Whether you’re in a small MFI with just a few dozen clients, or a big organization, your responses will help build a picture and create greater awareness of what’s going on around information technology for the industry. To be eligible for the raffle to win up to $15,000 in free consulting services, please take part before our deadline of September 15, 2008. The survey is available both online and offline in English, French, and Spanish, and offline in Arabic. Thanks for your help.

We are looking into the different pieces of the value chain for delivering information and core banking systems through an application service provider (ASP) OR software as a service (SaaS) model. These functions may be performed by a microfinance institution (MFI), a national or regional microfinance association (MFI-A), a local IT service provider (ITSP), the ASP or SaaS vendor (Vendor), or another, new party.

ASP or SaaS models would seem particularly likely to fall short of customer expectations when it comes to support functions. One reason that MFIs are so dissatisfied with existing microfinance software vendors is that they provide poor quality support after the sale – and in particular that most of these vendors do not have local support providers in the countries in which their MFI customers operate. For example, a vendor from Ecuador may have customers in Peru but no on-the-ground support staff in that country.

When we talk of ASP or SaaS models, there is even less personal interaction between supplier and MFI consumer. Software and servicing post-implementation is touted as being completely remote. To ensure that ASP and SaaS vendors aren’t painted with the same brush as traditional MFI software suppliers, these vendors must pay particular attention to the customer experience post-sale. Support functions, as well as other critical “soft” pieces of the value-chain are asterisked for emphasis. These pieces seem relatively more likely to influence whether an MFI will sign up for the service and how satisfied with the service it will be post sign-up.

In most cases the functions above can be matched easily with one or another actor’s competencies or potential capabilities. But for several functions, none of the actors on the scene seem best positioned to assume responsibility. In general, these functions require a combination of technical and microfinance abilities that typically neither a vendor nor microfinance association possesses. Most functions in this category relate to offering the service to the MFI community – they include the design of packages, the “onboarding” of an MFI onto the service platform, and perhaps most importantly, the handling of responses to MFIs who request bug fixes or adaptations to the service.

The Forum will bring together financial service providers and technical solutions providers for technical workshops on using new technology to increase access to financial services. In addition to the forum, the event offers an opportunity for vendors to participate in a commercial tradeshow of products and services. This year’s themes include MIS, the link between social protection and technology, and mobile banking.

The Technology Forum is free of charge and open to all those who are interested in attending. We strongly recommend that you pre-register by sending in the registration form available on http://www.capaf.org/pages/forumtechnologie_2008/Inscription.html and following the instructions.

You can also send an email to capaf@orange.sn to request the form.

Please note that the working language of the Forum is French but simultaneous interpretation in English and French will be available for the technical workshops.

Forum de Technologie 2008 : Améliorer l’accès aux services financiers

Le CGAP et son programme régional CAPAF ont le plaisir d’annoncer que le troisième Forum de Technologie se tiendra à Yaoundé, au Cameroun, le 1 et 2 juillet 2008.

Le Forum rassemblera des fournisseurs de services financiers et des prestataires de solutions techniques pour des ateliers techniques sur l’utilisation des nouvelles technologies pour améliorer l’accès aux services financiers. Au delà des ateliers, le Forum donne la possibilité aux prestataires de services financiers et de technologie d’exposer leurs services et produits dans le cadre d’une foire commerciale. Les thèmes du Forum 2008 comprennent les SIG, le lien entre la protection sociale et la technologie, et le M-banking.

Le Forum de Technologie est ouvert à tous et gratuit. Il est fortement recommandé, cependant, de s’y inscrire au préalable. Le formulaire d’inscription, le programme provisoire et autres informations sont disponibles sur la page http://www.capaf.org/pages/forumtechnologie_2008/Inscription.html.

Vous pouvez également envoyer un courriel à capaf@orange.sn et nous demander le formulaire.

How about completely outsourcing information systems (IS) to an external technology provider, so that the MFI can focus on its main business: handling client relationships and providing financial services?  

