, 2010 at 9:44 am, Robert ()

    MFIs will not adopt common standards. Every MFI is unique and should find a solution which works best for them.

  • July 8th, 2010 at 9:52 am, Christian Rodriguez ()

    A few ideas to get past this stalemate:
    1. In terms of business models, it is important to understand that MFIs needs a variety of different models to address its IT needs:
    a. SaaS is a viable solution (but not the only one) as it targets the specific need of lowering the operational costs of running back-end systems internally. However, for SaaS to work there is a need to bring down different barriers, including regulatory aspects in some countries, country communications infrastructure (which is less of a problem now), location of SaaS provider, etc. Also, for Sass to work MFIs will need to start shifting their mind from the idea of having tailored made back-end systems to using a standardized solution that might not mimic their current process, but that can help them save costs in providing financial services.
    b. Another alternative is to promote the use of ready-for-use/off-the-shelf systems that provides about 80%+ of what a MFI needs to conduct business. These ready-for-use systems could be sold for a license fee without restrictions on the number of accounts/branches/etc, and the MFI will pay an annual fee for maintenance and support. Again, this will require MFIs to be willing to use standardized solutions that are easier for vendors to maintain and refine. This could also be available solution for those MFIs that are not able to use SaaS because of regulatory reasons.

    2. Investors and MFI networks can contribute to pass this current deadlock by:
    a. Promoting a consolidation of back-end systems providers. The question here is: does the microfinance industry need to have more than 100+ microfinance back-end systems providers? Can investors or MFI networks work together to bring a consolidation on the market so that standardization can be done more effectively? The role of investors to promote standardization and to bring down the number of providers and systems is key. Many microfinance back-end providers are variable double-bottom line investments. Similarly, MFI networks can guide their affiliate institutions in selecting vendors that provide standardized solutions.
    b. MFI investors should allocate a portion of their investment in building up the core microfinance systems of their investees. They should also promote that the business planning of their investees include technology aspects to ensure that these institutions have a technology strategy that incorporates the need for having flexible and strong back-end systems as the base for developing/adding any additional new technologies.

    Finally, organizations like CGAP might want to start thinking of a certification process for microfinance system. This will go beyond the current IS reviews, and it should be in collaboration with existing software certification entities.

  • July 8th, 2010 at 10:32 am, Fehmeen | Microfinance Hub ()

    I think semi-standardization is the way out of this deadlock. It took a couple of decades to get MIS software integrated with the traditional banking system, and there are certainly no shortcuts in microfinance (MF).

    Here’s what the industry, as a whole, can do to get started:

    - study major MF models and compare their product structure, client protection principles, risk management mechanisms, social performance monitoring etc. and develop a set of best practices/standards based on these.
    - develop MIS systems based on these standards (therefore reducing costs and increasing performance and support capability).

    Over time, a few major technology vendors will emerge because of perfected skills and MFIs who do not follow the above-mentioned “major/typical models of MF” can slightly customize the standardized solution.

    It may be worth mentioning that all (or most) of the problems that MFIs face today have been partially attributed to the lack of information systems by CGAP. Furthermore, the heated growth of the microfinance sector can only be made sustainable if appropriate capacity-building measures take place, which can be greatly facilitated by MIS solutions. If these solutions are offered in the form of cloud technology/SaaS, then these vendors can gain unique insights which can be leveraged to further perfect technology solutions for a variety of MFIs.

  • July 8th, 2010 at 10:48 am, jiten patel ()

    Christian has enumerated some very good points.

    With Internet connectivity improving globally, especially in a number of countries across Africa, SaaS makes a compelling case for MFIs to consider, particularly if priced right. And yes, SaaS is only but one option.

    Other option being “managed” services where the MFI has purchased the software licenses but wants to outsource (i.e. have someone else manage and administer the software and attendant infrastructure – a technology services provider), with already purchased hardware infrastructure or without having purchased the hardware infrastructure. The former would mean that the technology services provider would remotely manage the software & hardware located at the MFI location, whereas the latter offers the technology services provider flexibility to host this infrastructure itself or to remotely manage it from the MFI’s location.

    MFIs big and small ought to give SaaS and Managed services due considerations when they are in the market for a robust & scalable banking (MIS) software.

    With respect to the regulators, most if not all are well aware of “outsourcing” and the potential benefits it offers. Hence interested MFIs can gain comfort from this; however it does not mean that the regulators will not have questions, they will but MFIs will have the answers to appease the regulator’s concerns, if any.

    From a SaaS vendor perspective (and all should note that MicroPlanet Technologies, focused on the microffinance sector, is a SaaS & Managed services vendor offering affordable access to robust & scalable core banking software to both unregulated and regulated MFIs) it is all about achieving scale, i.e. having more MFIs subscribe to these services.

    And note that the SaaS vendor, in order to ensure sustainability for itself also has to have completed proper due diligence of the core banking software vendors in order to partner with the right vendor in terms of not just functionality, but also in terms of interest in the microfinance sector, support (timeliness, availability & experience of its staff), and quality of its software development practices.

