Archive for: MIS

Our discussions on branchless banking on this blog do not often touch on the role of microfinance institutions (MFIs). The main actors in this space seem to be mobile network operators, commercial banks, larger microfinance banks and technology companies. We have done a bit of thinking on microfinance and mobile banking, notably in this Focus Note and at this Virtual Conference.

In our last post of the year, we bring the discussion squarely back to the role technology can play for MFIs. Our guest author is Leo Tobias, Grameen Foundation’s Technology Program Manager of the Solutions for the Poorest Microsavings Initiative. 

Cashpor Officer processing loan payments on mobile

Grameen Foundation’s Microsavings Initiative is a three-year project funded by the Bill & Melinda Gates Foundation. It was launched in November 2009 with a goal of reaching 1.45 million new savers across 3 MFIs in the Philippines, India and Ethiopia.

Offering voluntary savings is demanding. Financial institutions compete with the alternatives that exist to formal savings accounts (home, relatives, neighbors, etc.). A common theme in our savings market research is the customer’s desire to have easy and convenient access to their funds. To deliver on those desires, our MFI partners face common technology challenges.

Here are two major challenges:

1. Front End Technologies 

To meet customer demands, financial institutions must develop delivery channels that offer accessibility and close proximity to the end client.

Selecting the right technology is an important first step. The 3 MFIs are at various stages of investigating or implementing mobile technology. In India, CASHPOR (CASHPOR Micro Credit) incorporated mobile in both their credit and savings processes. In the Philippines, CARD Bank (Center for Agricultural and Rural Development) implemented an SMS system for an on-demand savings deposit pickup service. The use of mobile phones is clearly a powerful venue for bringing the transaction closer to customers. However, it is not the only technology to be considered.

In Ethiopia, ACSI (Amhara Credit and Saving Institution) is planning to use cards (most likely smart cards) and POS devices as their first front end technology implementation. With only approximately 14% mobile penetration in the country, all indicators point to the fact that the majority of the rural poor will not have access to mobile phones in the next couple of years. In the Philippines, the majority of microfinance customers are in provinces classified as “urban” or “semi-urban”. In many of these areas, ATM machines are accessible. CARD Bank chose to provide access to the national and international network of ATMs as a feature of its voluntary savings product in addition to the use of mobile phones.

Integrating all the sophisticated technology requires the help of external providers who can bring a wide array of specialized expertise to the organization.  However, managing relationships with outside technical providers can be new and difficult since most of the technical needs of MFIs had previously been met by in-house expertise.

The MFIs are ultimately responsible for the relationship with their customers.  The MFIs therefore have to provide the training and support needed to make sure members are comfortable with and trust the technology. A component of our holistic program has been to recognize this need and to develop educational programs to introduce not only the savings products but the technology associated with them.

2. Core Infrastructure Upgrades

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CGAP and the Microfinance Information Exchange (MIX) recently collaborated to migrate CGAP’s Software Listings to the MIX Market. Hosting this information alongside the wealth of other information already on the MIX will provide a more dynamic view of the microfinance landscape, all on a single platform.

Moving the software listings to the MIX creates some exciting opportunities to better understand the microfinance software market. For example, the MIX used data from CGAP’s 2009-2010 software reviews to identify relationships between MFIs and software vendors. Where available, MFI profiles on the MIX now display a link to their software vendor, and likewise, software vendor profiles include a list of their MFI clients. Using this data, MIX did some preliminary analysis on market share. Keep in mind that the data is incomplete at this point and will need to be built out over time, but we’re excited to see these developments and look forward to more of this type of work in the future.

Also of note, the MIX’s Technology Providers section is not limited to core banking systems; the MIX invites profiles from any technology company servicing the field of financial inclusion.

To access the 90+ software company profiles on the MIX, go to the Service Providers tab and search for Technology Providers. All software reviews previously conducted by CGAP will also be available under the respective provider’s profile.

If you are a technology provider or MFI and would like to update your information on the MIX Market site, you can do the following: For vendors or MFIs with existing profiles, you can use the change request button in the upper-right corner of your profile page. For those without an existing profile, we encourage you to use the MIX Market contact form which will directly route your case to MIX staff for resolution.