Here now, an exciting development. IBM has developed a “microfinance processing hub,” i.e., a shared infrastructure and software platform that provides groups of MFIs with a centralized core banking system, data center, operations management, and transaction processing. “When we started to work on the Microfinance initiative of IBM, we found that gaining access to appropriate back-office technology was the single most important obstacle for the growth of small institutions and the microfinance industry in general,” says Alberto Jimenez, Global Business Advisor for the Financial Services Sector of IBM.

In Africa, IBM has partnered with CARE to develop an “African Financial Grid.” The Grid is a “shared services and infrastructure model designed to help MFIs reduce operating costs, streamline lending processes, scale rapidly, and integrate with other resources such as credit bureaus, financial institutions and international payment networks.” Initially the plan is to cover 11 countries and is open to all kinds of financial institutions.

IBM acquired some valuable knowledge on what it takes to establish and operate a processing hub for microfinance institutions, which some also refer to as a core banking application service provider (ASP) solution. One of the main challenges to do this is not even a technical one, but lies in the concern of MFIs to outsource client information to a third party.  However, according to Alexander Bloch, who leads IBM’s Global Microfinance Initiative, “these concerns can be effectively addressed through a rigorous governance  associated with the management of client information, which IBM implements for MFIs”. Connected institutions will have to slightly standardize their business processes and product features. Since MFIs access their new outsourced IS over the Internet, some rural institutions may run into connectivity problems, which is one of the problems IBM is also working on.

But these challenges seem worthwhile when looking at the long list of benefits:

• MFIs act in a group permitting them to negotiate prices with different service providers; 
• Investment fixed costs are turned into variable costs (e.g., cost per client per year, or by transaction);
• To open a branch, one only needs an internet connection, no installation of hardware or software is needed;
• New products can be added without difficult adjustments to the system;
• Portfolio, accounting, and client information is readily available for internal and external purposes; improving the overall transparency of the industry.
• Local banks feel more comfortable funding MFIs since reporting is transparent and readily available;
• Connecting with additional distribution channels like ATM networks, retail agent chains, etc. is a “plug and play” issue.

Download a presentation.

Mobile payments: the burning issue
Conceptually the mobile phone and the act of payment seem a natural match - their combination a good idea. But, as is the case with many of the good ideas this industry has had, material success on a grand scale remains elusive. The problems are familiar: the usecase is difficult to define, there are various technological solutions, which generally lead the demand, and the industry is reaching beyond the bounds of its natural habitat.

Back-Office Support for Busy Microfinanciers
THE microfinance industry — bankers to the poor — faces a paradox of scale, growing large in some ways but remaining small in others. There are more than 3,100 microfinance institutions worldwide, serving 113 million poor people. But even thriving microfinanciers are tiny by banking business standards. They typically make loans of $100 or so to entrepreneurs living on a dollar or two a day.
Using mobile phones as cash is put to the test in Europe
Don’t look now, but the French are in the technology vanguard again. A dozen major
companies have opened the largest trial outside of Asia for the use of cellphones as mobile money - giving consumers the ability to pay for everything from croissants and toothpaste to subway fare and wine with a wave of a handset. And they have global aspirations, hoping to prove that their systems, using the short-range radio technology called “near-field communications,” or NFC, can work securely on a mass scale.

AT&T’s Mobile Banking: A Stepping Stone to a True ‘Digital Wallet?’
Will credit cards, or even cash, ultimately become a thing of the past now that AT&T has dropped the gauntlet by embedding a mobile banking application into its most popular handsets? By partnering with Wachovia Corp., SunTrust Banks Inc., and Firethorn Holdings LLC, AT&T hopes as many as 30 million customers will ultimately use its new mobile application to view account balances and history, transfer funds, and pay bills from AT&T mobile phones. AT&T will pre-load the Firestorm software on approximately 30 of its most popular handsets.

Rural India New Target for Mobile Industry Players
Report Buyer, has added a new report showing that India’s telecommunication sector is  witnessing an explosive growth, as falling tariffs and rising incomes are bringing mobile phones within the reach of millions of new customers. “Emerging Rural Mobile Market in India” shows that mobile industry players are eyeing rural India as their new area of opportunity. The companies are encouraged by the fact that mobile users are expected to cross 230 million by 2007 end and 500 million by 2010.

