Archive for: Microfinance

The CGAP Technology Blog will be hosting a virtual conference on Microfinance and Mobile Banking next week on September 8 and 9.  Kabir Kumar, Sarah Rotman and I recently published a Focus Note on this topic describing how microfinance organizations around the world are responding to the potential and challenges of mobile banking.  We studied 15 microfinance organizations that are pioneers in the mobile banking space in different ways.

For the virtual conference, we’ll be joined by several of these industry experts who will discuss their experiences and lead conversations on four themes.

Day One: Wednesday, September 8, 2010

• What benefits can MFIs expect to gain by using m-banking? - Moderated by Sarah Rotman, co-author of paper [6am ET / 10am GMT]

• Should an MFI in a country without any existing m-banking infrastructure create its own m-banking system? - Moderated by Aleksandr-Alain Kalanda, CEO of Opportunity Bank Malawi [9am ET / 1pm GMT]

Day Two: Thursday, September 9, 2010

• When should an MFI consider being an agent in an m-banking system? - Moderated by David Kleiman, Managing Director, WING Money, with participation by Veasna Chumsam, Business Initiative Manager, VisionFund Cambodia [6am ET / 10am GMT]

• Can mobile banking be used to collect loan repayments and deposits? -  Moderated by Kenyan MFI [9am ET / 1pm GMT]

No advance registration is required – simply come to the CGAP Technology Blog next Wednesday morning at 10am GMT to join the conversation by submitting comments under each conversation. This is your chance to interact with microfinance practitioners who are daily experiencing the opportunities and the challenges associated with mobile banking.

- Claudia McKay

Regular readers of this blog are familiar with mobile banking and its potential to bring vast numbers of the unbanked into a more formal financial system and revolutionize the way they manage their money. Yet although microfinance institutions (MFIs) have spent decades serving this clientele with loans and increasingly savings and other financial products, they have not featured prominently in this space. The mobile banking charge has been led by mobile network operators and, to a lesser extent, large banks. Although MFIs understand the potential of mobile banking, they have struggled to see how they can take advantage of it. The core competencies of most MFIs lie in their understanding of low-income customers’ needs and close relationships with these customers, not in complex technology projects or managing large-scale distribution networks. So how can MFIs take advantage of mobile banking?

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Sahayata’s loan officers, or field credit officers (FCO), are able to spend the vast majority of their time working with clients rather than on data entry and other administrative tasks. Photo by Lauren Braniff

A typical day in the life of a microfinance loan officer might look something like this:

Arrive at the branch and print your agenda and reports for the day, which will typically include several group meetings at which you’ll disburse loans or collect payments, and perhaps hold meetings with prospective clients. After preparing for the day, you depart the office for a day in the field.

After spending the day traveling around to meet clients, you return to the branch and begin data entry. You enter the amount of money disbursed or collected from each client, and perhaps enter information on new clients or loan applications.

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CGAP’s Software Reviews aim to help microfinance institutions (MFIs) make informed technology decisions by facilitating access to information on commercially available information systems (IS) products. Eight new reviews are now available at www.cgap.org/softwarelistings.

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Bindu Ananth is the President of IFMR Trust, which has a mission of ensuring that every individual and every enterprise in India has access to complete financial services. In pursuit of this, IFMR has made four key investments – IFMR Rural Finance (full service financial institutions for remote rural India), IFMR Capital (guarantee company for high-quality MFIs), IFMR Mezzanine (subordinated debt provider for emerging MFIs) and IFMR Ventures (debt access for rural enterprises).  Through these investments as well as other initiatives , IFMR Trust is advocating for an inclusive financial system in India. Recently I interviewed Bindu about how the financial system in India might be configured to deliver complete financial service access.

What is the approach IFMR advocates for that is different from all the other models being used in India, such as scaling up microfinance institutions (MFIs), reforming the cooperatives, promoting the self help group/bank linkage model, or the current favorite of policymakers, the business correspondent model linked to the use of technology?
Our vision for the Indian financial system has three parts:

• An adequate number of local, high-quality financial providers that provide complete access to financial services. (We have borrowed heavily from Prof. Jonathan Morduch in defining complete access to be: reliability + continuity + convenience + flexibility + increasing financial well-being.)
• Orderly ways for systematic risk to be transferred from these local providers to risk aggregators. This would be done through mechanisms like reinsurance and securitization, among others.
• The presence of well-regulated and well-capitalized aggregators like commercial banks, mutual funds, and insurance companies.

Several of the initiatives you mention as models are in line with our vision that I just described.  For example, a local microfinance institution that securitizes part of its portfolio to a mutual fund transfers systematic risk now to the mutual fund. This is a perfect partnership because the MFI is very good at customer origination and monitoring and the mutual fund has the ability to provide vast amounts of liquidity for the growing demand because of its size, capitalization, and diversification. Similarly, the banking correspondent (banking agent) that is providing savings services on behalf of a well capitalized bank would be consistent with our approach.

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Bryan Barnett is an independent technology business consultant. Previously he was a business manager at Microsoft Corporation, an analyst with investment firm Vulcan Northwest, and a founder and Vice-President of ApexLearning, a pioneering online learning company. In previous careers he was a university teacher and an attorney with the Colorado General Assembly. He holds a Ph.D. from Rutgers University and a J.D. from the University of Colorado.

Many years on, technology for back-office systems is still a barrier to the growth of microfinance. At a recent series of workshops organized by CGAP and Grameen Foundation, standardization of software requirements was often mentioned as key to lowering costs and thereby encouraging wider use of technology among MFIs. But is this possible, or merely a vain hope for a fragmented industry?

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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

What can we learn from recent acquisitions of banks by mobile network operators? Over the last year we have seen a number of mobile network operators (MNOs) buying stakes in banks or looking to acquire their own banking licenses. Are these isolated incidents or does this point to an industry trend?

On November 21, 2008 Telenor Pakistan entered into an agreement to acquire 51% of the shares in Tameer Microfinance Bank. A year later, in October 2009, Globe Telecom received permission from the Central Bank of the Philippines to acquire a 40% stake in Pilipinas Savings Bank with their parent company taking a further 20% stake. And, most recently, China Mobile confirmed earlier this month that they are in talks to buy a stake in Shanghai Pudong Development Bank in an explicit strategy to enter the m-payments market.

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Today, the CGAP Technology Blog comes to you from the Mobile World Congress in Barcelona. The MWC is the world’s biggest business show for all things mobile related. In recent years we’ve noticed how the focus on mobile banking has slowly grown on the agenda – both in the conference itself, as well as for the mobile network operators who comprise the membership of the GSMA.

Just two years ago, mobile money was relegated to a side session of a few hours. This week, there’s two full days of mobile money content – starting with Monday’s panel of the so-called “two billion club” – the handful of mobile operators who combined reach one third of humanity with their cell coverage.
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Could new technologies in Bangladesh enable formal financial services to reach two-thirds of adults by 2020?

Conditions in Bangladesh offer scope for some optimism. Famous for high population density, Bangladesh may be able to deliver a larger volume of financial flows over a relatively smaller distribution network; possibly making the business case more tenable. The demand for remittance services is likely to be high.  There are large numbers of Bangladeshis remitting from overseas. There are plenty of internal migrant laborers needing to send money home – well illustrated by the the ubiquitous rickshaw drivers of Bangladesh’s capital, as one example. Other countries, notably Kenya, have seen branchless banking surge because of domestic money transfers.

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