The news wires have been busy with the recent announcement of partnerships and joint ventures in the Indian branchless banking market.  India’s largest public sector bank, the State Bank of India, announced a joint venture with the mobile operator Bharti Airtel to offer mobile banking. Meanwhile, India’s largest private sector bank, ICICI Bank Ltd, announced its tie-up with Vodafone Essar to bank the unbanked via the mobile phone. As the Hindu Business Line writes:

These two initiatives take mobile banking services to a whole new level. While Vodafone manages over 1.5 million retail points for acquiring customers and servicing them, Airtel is present across 5,101 towns and more than 500,000 villages.  That’s a big deal considering that The National Sample Survey data reveal that 51.4% of nearly 89.3 million farmer households do not have access to any credit from institutional or non-institutional sources…Only 13% are availing loans from the banks in the income bracket of less than Rs 50,000.

The Pakistani media was also abuzz with the pronouncement of the State Bank of Pakistan Governor that:

Branchless banking is the future of the country’s financial sector as it opens up opportunities for bringing unbanked segments of society into the financial system.

Governor Kardar made this address at the signing ceremony between United Bank Limited (UBL) and Shore Bank International for UBL’s branchless banking initiative, Omni banking. Meanwhile, easypaisa, launched by Tameer Microfinance Bank and Telenor in October 2009, reports carrying out 10 million transactions valuing Rs. 17 billion in 15 months since launch.

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CGAP and Grameen Foundation would like to thank you for participating in this week’s virtual conference. There have been a lot of valuable contributions and new ideas which I hope we’ll all continue to explore at our respective organizations. While the official conference period has ended, comments will remain open and we invite you to continue sharing your thoughts on these topics.

Day 1 discussed capacity building in technology and brought up a variety of points that help to shape solutions-oriented thinking around how to improve the ability of both MFIs and vendors to implement and use back end systems more effectively.

There was some good thinking on the methods that MFIs and vendors can use to access some capacity building, such as:
- Use TA Providers to train staff when they are onsite for a project (with discussion on how better to make this happen)
- Reach out to resources in the community such as private company volunteers, academic courses in the local marketplace
- Have Tier I MFIs impart some of their knowledge and experience to smaller MFIs

Some points were raised also about the roles that investors can play:
- Provide incentives to use the technology more effectively
- Provide challenge grants to develop better software solutions and to encourage software vendors to enter the market
- Structure performance based project models
- Support technology capacity building financially at the MFI as a protection to the investment
- Cheaper and easier access to capital tied to a sound infrastructure and reporting abilities

In terms of responsibility for increasing capacity, it seems clear that it falls on all involved stakeholders: the MFIs themselves, the vendors, TA Providers, networks and investors Many contributors felt the onus relies on the MFI itself if it wishes to be competitive in the market. That said, these other stakeholders can be supportive by offering the skills, funding and tied-in incentives. It is felt that vendors to have a responsibility also to learn the business to work more effectively with the MFI needs.

On the question of funding the costs of the capacity building, there were a number of ideas.
- it should be included as part of the standard operating budget of the MFI…viewed as an investment and not expense
- vendors should contribute in providing some basic skills in IT Strategy
- CGAP and other such organizations to provide training in IT business skills
- investors – but with much greater level of oversight on how capacity building money is spent

Finally, related to this and the question of a market failure that might fail to properly incentivize vendors to engage more in the space, there was some thought that perhaps MFIs need to better understand the roles and limitations of a back-end system. If they could better understand that a system may not necessarily be equipped, cost-effective or even possible to mimic all operations tasks and that some standardization is necessary. This was a common comment made through the regional workshops – especially by vendors – and in today’s discussion.

Day 2 solicited new ideas for helping MFIs move past the technology hurdles which have hindered so many MFIs in the past. Some of the key topics discussed:

- Outsourced models, such as Software as a Service (SaaS) or “managed services.” There’s been quite a lot of discussion of these models recently and certainly the theory sounds promising as a way of reducing both cost and hassle for MFIs. However, the infrastructure in a lot of countries may not be sufficient to support hosted solutions, and in some countries there may be regulatory concerns if client data is stored in other countries. It seems that more information is needed and case studies of actual implementations would be a useful contribution.