Japan’s NTT DoCoMo may spend up to $8 bln on overseas investment
DCM is willing to spend between $5 billion and $8 billion to acquire minority stakes in telecommunications operators in emerging markets, a company executive said Tuesday.
“In the Asia-Pacific region, we are having many discussions with many operators,” Toshinari Kunieda, senior vice president and managing editor, told Dow Jones Newswires in an interview on the sidelines of the GSMA Mobile Asia Congress.

India: ‘Smartcard’ facility for 3 million rural poor ¼br> The successful disbursement of payments under the AP Rural Employment Guarantee Scheme (APREGS) and Social Security Pension Scheme (SSP) on pilot basis in Warangal and Karimnagar districts using the ‘Smartcard’ technology has prompted the Government to extend its reach to eight more districts in the coming few months.

Africa calling
IN THE barren surroundings of Kwa Phake in the north-east of South Africa, students from the town once left the families they supported to travel miles to the University of South Africa. Now they study at home, even receiving exam results on their mobile phones. Meanwhile, fishermen in Tanzania use mobiles to get weather reports and a service in the Kenyan capital of Nairobi alerts job seekers about vacancies by SMS.

…MFIs (microfinance institutions) are inhibited from extending their reach because they lack a flexible, cost-effective technology infrastructure that enables them to expand their operations to provide loans to more people and to develop new products and services. Many MFIs are still using pen and paper or simple spreadsheets to process loans. A 2004 study by the Consultative Group to Assist the Poor (CGAP) showed that just half of all MFIs around the world have automated information systems, and those that do invest in technology spend duplicative resources on custom-built systems that are extremely costly and difficult to maintain.

No doubt. We hear this all the time from MFIs - its hard, if not impossible to roll out electronic channels on the front end without improving the back end first. 

Want to know more? We’ve got lots of research…..

Looking at the agenda, the three day conference brings together an amazing group of around 1,500 of the region’s microfinance providers, its networks, governments, donors, and even the royals with the participation of H. M. Queen Sofia of Spain.

CGAP is organizing a panel on technology’s potential to increase outreach and depth of access to finance. Our project partners Visa Credibanco and GXI, as well as Opportunity International will share their lessons learned and challenges to implement technology projects.

Watch this space for more.

That was fun. What did we learn? 

We reaffirmed that small, including micro, enterprises have proven themselves to be reliable and sustainable ways to help people out of poverty and that, in that context, we have abundant proof that microfinance is a workable idea.

MFIs, although having reached increasingly impressive numbers of people, must nonetheless recognize that more than two-thirds of the inhabitants of developing countries remain to be touched by the MFI mission of bringing the advantages of banking to the unbanked and under-banked.

Both the time and the opportunity have arrived for MFIs to rethink their original ethic of experimentation, labor intensiveness and small scale and to extend access to finance to as many as possible of the 2.5 billion who lack access to finance.

This volume of clients can only be reached through significant reductions in the cost of MFI’s operation and a quantum leap in the scale at which the industry functions.

The response to this imperative for reduced cost and increased scale must include the optimum use of technologies that are available or that can feasibly be put in place, as well of credit bureaus and credit scoring.

We started our discussions with the promise that we would engage in a round of critical and in-depth analysis of what has worked in these areas and what needs to be done differently and more efficiently and effectively. Fortunately, we did not inaugurate this meeting with the idea or the promise that after three days of discussion we would be able to take a vote and announce to the world the answers to the questions posed by the pursuit of greater access to finance. Indeed, if anything, our attempts to find answers to questions often yielded a harvest of new questions.

Productive inquiry begins with the asking of the right questions, so, if all this meeting produced was a greater clarity of the issues that we need to address, our assembling here in Washington would have been of tremendous value. But we believe that we also achieved at least four other advantages. These are:

• A greater understanding of each other’s concerns, which, as we have seen at the level of individual partnership arrangements, is critical to any progress in the access to finance area.
• A greater awareness of each other’s successes, which we believe, are a necessary encouragement as we continue with the enormous task that access to finance represents.
• An understanding that the idea that every problem represents an opportunity is, in the context of access to finance, more than a jargon, and is in fact the only mindset that we can afford to take to the challenges and opportunities that beckon us.
• A belief that prevailing opportunities for reaching the next 2 or 3 billion of the world’s financially excluded inhabitants represent nothing less than a tipping point that we cannot afford either to ignore or to mismanage.