    This is critical to note and of significant value to the MFIs, in that the SaaS vendor has done the heavy lifting in the selection of the core banking (MIS) software, and the MFIs do not have to endure this pain.

    Now having said that MFIs must document their requirements in order to ensure that they can partner with the right software irrespective of the approach they take in terms of licensing, SaaS, Managed services, etc.

    Donors and investors can play a critical role given their experience of working with a variety of MFIs on what the common challenges are, common needs are, and as vested advisors to the MFI in guiding them towards the right software and technology service vendors. Remember at the end of the day the donors and investors hold the “purse”.

    As for having common practices and standards, we have long ways to go but again donors and investors given their perch, of working with a variety of MFIs across multiple geographies, are well-positioned to guide, coax and cajole MFIs in this regard, and similarly the software and technology service providers.

  • July 8th, 2010 at 12:05 pm, Xavier Faz ()

    Thank you all for your comments. There are some interesting ideas on the table for discussion:

    - MFIs should become more standardized, either by adapting processes to those facilitated by software solutions or through coordination within the industry and asking software vendors to comply with issued standards. Who could lead either of these processes?

    - Donors and investors hold the purse strings and could help influence technology decisions by MFIs. How do the funders feel about taking on additional responsibility for technology?

    - Hosted solutions (SaaS or managed services as described by Jiten) look promising but come with some challenges in terms of infrastructure and potentially regulation in some cases. There’s certainly a lot of interest in SaaS these days, but do we have any successful examples of MFIs using SaaS?

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  • July 8th, 2010 at 12:25 pm, Maria Stephens ()

    Xavier, USAID has a mandate to promote both MFI institutional and human resource capacity building, and so the topic of making back office systems more robust as a means to this end does, in my view, fit within this mandate. On a separate note, I would like to challenge somewhat the notion that MFIs are all so unique from one another that they cannot come up with a core set of similar features that can be used as a basis for developing some type of standardized systems. It is simply not cost effective for vendors to tailor their products at such a granular level. Finally, I support the idea of donors (and others) funding the research and development of sound case studies that have the potential to yield useful information about a variety of possible solutions, including cloud, SaaS, Mifos (and other open source). I would point to the case study approach utilized by ACCION and Calmeadow to illuminate some of the salient issues now under discussion on the topic of aligning stakeholder interests throughout the MFI transformation process. Getting out to the field and gathering information, developing useful and relevant cases studies, and utilizing this analysis as a basis for setting up specific interventions seems to be to be a useful starting point, and one which donors (and others) could be interested in supporting.

  • July 8th, 2010 at 12:43 pm, jiten patel ()

    Xavier …

    With regards to your first point, on who could lead … one needs to pick a narrow band of MFIs to begin with, e.g. tier 3 MFIs (i.e. those with approx 18,000 to 25,000 accounts and not yet sustainable) and split them into geographic groupings, and to include interested software and technology service vendors, and to then have donors and investors fund such an undertaking thru CGAP to do the following:
    1. Perform operational Processing mapping exercise – Map the MFI’s operational processes at a sufficient level of detail (without such an undertaking asking MFIs to list their requirements and to expect them to agree would be an exercise in futility), and to document these processes;
    2. To then ask MFIs to list any additional requirements

    3. To cross-reference findings from each region, and to document similarities as well as differences

    This would significantly further progress for the sector, and having such a document would also greatly aid software vendors and like in offering the right set of capabilities. Why? Because they would have a firmer basis, knowing that these common set of requirements touch a good portion of the microfinance market, giving them an added incentive if they needed it.

    As for challenges with a SaaS offering, i.e. regulatory or infrastructure … my response would be that the regulatory challenges are present regardless of the approach, and a SaaS vendor, like any software vendor, must do its homework before entering the marketplace to ensure its long term sustainability.

    With respect to infrastructure challenges, again there are solutions to making it work, with the use of a local server, WAN optimization devices, etc … Again this challenge exists in some instances regardless of the path an MFI takes, i.e. licensing or SaaS or Managed services. The key point here is that the MFI must work with an experienced team / technology service vendor to proactively plan and manage for such situations.

    Given the vagaries of where MFIs operate, demands certain core capabilities from the software and technology service providers, e.g. a robust offline capability.

    As for successful examples of MFIs using SaaS, I only know of FINO in India who works with a number of MFIs and others offering such a model. The key here is not SaaS but the flexibility and robustness of the core banking software / architecture, which is what makes drives the viability of SaaS.

  • July 8th, 2010 at 1:21 pm, jiten patel ()

    Almost forgot to mention that Opportunity International has successfully employed a “managed” services model for some of its MFIs, and have done so for approx 10 years.

  • July 8th, 2010 at 1:41 pm, Lauren Braniff ()

    I like Maria’s idea of conducting case studies to showcase the various models that are open to MFIs. So many MFIs opt for a software solution because the vendor is well known in the country and used by many other MFIs. It would be great to see MFIs exploring the range of delivery models and vendors available to them.

