The International Banking Systems publication (IBS), an online journal that provides information on banking systems and operations, have produced a detailed supplement on the role of technological systems in microfinance [1]. An article within the supplement entitled ‘Analysis: Microfinance Stakeholders – Guiding hands’ [2] explores how major stakeholders shape the market for microfinance information systems (MIS). The thrust of the article is that there is an important difference between the microfinance and commercial banking sectors when it comes to information systems and that MFIs depend heavily on key stakeholders such as the Bill and Melinda Gates Foundation [3], CGAP [4], the IFC [5] and GTZ [6] for guidance and direction in making technology decisions. The conclusion arrived at is that ‘directly or indirectly, it is these stakeholders that influence purchasing decisions by MFIs, on the business case for investment, the process of selection, and which products to choose’ in respect of MIS.
The articles discusses an initiative started by Grameen Foundation (‘Grameen’) [7] called Mifos [8]. Mifos aims to build an open source technology platform for the microfinance industry. At its core is a MIS system developed and distributed by a global community of technology professionals and microfinance practitioners. Mifos aims provide MFIs with cost-effective access to flexible and scalable technology and facilitate the development of a local technology ecosystem to support and maintain a MIS for any particular MFI. According to Mr George Conard, executive director of the Mifos Initiative, the initiative aims to ‘allow MFIs to scale massively’ by ‘bringing a system that [is] flexible enough to adapt to [MFIs’] processes’. Grameen Koota [9] in Bangladesh was quoted as having grown from ‘25,000 to 250,000′, partly as a result of advances in MIS. The article noted that Grameen is helping four or five MFIs use the Mifos system but, added that there may be many other MFIs using the system without its assistance or knowledge. Grameen is now working on a shared platform where Mifos will be made available on a subscription-based service over the internet for customers in the Philippines.
CGAP, a World Bank-hosted independent policy and research centre focused on microfinance, also aims to improve MIS used by MFIs across the globe. Its approach has been to provide funding to MFIs to select their own systems, rather than become a developer itself, or to back one particular MIS. The CGAP website provides brief details on some MIS, although the article on IBS noted that some of the information is now out-of-date. CGAP offers small grants of up to USD 25,000 for MFIs that intend to improve their MIS. CGAP technology programme’s senior advisor, Mr Xavier Faz, was quoted as stating that ‘the grants enable MFIs to hire a consultant to do a well-formed, technically sound assessment of the investment, and to make sure that it is well-aligned to the business plans of the financial institution’. Mr Faz observed that 80 such projects have been completed, with another 40 ongoing and USD 1.2 million has been disbursed so far. He added that it is important for CGAP to be able to know how improvements in MIS benefit any particular MFI. Prior to joining CGAP, Mr Faz worked on shared back office technology platforms for MFIs with a different organisation. He has experience in interfaces for inter-bank transactions, ATMs and other delivery channels.
As to why MFIs should invest significant funds in a new IT system, Mr Ignacio Mas, a former leader of CGAP’s technology programme and now deputy director at the Bill and Melinda Gates Foundation, was quoted as stating that ‘it’s actually really hard to sell the proposition that MFIs need a better IT system’ given the high initial capital investment. He added that ‘branchless banking offers an entirely new value proposition of why [MFIs] should be upgrading their IT platforms, a real business case based on extra business, extra revenue, not just based on cost’. Mr Mas also stated that MFIs ‘need a new IT system so that they can handle transactions through any store without more branches, more tellers and more cost’ thereby overcoming ‘the inconvenience of not being able to transact in the area where [clients] live and work’. Branchless banking also promotes rapid and robust transaction processing as transaction volumes are not longer ‘limited to the number of tellers and how fast they can enter transactions’.
Related Microcapital.Org publications on MIS have been referenced in the Bibliography section below [10] – [13].
By Chinq Yee Chong, Research Assistant
Bibliography
[1] IBSJ Technology for Microfinance October 2009 Supplement: http://www.ibsintelligence.com/index.php?option=com_content&view=category&layout=blog&id=204&Itemid=27
[2] Article entitled ”Analysis: Microfinance Stakeholders – Guiding hands” in IBSJ Technology for Microfinance October 2009 Supplement: http://www.ibsintelligence.com/index.php?option=com_content&view=article&id=13493
[3] The Bill and Melinda Gates Foundation: www.gatesfoundation.org/
[4] CGAP: www.cgap.org/
[5] IFC: www.ifc.org/
[6] GTZ: www.gtz.de/en/
[7] Grameen Foundation: www.grameenfoundation.org/
[8] Mifos: www.mifos.org/
[9] Grameen Koota: www.grameenkoota.org/
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