When the Meeting Began

So when we opened our meeting on Monday, what were the questions we set out to answer? Perhaps there were four main ones:

• How can we take advantage of the growth in MFI investments, lending volumes and outreach and the availability of a range of financial technologies to increase scale and reduce costs in microfinance operations with a view to increasing access to finance for those who still lack such access?
• How can the establishment and functioning of credit bureaus and the use of credit scoring enhance decision-making, portfolio management and other MFI functions?
• Is the suggested approach destined to leave the poor exactly where they are, or does it really have the potential to transform the financial sector in both developed and developing countries and generate what one speaker called a seismic shift in the circumstances of people in the developing world?
• And to look at that question another way, what are the likely consequences—for the financially disenfranchised, for the MFI as we know it today and for the new actors responding to the opportunities and challenges of access to finance—represented by the new disaggregated business model and the attempt to employ second-generation solution to first-generation problems.

After some 50 people have spoken on stage and many hundreds more taken questions and answers in the audience, some salient ideas.

The Technological Imperative

• While not understating the concerns that some have expressed on the possible negative impacts of certain technological innovations, there seems general agreement that using financial technologies in the pursuit of access to finance is not a question of whether or even of when, but one of how.

• Need to focus on the back end for information systems. “The back end is broken.”

• Interoperability

• Balancing need for a common platform perhaps based on open source technology (as against a plethora of individually customized systems) with the need to do sufficient customization to meet the peculiar needs of clients at the bottom of the pyramid.

• Cultural requirements—Multilanguage, literacy and related concerns.

The Efficiency, Transparency and Accountability Imperative

• As with technology, the use of credit bureaus and the introduction of some form of credit scoring are a sine qua non for financial institutions wishing to avail themselves of the opportunity to reach masses of potential clients without losing control of the management of the decisioning and portfolio-management processes.

• Increased presence of credit bureaus in emerging markets.

• Again, meeting the specific needs and circumstances of the target market.
Experiments, Experiences and Successes in Innovation

• We’ve received reports of a wide array of studies, plans, experiments, experiences and successes that seem to establish that, given the right circumstances and correct actions, innovation can work.

• These vary from the project being developed by CGAP and Xac Bank Mongolia to more mature examples in Kenya, India, and the Philippines.

• The experience of Alieu Conteh, who started the first GSM network in the Democratic Republic of Congo.

The Need to Balance Optimism with Realism

•This conference provided us with many moments when we could easily have been tempted to see the glass not only as half full, but as approaching the three-quarter mark. We should therefore thank those who kept calling us back to a  recognition of the reality and reminding us that, despite the wonderful successes, we are engaged in a work in progress, indeed a work barely begun. So we have to balance optimism with realism.

The Requirements, Benefits and Challenges of Partnership

However, one of the great takeaways from our discussions is the importance—indeed the inevitability—of conceiving, establishing and managing effective partnerships if we are to be successful either on the credit bureau/credit scoring or the technological side of the equation.

Bringing together elements previously seen as discrete—e.g. a large international bank and a small MFI/NGO, an international mobile-phone provider and a local bank downscaling to the microfinance market, or perhaps a larger consortium of actors including a systems provider, a number of MFIs, a credit bureau and a regulatory agency. Not to mention the silent partners, i.e. the hundreds or thousands of underserved clients.

Only a thin line stands between such actors being partners and becoming competitors—or between their working together at this important enterprise or walking away from the table.

Potential fault lines in this relationship relating to such variables as the sharing of fees and the question of exclusivity need to be carefully managed.

The Urgent Need for a Generation of Visionary Regulators

The need for an inviting regulatory framework, long a challenge in the world of microfinance, becomes even more critical with the degree of experimentation, the possible high investment costs and the larger number of stakeholders that must be managed in this new phase of access to finance.

