Last week, Hewlett-Packard (HP) and Accion International announced the global release of an elaborate software that will perform rural loan transaction over mobile phones. The Remote Transaction System (RTS) is a “cost-effective means of tracking loan information” that will soon have an open source aspect. The announcement culminates the collaborative efforts of HP and multiple microfinance entities working to develop the software.
Banking software tailored to microfinance of course exists, but there is no industry standard. The World Bank microfinance unit (CGAP) lists over 50 such applications on its website, 15 of which are reviewed. To date, however, no one has tried an open source approach. Because most of the world’s 10,000 microfinance institutions (MFIs) are unprofitable, the firms that make the software products for MFIs are under-funded and often subsidized themselves. Revenue has historically been insufficient to support a better product, leaving the microfinance industry in need of an efficient, standardized approach to banking software.
The RTS innovation will hopefully succeed on both accounts, allowing for the creation of an industry standard and also achieving a “breakthrough in the scale of microfinance services,” because only open source might be affordable for all those tiny, cash-strapped microfinance institutions out there.
Will this open source development create an industry standard? A standard is certainly needed. Banking software taken downstream to service microfinance is just too expensive to buy and maintain for most micro-lenders, while on the other hand, the new products from technology firms focused on microfinance are limited in the face of microfinance market challenges, namely varying language, regulation, maintenance (infrastructure is scarce) and of course, cost.
Might an open source solution be affordable? Establishing a standard will depend on how cost-effectively on-site technicians can manage the application. Open source is not by definition cheaper of course. It is all about execution.
Again and again in the emerging microfinance market we are left with the same conclusion: many of the pieces are in place for an asset class, now it is up to local talent to see it through.
Additional Resources1) HP News Release
2) More in depth article by the UN Capital Development Fund’s Microfinance Matters
3) Sevak Solutions, which holds the rights to the RTS technology and licenses these rights to interested parties
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