  • July 8th, 2010 at 3:07 pm, Fehmeen | Microfinance Hub ()

    I’d like to clarify a typo in my comment – “It may be worth mentioning that all (or most) of the problems that MFIs face today have been partially attributed to the lack of information systems as recently reported by CGAP”. Here is the article I refer to, for interested partied to read: http://technology.cgap.org/2010/03/24/to-avoid-crises-microfinance-needs-good-information-systems/

    Xavier asks some pointed question and here are my humble views:
    – the basic framework of the ideal information system should come from the experiences and knowledge gained by the microfinance sector, and technology vendors must then fit into the glove provided by MFIs, and offer minor alternatives where necessary.

    – benefits of information systems begin to materialize several years after implementation, hence, investors looking for quick returns may be reluctant to provide additional capital to build internal controls and other systems for MFIs. Perhaps donors (who typically make long term commitments) should be targeted for funds instead.

    – There may not be substantial evidence in favor of SaaS solutions, but it seems like a viable option, considering the relatively lower cost of implementation (suitable for small scale MFIs), and it offers great flexibility as well. On paper, it looks good, and only time will tell if it lives up to its promise.

  • July 8th, 2010 at 3:15 pm, Christian Rodriguez ()

    In terms of the role of investors to influence the technology decisions of MFIs, there are a few investment funds that have as a primarily role to invest in technology companies that provide “standardized” services (infrastructure, software, etc) to MFIs. As investors in technology companies, these funds can significantly advocate for the standardization of microfinance back-end solutions because they returns depends on the ability of these companies to capture market share (i.e. a technology provider would be able to increase its market share if it is able to offer flexible standardized products that serve different MFI types); and hence these investors already have a responsibility for resolving the back-end issue in microfinance.

    Regarding the different approaches to reach an initial consensus about what are the technology standards that the microfinance industry should look in a back-end solution, I agree with Jiten’s three step process. I would probably add an additional step for understanding the cost benefit of using a customized solution vs. a standardized one. That is what is the additional cost/benefit that a MFI gains from customizing a software vs. adapting its existing processes to the technology application. The reason for adding this step is that MFIs might be more willing to use a standardized solution is they are presented with the financial benefits associated with it.

    Maria’s suggestion about a case study approach to bring some light to this issue is interesting. I would take it a step forward by ensuring that the findings of the cases studies provide operational approaches that can prove beneficial to both vendors and MFIs. Using Jiten’s suggesting for process mapping, one of the deliverables (besides a set of standardized business requirements and processes) could be a case study that presents a roadmap for vendors to develop a functional rich and highly configurable back-end system.

  • July 8th, 2010 at 3:40 pm, Charlene Balick ()

    Is it really true that alternative models such as cloud will indeed change the conversation and will help to reduce costs? Would usage of alternative software solutions such as cloud create a sort of “forced” standardizing for the MFIs? Or will the same customization that is now demanded with traditional software services be equally demanded of cloud and open source?

    Are MFIs able to understand internally (and communicate to a board of directors) the benefit of moving towards operating with more standardized processes?

    I think that in order for an MFI to be incentivized to accept the greater standardization (and cost benefits) that come with a cloud solution, they must have the skills and the data to create a valid return on investment analysis to be able to properly analyze this assumption and to weigh the pros and cons of moving to standardized processes. Operating with a standardized model is often seen as compromising their competitive edge in the market and could be seen as a possible threat to growth. Being able to accept standardization means also being able to understand the impact on the business model, the projected growth and, more importantly, what this means in costs and revenues projections. I think the MFIs should work closely with investors and donors on these questions and projections/ROI exercises.

  • July 8th, 2010 at 11:13 pm, Tikajit ()

    Cloud is pretty far-fetched. Some of MFIs may not understand SaaS, let alone Cloud. I agree Cloud will further reduce the cost because of the infrastructure sharing; then again, as already pointed out, each MFI is unique.

    What I personally think is that there is clear gap between the MFIs and service providers: 1) MFIs may not fully understand technology and its implications; 2)service providers are not so keen on developing software applications for MFIs–it is either stripped-down version of commercial banking software or upgrades of homegrown ones. If you ask me to put these two in order, bridging gap should happen from the service providers. In other words, it is service providers that need to come up with software solutions that is developed particularly for MFIs; understand specific needs of the clients; and work organically from start to after-sales service period. We argue, however, such service providers do not exist. This is where CGAP, GF and other relevant org.s come in to play: they should pitch in to start off a spin-off (of bigger service provider) or develop a program that would eventually produce service providers that work exclusively with the MFIs.

  • July 13th, 2010 at 11:33 am, shalini ()

    look at the iphone and how it has made tech accessible and intuitive Vendors can provide such systems for this burgeoning market.

    Also I would love to prepare case studies of successfl ones. If any of you have any please forward them to me.
    thanks

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