- Other ways of bringing down cost might include some sort of group purchasing arrangement, so MFIs could collectively negotiate with vendors to get favorable licensing rates.

- Both outsourced models and a group licensing arrangement would require standardization of MFIs to some extent. This could potentially be facilitated by donors and investors who have a natural incentive to see their partners succeed.  Several approaches to issuing standards were identified: conduct process mapping of a sample of MFIs and issue best practices, encourage MFIs to adopt off-the-shelf packages and adjust their processes accordingly. Any standardization effort could be coupled with research demonstrating the financial benefits of standardization vs customization.

-Certification of software solutions by an organization like CGAP could encourage compliance with standards. Similarly, donors/investors/networks could encourage the use of solutions which comply with standards or hold a certification.

Visit our website for more information on the IS workshop series.

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?

Today’s conversation is moderated by George Conard and Charlene Balick of the Grameen Foundation.

During our recent workshop series, a consistent theme across all regions was the notion that adoption and usage of back end systems could be done more successfully and for less money if (a) MFIs had better internal skills to work with technology and (b) if vendors gained a more intimate knowledge of MFI operations and requirements. Would capacity building at MFIs and vendors help alleviate technology headaches at MFIs?

Participants repeatedly expressed that costs could be reduced if MFIs had improved capacity both among managers and staff. MFI leadership needs to be able to better plan for and work with technology, both at initial phases of a project and on an ongoing basis as the business changes and expands. Likewise, MFI staff need to be better equipped to work with technology and technology vendors.

Examples of 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

Conversely, it was commonly expressed that many vendors working in the microfinance space have a limited knowledge of the unique characteristics and intricacies of microfinance products, business operations and characteristics. If the vendors knew the business better, costs could be reduced and back end systems could be designed better and implemented and utilized more successfully.

How can the working relationship between vendors and MFIs be improved – especially with an eye to avoiding large cost overruns and enabling MFIs to effectively use back end systems to achieve growth and operational efficiencies and cost reduction goals?

Please share your thoughts and ideas:

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?
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?
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?
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?
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?
6. How could TA Providers play a stronger role?

Welcome to CGAP and Grameen Foundation’s Virtual Conference, “Getting past the technology hurdles at MFIs.”

Recap of the discussion

Over the past several months, CGAP and Grameen Foundation, with support from the MasterCard Foundation and the EU/ACP Microfinance Programme, hosted a series of four workshops to discuss the back office challenges at MFIs. Workshops took place in Washington, DC, Kenya, India, and Peru in an attempt to understand the issues at both a global and regional level. Proceedings from all workshops are available on the CGAP website.

The key question posed was “Why do MFIs struggle with technology and what can MFIs, donors, investors, software vendors and others do to improve the situation?”

At each workshop, we challenged participants to not only discuss the challenges they face, but also solutions to help the microfinance community move toward improved use of technology. We invite you to take a look at the consolidated recommendations for an overview of the recommendations discussed at the workshops, and participate in the virtual conference to share your opinions.

1. July 7 (starting at 9 am EST): Capacity building to improve vendor/MFI relations and outcomes. Training for both MFIs and vendors would promote greater preparation on the part of MFIs and better understanding of the microfinance business on the part of the vendors. But what type of training is necessary and by whom? What other steps could be taken to ease the technology challenges at MFIs?
2. July 8: New ideas to propel the use of technology at MFIs. Will new business models, such as Software as a Service (SaaS), change the way MFIs interact with technology? Would increased use of standards improve the quality of software products available to MFIs? Would greater involvement by funders lead to better systems outcomes at MFIs? What other ideas would help move the microfinance industry past this information systems challenge?

The conference will take place right here on the blog, no registration is required. Just post your comments using the “Leave a reply” option at the bottom of each thread.

Virtual conference: Getting past the technology hurdles at MFIs: Why do MFIs struggle with technology and what can MFIs, donors, investors, software vendors and others do to improve the situation? Join us for a virtual conference to discuss these issues (7-8 July 2010).

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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