Increasing the Outreach and
Sustainability of Microfinance through
ICT Innovation
By
Stuart Mathison
Presented by
Debasis Mahapatra
07808007
What is Microfinance

Microfinance is the provision of relevant and
affordable financial services to poor
households.

Primarily concerned with credit and saving
although, in recent time allied services such
as insurance, leasing, payment transfers and
remittance are being introduced.
Challenges before MFIs

Providing microfinance to poor clients
requires innovative operating methods to
manage risk and reduce transaction cost.

Poor clients don’t have physical assets to
offer as collateral for loans. Therefore
formation of group of borrower and
establishment of joint liability procedure
substitute collateral.
Type of MFIs

Community based savings and loans
cooperatives also known as “self-help”
groups or SHGs

Charitable non-governmental organization
providing revolving loans to the poor.

MFIs established by commercial banks or
government owned development banks.
The Microfinance Theme of “Outreach”
and “Sustainability”

If “increasing outreach” is taken to mean more
clients from a similar demographic area then
“outreach” and “sustainability” are effectively
synonymous terms.

But, if “increasing outreach” is taken to mean
“targeting hard to reach clients” such as people living
in remote areas, then “outreach” and “sustainability”
are effectively competing terms.

ICT innovation can help reaching clients in remote
areas in cost effective manner.
Importance of ICT in Microfinace

Electronic commerce has its genesis in the banking
sector. E-commerce has changed the methods of
cash transaction.

Can same evolution occur in less developed
countries?

Many microfinance practitioner see ICT innovation
as a key strategy in efforts to take microfinance to
the next level in terms of outreach and sustainability.
Back-Office Management Information
System (MIS)

The most fundamental ICT application is back-office
MIS.

Sophisticated MIS is prerequisite for MFIs to monitor
the quality, sustainability, and efficiency of its loan
portfolio, to monitor development impact, and
manage general administrative tasks.

MFIs also track the non-financial information. So,
they need modified off-the-self software package for
these requirements.
Mobile Computing

The back-office MIS helps the MFIs to monitor its
loan portfolio, this functionality is undermined if the
data analysed by the MIS is not up-to-date or
contains errors.

Through mobile computing systems the Loan officer
have a palmtop computer, so that the financial
transaction can be recorded directly into the MIS.

It has significant implication with respect to data
accuracy and integrity, there by enhancing “client
confidence”.
The Branch Office Franchise Model

MFIs have an overwhelming pressure to reduce
transaction costs and increase profit margins.

Through branch office franchise model, the MFI links
with third-party merchants in remote areas.

The rural telecentre networks are particularly suited
to serving as retail outlets for MFIs.
Card Service, EFTPOS and ATMs

There are many similarities between consumer credit
cards and microcredit services. Both tries to reduce
high cost associated with small transaction lending.

Introduction of card-based services require the rollout of either EFTPOS functionality with third-party
merchants and/or ATMs.

Card- based microfinance offers even more
opportunities like allowing clients who have proven
creditworthiness over time should given access to
additional products and services.
Internet Banking

Gives client real-time information about their
account, and the ability to transfer funds between
accounts.

It is an efficient tool to reduce the work of tellers and
therefore reduce the labour costs.

Rural telecentre networks can help in implementing
Internet Banking for MFIs.
Remittances: Microfinance Outreach to
International Labour Migrants

MFIs through technological innovation,
product design can tap this market by
extending outreach to these migrant workers
and their families at home.

For example Sri Lanka’s Hatton National
Bank, whose “HNB Easy Remittance” help
Sri Lankan migrant workers to remit funds
directly to HNB accounts.
Challenges and Criticism

Wide digital divide persist in India.

Finance sector regulation restricts innovation in
MFIs.

ICT- enabled services de- personalize and
individualize the banking process, thereby conflict
with those group- based methodologies that can be
held up as the key reason for high-repayment rates
of MFIs.
Conclusion

Some says “it can’t be done in microfinance,
electronic banking for poor will not work”.

It has to work. Otherwise will be at a continuing
disadvantage with current economies and
enterprises.

20 year ago when microfinance was in its infancy
many at that said “poor can’t repay, the poor will not
repay, the poor can’t save.
Thank You