MICROCAPITAL STORY: MITs NextLab Innovates, Microfinance Benefits

Massachusetts Institute of Technology (MIT) began offering a new design course this year called the NextLab Initiative which focuses on catering mobile technologies to the needs of users in developing countries. The projects in the class are comprised of three to five students with multi-disciplinary backgrounds and involve partnerships with localized field practitioners and non governmental organizations (NGOs). Students with technically and socially viable prototypes may obtain funding to prepare their technologies for full fledged deployment into the real world. The primary goals of the course projects are:

to understand the social impact that mobile technologies are having in the life of low-income people in developing countries
to design and launch mobile technologies that are technically appropriate and socially informed in the context of developing countries
to learn to overcome the non-technical barriers (social, educational, industrial, financial) that prevent social mobile technologies from large-scale deployment in commercial networks
To help shape the vision of how pervasive connectivity can create unprecedented opportunities for empowering low-income people in developing countries.

Several of the NextLab projects zero in on the microfinance industry; Get New Money aims to increase microfinance market penetration in Ecuador and Smart Microloans is a project to provide an information and communications technology (ICT) solution for consumers of micro loans in the village of Rajugela, India.

The Get New Money project centers on introducing a multi-level-marketing (MLM) scheme linked to a network of mobile phones. The idea is that an individual borrower can seek out other potential clients and receive a commission for each loan that materializes from their outreach. Over time the network could grow large enough to tap into markets that traditional microfinance institutions (MFIs) have struggled to reach.

The technology basis for Get New Money is a phone that will enable users to do pre-screenings and data processing of new clients quickly and then talk to a back-end server where any necessary computations are made. NextLab’s project partner, Cobiscorp, specializes in IT backing for financial services firms. NextLab hopes this partnership will enable their project to overcome a lack of infrastructure that has dampened the success of previous similar projects.

Smart Microloans is primarily focused on enabling economic empowerment in the Indian village of Rajugela by providing a wider choice of micro loans and shifting the bargaining power from banks and financial institutes to individual consumers through the use of mobile phones. The project is sponsored by the India School Fund (ISF), a nonprofit founded by Harvard University students to provide high-quality education to children at an early age.

While micro-finance and financial education are decreasingly novel concepts in some parts of India, there is usually minimal competition in a given village due to startup overhead costs, and as a result, villagers have to accept the rates quoted by the MFIs. Smart Microloans seeks to address this problem by allowing micro loan consumers to enter their information and apply for loans using their mobile phones, without the need for banks to travel to the village. This will provide banks with access to the borrower’s information, including borrowing and repayment history, which the banks can use to determine interest rates to be charged. Likewise, the borrower can select a bank based on favorable interest rates.

Scott Everett, Research Assistant

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