Increasing the outreach and sustainability of microfinance through ict innovation
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Increasing the Outreach and Sustainability of Microfinance through ICT Innovation. By Stuart Mathison Presented by Debasis Mahapatra 07808007. What is Microfinance . Microfinance is the provision of relevant and affordable financial services to poor households.

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Increasing the outreach and sustainability of microfinance through ict innovation l.jpg

Increasing the Outreach and Sustainability of Microfinance through ICT Innovation


Stuart Mathison

Presented by

Debasis Mahapatra


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What is Microfinance through ICT Innovation

  • Microfinance is the provision of relevant and affordable financial services to poor households.

  • Primarily concerned with credit and saving although, in recent time allied services such as insurance, leasing, payment transfers and remittance are being introduced.

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Challenges before MFIs through ICT Innovation

  • Providing microfinance to poor clients requires innovative operating methods to manage risk and reduce transaction cost.

  • Poor clients don’t have physical assets to offer as collateral for loans. Therefore formation of group of borrower and establishment of joint liability procedure substitute collateral.

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Type of MFIs through ICT Innovation

  • Community based savings and loans cooperatives also known as “self-help” groups or SHGs

  • Charitable non-governmental organization providing revolving loans to the poor.

  • MFIs established by commercial banks or government owned development banks.

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The Microfinance Theme of “Outreach” and “Sustainability”

  • If “increasing outreach” is taken to mean more clients from a similar demographic area then “outreach” and “sustainability” are effectively synonymous terms.

  • But, if “increasing outreach” is taken to mean “targeting hard to reach clients” such as people living in remote areas, then “outreach” and “sustainability” are effectively competing terms.

  • ICT innovation can help reaching clients in remote areas in cost effective manner.

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Importance of ICT in Microfinace “Sustainability”

  • Electronic commerce has its genesis in the banking sector. E-commerce has changed the methods of cash transaction.

  • Can same evolution occur in less developed countries?

  • Many microfinance practitioner see ICT innovation as a key strategy in efforts to take microfinance to the next level in terms of outreach and sustainability.

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Microfinance and ICT Innovation “Sustainability”

Back office Management Information System

Mobile Computing

Branch Office franchise model

Card service, EFTOPS and ATMS

Remittance Microfinance Outreach to International Labour Migrants

Internet Banking

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Back-Office Management Information System (MIS) “Sustainability”

  • The most fundamental ICT application is back-office MIS.

  • Sophisticated MIS is prerequisite for MFIs to monitor the quality, sustainability, and efficiency of its loan portfolio, to monitor development impact, and manage general administrative tasks.

  • MFIs also track the non-financial information. So, they need modified off-the-self software package for these requirements.

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Mobile Computing “Sustainability”

  • The back-office MIS helps the MFIs to monitor its loan portfolio, this functionality is undermined if the data analysed by the MIS is not up-to-date or contains errors.

  • Through mobile computing systems the Loan officer have a palmtop computer, so that the financial transaction can be recorded directly into the MIS.

  • It has significant implication with respect to data accuracy and integrity, there by enhancing “client confidence”.

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The Branch Office Franchise Model “Sustainability”

  • MFIs have an overwhelming pressure to reduce transaction costs and increase profit margins.

  • Through branch office franchise model, the MFI links with third-party merchants in remote areas.

  • The rural telecentre networks are particularly suited to serving as retail outlets for MFIs.

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Card Service, EFTPOS and ATMs “Sustainability”

  • There are many similarities between consumer credit cards and microcredit services. Both tries to reduce high cost associated with small transaction lending.

  • Introduction of card-based services require the roll-out of either EFTPOS functionality with third-party merchants and/or ATMs.

  • Card- based microfinance offers even more opportunities like allowing clients who have proven creditworthiness over time should given access to additional products and services.

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Internet Banking “Sustainability”

  • Gives client real-time information about their account, and the ability to transfer funds between accounts.

  • It is an efficient tool to reduce the work of tellers and therefore reduce the labour costs.

  • Rural telecentre networks can help in implementing Internet Banking for MFIs.

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Remittances: Microfinance Outreach to International Labour Migrants

  • MFIs through technological innovation, product design can tap this market by extending outreach to these migrant workers and their families at home.

  • For example Sri Lanka’s Hatton National Bank, whose “HNB Easy Remittance” help Sri Lankan migrant workers to remit funds directly to HNB accounts.

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Challenges and Criticism Migrants

  • Wide digital divide persist in India.

  • Finance sector regulation restricts innovation in MFIs.

  • ICT- enabled services de- personalize and individualize the banking process, thereby conflict with those group- based methodologies that can be held up as the key reason for high-repayment rates of MFIs.

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Conclusion Migrants

  • Some says “it can’t be done in microfinance, electronic banking for poor will not work”.

  • It has to work. Otherwise will be at a continuing disadvantage with current economies and enterprises.

  • 20 year ago when microfinance was in its infancy many at that said “poor can’t repay, the poor will not repay, the poor can’t save.

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Thank You Migrants