Archive for: MIS

Banks in the United States are increasingly outsourcing their technology. In 2007, 70% of new core technology sales to financial institutions were for outsourcing while only 30% were for in-house use (sources weren’t cited in the article). While we don’t have similar statistics for the microfinance market, I would guess that 100% of sales were for in-house use. So why are the US banks outsourcing and what does this have to do with microfinance?

Outsourcing allows banks to focus on their core competency: providing financial services. Outsourcing can also reduce operating costs, help the institution make efficient use of technology, save on investment in hardware and software, streamline reporting to management and regulators, provide access to additional functionality, improve data security, and the list goes on. The perceived benefits seem to be paying off as the number of US banks outsourcing IT is increasing, especially among medium-sized institutions.

Microfinance institutions face many of the same technology challenges as banks in the US. If technology is such a headache and outsourcing can help alleviate some of these grievances, why aren’t more MFIs outsourcing their information systems?

While there does seem to be increasing chatter on the topic, some of the big differences between microfinance institutions and US banks may explain the lag. First of all, unreliable electricity and internet connectivity is a fact of life in many (most?) MFIs. Technology providers need creative solutions to reach these markets in a way that improves upon systems already in place (i.e. more convenient and lower cost). Second, MFIs require specialized software designed for things like group loans and compulsory savings. A company which outsources for US banks, for example, would need to tailor its products and services to be compatible with the particular needs of MFIs.

Despite the potential hurdles, outsourcing appears promising for microfinance. Will the outsourcing trend transcend geographic and other boundaries?

Around 45% of existing microfinance institutions still track and record their operations and accounting in excel sheets or even completely manually.  This costs a massive amount of time and resources, leaves room for error, prevents them from growing quickly, and undermines their ability to manage risk. Especially for smaller institutions the relative investment and maintenance cost is enormous compared to their size and operations.

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?   Read the rest of this page »

Europe turns nose up at mobile banking
Mobile banking could be failing to capture the imagination of consumers, according to a
survey of 2,500 retail financial services customers across Europe. The research, conducted by TNS on behalf of Fujitsu Services, found 65 percent of respondents prefer to access banking services online. nly five percent of the sample said mobile banking is the channel of choice. Physically going to a branch is the second choice, at 53 percent. The findings differ from a UK-only survey which put face-to-face or voice interaction as the preferred method of accessing banks.

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Word today that IBM, which has been touting its foray into open source solutions, will partner with Grameen Foundation to help expand its MIFOS solution for information systems. In a joint press release, Grameen and IBM note that

…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. 

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