ICT for Development Case Studies Series
IV. Banking & Micro Finance
- Lessons from the Field – ICTs in Microfinance
PRODEM, for example, is using ICTs to verify the identity of its customers. It utilizes a combination of smart card technology combined with biometrics to allow fingerprint ID verification at all of its branches and ATMs. The use of fingerprint verification ensures that only the account holder can complete a transaction, making it more secure than traditional ATMs that only require a PIN number. The system is also easier to use for customers not familiar with PINs, passwords, or other identifiers that require memorizing an identification code. The smart cards store all of the customer’s personal and financial data. As a result, the ATMs are able to verify the customer’s identity and complete transactions without being electronically connected to the central office. As of May 2003, PRODEM had 32,000 smart card account holders. The company plans to extend its network throughout Bolivia, and intends to expand into other countries in the near future.
Computer Munshi-s are entrepreneurs trained and equipped by PRADAN with a Computer System and a software to provide accounting and MIS services to Self Help Groups (SHGs) of rural poor women involved in small savings and credit. These groups are also provided bulk loans by banks for on-lending to members. PRADAN provides facilitation and training support to these SHGs. The SHGs also have been provided with a simple accounting system but in the remote areas the maintenance of the system is improper due to rampant illiteracy. Thus the SHGs become dependent on PRADAN for updating accounts and for MIS reports. PRADAN has devised the Computer Munshi mechanism to institutionalize a sustainable system to provide SHGs with updated and accurate statements and reports. The Computer Munshi is placed in a location accessible to the client SHGs spread out in about 30to 40 villages. The outputs generated by the Computer Munshi are also accessible to other stakeholders such as the NGO promoter, the Bank and the Government departments who do business with SHGs. With the service charges or fees received from the SHGs and the other stakeholders, the Computer Munshi can generate enough revenues to be sustainable.Computer Munshi from Pradhan, India
In March 2007, Kenya’s largest mobile network operator, Safaricom (part of the Vodafone Group) launched M-PESA, an innovative payment service for the unbanked. “Pesa” is the Swahili word for cash; the “M” is for mobile. Within the first month Safaricom had registered over 20,000 M-PESA customers, well ahead of the targeted business plan. The product concept is very simple: an M-PESA customer can use his or her mobile phone to move money quickly, securely, and across great distances, directly to another mobile phone user. The customer does not need to have a bank account, but registers with Safaricom for an M-PESA account. Customers turn cash into e-money at Safaricom dealers, and then follow simple instructions on their phones to make payments through their M-PESA accounts; the system provides money transfers as banks do in the developed world. The account is very secure, PIN-protected, and supported with a 24/7 service provided by Safaricom and Vodafone Group.
Kiva.org was co-founded in 2005 by Matt and Jessica Flannery as the “world’s first and only online micro-lending opportunity”, teaming up with international organisations working in low-income communities. It lists 61 partners in 37 countries that are responsible for deciding which borrowers will be posted on the website. The loans are disbursed to the
partners – local MFIs – for ultimate disbursement to the borrowers.
WIZZIT is a cellphone-based banking facility whose target market is the estimated 16 million unbanked or underbanked South Africans – about 60 percent of the country’s population. Unlike its competitors (FNB and MTN), WIZZIT does not require users to have a bank account and is compatible with early generation cell phones popular in low-income communities.WIZZIT – Bringing Cellphone Banking to the Unbanked
The RTS is based on the use of sturdy hand-held devices that can communicate over GSM cellular networks. Combined with the use of smart cards given out to clients and microfinance agents, the system allows MFI agents to collect crucial financial data in the field and subsequently to transfer the data directly into the MFIs’ computerized financial management systems. The RTS eliminates the need to prepare, transport, and enter hand-written reports, reducing costs for rural operations. In addition, electronic collection of data raises client confidence in MFIs, as well as reducing fraud. Finally, the system, if used by the industry as a whole, might allow MFIs to take full advantage of latent synergies that exist among geographically and financially diverse institutions. With prototype technology, the MFT implemented a pilot of the system in Uganda in partnership with three MFIs active in this country. The three MFIs were Uganda Microfinance Union (UMU), a cooperating partner of ACCION; the Foundation for International Community Assistance (FINCA), and the Foundation for Credit Community Assistance (FOCCAS), a collaborating partner of Freedom from Hunger.
CCD’s current bookkeeping system is the result of an extensive redesign coordinated by ekgaon technologies pvt. ltd. (ekgaon technologies)4 The project commenced in 2002 with a detailed contextual study of the existing documentation practices at the SHG, Cluster and Federation levels. Based on this study, the formats were redesigned to remove redundancies, streamline information flows, and fill information gaps. The redesign process started in Fall 2003 with the support of the SEEP Practitioner Learning Program, “Improving Efficiency – Maximizing Human and Physical Resources.” Before a full-scale implementation, the new system was piloted for three months with 50 SHGs selected from four different CCD-promoted Mahakalasms (meaning large jugs, i.e. a receptacle for community savings). The field officers were first provided with an intensive week-long training to learn the new bookkeeping system.
“Applying an Open Source model to a microfinance application is a very innovative approach to tackling the severe cost pressures in the microfinance sector. It helps MFIs (microfinance institutions) profitably extend their reach to poor communities,” says Lee E. Tenny, managing consultant, IBM Global Business Services, Financial Services-Strategy & Change. After it jotted down its goals, Grameen Koota identified a solution: Mifos, an Open Source management information system designed specifically for the microfinance industry. Mifos, developed at the Grameen Technology center at Seattle with help from IBM, allowed individual MFIs to modify the software to their needs. It also provided the key functions required by a MFI including client management, loan and savings portfolio management, loan repayment tracking, fee and savings transactions, and reporting.
Even the most efficient MFIs are in fact spending between 35 percent and 51 percent of their average loan outstanding on operating costs. New technologies can help microfinance institutions (MFIs) improve risk assessment and management and reduce transaction and supervisory costs, thereby allowing them to cater to the rural population effectively.
If you know of other interesting case studies or projects in this area, please add a short description and link in the comment form below. Thanks.
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