Regulators now need not only to understand the distinctions between MFIs and the traditional banking sector but also the requirements and challenges of combining the peculiarities of different sectors and technologies—principally telecommunications and banking and finance.

The Future of MFIs

How could the management and sustainability of the “group loan” methodology be affected by both credit scoring and mobile lending?

Danger of the ethic, or the very existence, of the MFI being forgotten if not threatened by the emerging discourse between banks downscaling to reach the microfinance market and mobile phone providers becoming aware of that market.

Abbas Sikander’s (Tameer Bank) encouraging revelation of how he emerged from his identity crisis and his confusion about the future MFI role early in the conversations at his meeting an awareness that the growing interest of these new players and what they bring to the table represent new opportunities for MFIs.

While this number was down to 16% by early 2007, it exemplifies the immense operational challenges of implementing new channels. Elizabeth’s comments on the promise of new technology were coupled with a cautionary tone that has been a resounding theme of many presentations at the Next Generation Access to Finance conference this week. And we haven’t even heard from the regulators yet!

In the first day’s sessions on credit bureaus and bank-end systems, moderators and presenters made the convincing case that infrastructure is critical and must be in place before embarking on other technology-enabled delivery approaches. We’ve also heard from MFIs actively using credit scoring, m-banking, and agents.

Based on conversations with MFIs over the past two days, conference attendees lie on the spectrum from those without solid back-end systems or from countries without much financial infrastructure such as payment systems and credit bureaus, to those already using m-banking, scoring, and other advanced technology approaches. While some MFIs are mingling with the technology vendors on display and discussing their m-banking plans, others are interested in pursuing these ideas but know that they and the markets in which they work need to put some basics in place before it will be possible.

Despite the different starting points, several issues are emerging as critical to the sucessful planning and roll-out of technology approaches:

1. Strong back-end systems and regulatory clarity are the foundation to introducing advanced technologies.
2. “Ecosystems” where people can readily transact electronically or convert cash into electronic units will be important to develop scale.
3. Financial education is key to customer adoption.
4. Interoperability improves the value proposition to the agent (more traffic means more commission) and client (more points of sale) but can be challenging to implement.

All the cautions and challenges aside, the mood at the conference remains optimistic. Technology alone will not magically bring the millions of unbanked into the formal financial system, but coupled with the customer-focused approach that microfinance is known for, it just might.

The opening sessions covered the opportunities that technology provides, but also helped identify the areas we jointly need to tackle to unleash the power of technology to deliver financial services to people who are too poor, live too far from a traditional bank branch, or do not have a formal credit history.

Viability of technology approaches and business models. Mobile-phone banking for low-income clients, agent-based distribution networks for banks, outsourced information technology (IT) platforms for microfinance institutions (MFIs) are tested by only a few pioneers around the world. The viability and sustainability of these emerging business models will depend greatly on how well services and products are adapted to clients needs and wants to ensure uptake.

Infrastructure alone will not do the trick. In Brazil where 75 banks are currently operating 90,000 agent points and reach 98% of the country’s municipalities, access to finance is not a problem anymore. However, low-income populations are using their local banking agents only to pay their bills. In CGAP research in 2006, just 6% of the 750 surveyed actually deposit money at their pharmacy, bakery, or supermarket. Using technology is not only about developing infrastructure, but also about acquiring new clients in these often remote locations.

Regulation to foster innovation while protecting customers. The use of non-bank entities to deliver financial services, e-signatures, payment system and competition laws, telecom regulation, etc. are all issues which come into play when using a mobile phone or a retail outlet as the interface between the bank (and sometimes not even the bank!) and the client. Certain and conducive regulatory environments are the fundamental issue that can make or break the use of technology for microfinance.

A transactional channel cannot replace microfinance. Microfinance’s fundamental element is the strong relationship between the credit officer and the client. This strong link helps microfinance institutions make credit decisions, but also provides social integration for many customers, training, and empowerment. Can the use of a mobile phone or local merchant replace microfinance? Or what are the operational set ups to ensure that we do not lose the personal element which has been so powerful for microfinance’s impact?

Stay tuned.