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fino microfinance
    Question from Group. Google

What is the cost of setting up a typical micro-finance systems by a bank?

It varies from bank to bank and depends on the services they want to cater to the market.Rather than focusing on absolute cost(As it is not freely available) we have focused on cost components of providing micro finance. For that you can refer to our post

    Question from Group. Green IT

Does the cost of technology add to cost of micro finance ?

A good information system equips managers to make informed decisions and produce reliable reports. Perhaps the most important contribution of technology is lower operating costs. The cost of hardware and connectivity are the major components of the technology employed to support the micro finance service. The model is cost-effective with multiple MFIs being served and cost of the technology does not impact the cost of micro finance.

    Question from Group. Green IT

Will the rural people (illiterate) be able to leverage the microfinance using ICT?

Micro finance has inevitably redirected itself through the ICT route for maximizing outreach. Correspondent Banking – whereby a bank links itself with third party merchants located in remote areas – has emerged as a solution for this problem of outreach. Correspondents who are ICT enabled act as the medium between the customer and the service provider. With organizations like FINO, agents (bandhus) are introduced at the distribution level to facilitate the micro finance services to the rural people. With the use of biometric devices for authentication and smart cards for transaction processes, rural people are placed better in terms of handling the banking operations.

Technology-enabled delivery systems can be effective for increasing access to low income clients if six key criteria are met :

* Clients perceive a benefit from the technology, such as convenience, reduced risk of carrying cash, or the ability to transfer funds from one person to another.

* Clients are comfortable with, and educated about, technology.

* Technology is user-friendly, not too difficult to understand or learn.

* Technology addresses cultural sensitivities around gender, class, and privacy.

* Clients trust that technology will not somehow cheat them; trust is enhanced by issuing receipts.

* Technology solutions are physically accessible and affordable. Limited geographic distribution of transaction points reduces the value of a smart card to the customer. At the same time, extensive ATM and, to a lesser extent, POS networks can be expensive, requiring appropriate fees to recoup the investment.

Question from Group. Web 2.0

Most of the rural areas are still struggling with power issues. In that case, how will you set up these devices and the desired  infrastructure to implement the micro-finance model?

To implement micro-finance, there is little dependence on infrastructure. Implementation of the same requires one having hand-held devices equipped with biometric smart card. Lesser dependence on setting up infrastructure and having not very power-demanding devices will do away with major power issues. One challenge lies in internet connectivity for maintaining database and connectivity to partner banks. This challenge is overcome by

installing VSAT lines across the villages. Talking about frequent power cuts issue, if any faced by a village employing micro-finance model, it is combated by the respective state governments and already employed Self-help groups by making provisions for alternate sources of energy like solar power, wherein Self-help groups purchase LED lights and solar battery chargers with rechargeable batteries of different sizes to cater the power needs to FINO.

Research Paper. The Ganaseva Model

The Paper mentions the following anecdote :

According to The Economist Microfinance Survey:

“The cost of micro-finance will have to come down. At present, it is far too manpower intensive…Credit evaluation relies on character or cash flow valuation rather than the statistical techniques…… it will not be sustainable……. More competition will help reduce costs, but the biggest hope comes from new technology” and further, “In the past,

the two main obstacles to providing Financial services to poor people have been lack of information and costs…. Ultimately lower costs and better information are good not just for the poor, but for everyone.”

This model is developed for establishing rural information infrastructure and supporting the delivery of banking services to the rural people.

Makes use of technology for:

1.Improving the efficacy of the credit delivery

2.Minimization of the transaction costs involved

3.Ensuring that bank credit increases and promotes productive capital formation and investment in rural areas

Its components are Digital Rural Information Infrastructure, Customer Data Integration and Credit rating, a shared electronic platform for various services, Provision of technology support to banking services including ATM Services.

The solution proposes common infrastructure for the rural data collection and information management and processing and the sharing of the delivery channel by the banks with a view to substantially reducing the transaction costs and improving the speed and quality of delivery. The elements involved in the solution are the establishment of a data center and ensuring its two way connectivity to the mobile multi-service delivery system available at the villages for providing the banking, extension and other services as well as connectivity to all the concerned banks and other service-providing agencies.

Technologically, the solution involves four main elements:





The benefits to the banks from the model are the availability of mechanism for achieving and expanding effective access to the rural areas in a non-traditional economical way, identifying the potential customers and providing highly individualized banking experience in proactive manner including individualized risk assessment; availability of reliable information infrastructure in digital form with a mechanism to update on a continuous basis; facility to do off site identification of the prospects online; credit rating to enable building of quality portfolio and facility for building portfolio according to the requirements of the banks.

The digtal RII facilitates the following in the banks:

• Access to self- validated data / information with documentary proof in the digital form to the service- providers at low costs.

• Providing techniques and tools for evaluation of the credit on an individual basis rather than in a standardized manner

• Applying of the information and communication technologies appropriately for reducing costs, delays, increasing accuracy, objectivity and reducing governance problems in the credit assessment.

• Enabling more efficient capital allocation and improvements in quality of lending.

FINO Cont…

The need is to be able to identify an individual with a alphanumeric string of a certain length which requires an intelligent composition and sequencing of this alphanumeric string which can convey information about the domicile, gender, age, etc. and is easy to remember for the individual. There are many

such compositions that can be invented and there is one such composition, which FINO has invented after a considerable deliberation and successfully put to use.

