According to Elizabeth Littlefield, CEO of the World Banks microfinance unit (CGAP), while microfinance is becoming mainstream finance in over 130 countries, the vast majority of the world’s poor populations have not been reached. The reality is a simple one: currently there is a global market of up to three billion working-age adults, yet more than two-thirds do not have access to financial services. What, then, stands in the way between Microfinance institutions (MFIs) and massive market expansion? The problem is multi-faceted:
- micro means many tiny transactions, so finding cost-savings innovations is fundamentally important
- especially in rural areas, low-income individuals lack access to basic transportation and communications to obtain financial services
Banking on Technology
The microfinance industry may well be reaching a turning point in its development with the advent of technologies that lower transaction costs and connect with rural populations.
1. Management Information Systems (MIS): the jury is sill out on the information technologies used by MFIs. Quality platforms that can be scaled (as used by retail banks) are too costly for all but the top micro-lenders.
2. ATMs: ATM transactions, which free up staff time and increase customer convenience, are as much as four times less expensive than those of a bank teller.
3. Plastic Cards: A major advance in convenience, access, efficiency, and cost-savings is the stored value card and debit cards. This plastic strategy, which transitions clients to electronic banking transaction channels, has drastically changed the commercial banking model.
4. Personal Digital Assistants, or PDAs, are commonly being used by larger, well-integrated MFIs to assist loan officers in the field to update client information and fill out electronic loan applications.
5. Cell-phones: Cell-phones can be utilized for 1) telephone banking (calls made to a call center); 2) mobile banking (phone used to execute transactions directly); 3) stored value devices. There are over one billion mobile phones worldwide, and the mobile phone revolution is reaching even the most rural areas through initiatives such as the The Grameen Village Phone Program, which provides mobile telecommunications services by micro-franchising cell-phone rentals in rural villages, now in Africa too.
The question that seems to hang over all this technology, however, is well articulated once again by Ms. Littlefield: Do we think [the poor] might pay back money into a machine as faithfully as they have paid back their loan officer at weekly meetings? Strong and constant contact between loan officers and clients constitutes the critical success factor to date in microfinance, so technology would most likely enhance, not replace, this relationship, at least for the time being.
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