The system should be capable of capturing and identifying one or more natural or biometric characteristics of the individual. These characteristics should be quantifiable using efficient algorithms to search and compare against a historic collection of such characteristics obtained from other individuals. Biometrics technologies collectively are relatively a new realm of technology at various stages of development and add to the effectiveness of FINO implementation.

    Technology Challenges

1. Validation of the collateral – This is more applicable to semi-rural and rural populace, where either the collateral is not present or is not from a listed body. Even if it is present, a sub-challenge is to have such attested copies available in the system in electronically searchable format securely.

2. If the method is form based then the legibility of the hand-written text – Though the OCR and ICR technologies have evolved over time to even identity characters written in running letters, a degree of obscurity remains and affect the registration, if the forms are not carefully filled. It can lead to unnecessary iterations between the field and central operations.

3. Choosing the composition of a Unique ID string – Once the data of an individual has been collected along with necessary verification, the same can be processed through an algorithm to assign a Unique ID in the system. What is important to understand is what details should such an ID reveal about the individual without searching the system?

FINO has implemented a “Unique ID” in the system called “FINO ID” which is as follows:


· NNNNN – Serial Number in group (GYYSSVVVVVV)

· G – Gender or type of entity (Indi/SHG/JLG)

· YY – last two digits of year of Birth

· SS – State code as per census master

· VVVVVV – Village code as per census master

· C – Checksum (LUHN check or MOD 10 check)

The FINO ID not only provides uniqueness to the person but also adds in demographic information of the customer. The ID captures his gender, year of birth, State and village code. This format has the capacity to add 1 Lac individuals of a particular gender from a particular year or birth within a location – State and Village ID. While this ID would always be present on some sort of an Identification or transaction card, an additional benefit of such a format is the person would need to remember only a serial number in additional to gender, year of birth and domicile, which he anyways knows already.

· Biometrics – Fingerprints, Palm, Iris, Face, Voice Hand, Veins, etc

The challenge is to successfully capture, transmit and archive while maintaining necessary quality aspects related to the fingerprints.

Quality: While there is definitely a difference between the images generated primarily because of the platen size, not much is evident to the naked eye with respect to the image clarity. However, when the images captured from different scanners under controlled environments were run though image quality rating engines of some of the leading vendors, they did produce different values. It is important to control the quality of the image capture at the entry stage itself irrespective of the scanner chosen. Thus, the capture application should be built with requisite checks to allow images matching required quality rating.

Following issues also need to be taken care of:

· Failure to Enroll

· Storage Format (Standards Vs Proprietary Vs both)

· Data and Security Management

· Secure Vs Unsecure Token – Issuance and Lifecycle Management

–NREGA:government decides fee for delivery (2%) and mandates that it must go through a bank, which takes a cut (0.25%).

Customer Enrolment & Process Flow

Enrolment Process:

FINO employs a (POT) terminal equipped with a fingerprint reader, a receipt printer and a SIM card port for communication over mobile networks. As part of the enrollment process, agents take a photograph, signature and gather some basic information from the customer. They also use the biometric machine to scan all ten fingerprints. After this process is complete, the information is used to create a smart card for the recipient. The smart card is embedded with the customer’s account and biometric information. To transact, the agent swipes the card of the customer. They then scan the customer’s fingerprints to confirm identity.

Enrolment will be a one-time process where the company representative will visit the individual’s location for verification. These representatives will be entitled to engage with the customers, source customers and make banking transactions with customers on behalf of the bank. Once the enrolment has been performed the customers will receive their transaction cards, and will visit these representatives from time to time to carry out banking transactions.The money, as well as a receipt confirming the transaction, is given to the beneficiary to complete the process.

The success of FINO’s POT is attributable to its various features. The use of the mobile network, which is extensive in India, allows the agents to transact in very remote areas. The customers trust the fingerprint authentication mechanism as they view fingerprints as harder to forge than signatures. Additionally, the transaction receipts serve as important proofs when disputes arise. The combination of these features allows the customers to entrust FINO medium. This in turn extends the reach of the banks to these remote locations. The service is of a great benefit to the banks as it is comparatively cheaper than the cost of operating branches in these areas, particularly given the low transaction rate and amounts.

Issuing Multi-functional Transaction Cards:

A unique transaction card would be provided to each customer with features including:

1. (a) Unique customer identity

2. (b) A Card Verification Value (CVV) number, and

3. (c) A multi-product delivery platform (e.g. insurance, remittance, and savings account).

Once the card has been issued to the customer it would be used to cross sell other financial and non-financial products which will increase the revenue per card with zero incremental cost thereby maximizing the efficiency of each card.

Transaction through mobile handset device of the company’s representatives:

Company Representative (CR) will receive a mobile based platform (software uploaded on his mobile phone) which will form the interactive base for the transactions. CR will carry out the transactions on behalf of the customer and the customer will only have to enter his unique password to authenticate the transaction. The company will provide these passwords directly to the customer through a pictorial user manual giving directions on how to press the password keys. The customer will have the option of receiving transaction confirmation either on his mobile phone or get a transaction receipt from the CR.

Category: Payday loans

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