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Expert Article: Will the Internet and Cloud based technologies benefit the poor?

April 8th, 2011

This expert article was contributed by Elizabeth Galpin of PAYG Solutions. Will the Internet and Cloud based technologies benefit the poor? Post your comments below or discuss this article with MFI experts in the Microfinance Investment Leadership group on Linkedin.

Will the Internet and Cloud based technologies benefit the poor?

One of PAYG’s aims is to drive down the fees, charges and interest rates that customers are paying to MFIs for their loans, and we hope that by providing as many bells and whistles and tools for the MFIs, we’ll help them to maximise efficiency in order to do this.

There are 5 new MIS systems for MFI s that are run as SaaS (Service as a Software), including the Cloud version of Mifos, Mambu and ours. Although there will always be some pain associated with moving from one MIS platform to another, the benefits to MFIs of having their MIS hosted in the cloud / run as a SaaS solution, are quite extensive. First of all there is the immediate benefit of reduced overheads and costs of running the system, buying and maintaining the hardware and backing it up. The operational costs of SaaS will be cheaper than the costs of purchasing software and paying annual licence fees for stand-alone software. Then there are the benefits of all the real-time transactions that can be processed without the need for manual intervention, and the fact that the system can be accessed from any number of different locations, including mobile phones. The ease with which the system can be integrated into whatever mobile wallets or prepay cards are dominant locally, automatic reconciliation of these payments and the facility to provide Field Officers with handsets so that they are able to transact out in the field, all provide numerous opportunities for efficiencies and cost-savings, as well as a potential reduction in administrative overhead.

Of course, ultimately the common goals of ALL MFI software should be to reduce delinquency, increase transparency, improve reporting and control of the MFI’s money, thereby attracting further investment.

We’re trying to automate wherever possible by catering for a very wide range of loan products – loans providing farmers with goods, loans whereby products such as solar panels and stoves are delivered instead of money. In both these cases we are automating the loan process by creating the loan automatically when the product is distributed, to cut out as much administrative overhead as possible. Keeping track of farmers’ yields as a means of providing collateral for the loan is another approach. All these things are happening right now – all trying to maximise the efficiency of the MFIs, with the aim of benefitting the customer as much as possible.

Mobile money provides another example whereby technology is impacting upon MFIs and altering the role of the Field Officer. Not only does mobile money provide a means of disbursing loans

and collecting repayments, another potential opportunity that has been widely discussed is the possibility of Field Officers doubling up as mobile money or Banking agents in rural areas to recycle the cash in the community and reduce the need for time-consuming and therefore expensive trips to the banks.

Other recent innovations / use of technology that have had an impact on MFIs are the MIX market, peer to peer lending and using the internet as a means of matching borrowers and investors. Kiva is probably the most well-known organisation in this area, but there are plenty of other examples out there. Peer to peer lending to SMEs, using the Internet as the medium, is gaining in popularity and is seen as a way of complementing the services that the MFIs provide.

In the UK there are too many examples of on-line loan services to even mention. These tend to focus more on consumptive lending, than Productive Lending, and are therefore in a different ‘space’. But of course, in the UK, most companies will do a credit score on the customer, there is more regulation and transparency and Lenders have to publish their APR (Annual Percentage Rate) so that customers are able to easily compare loans on offer.

Turning attention back to the developing markets then, and I’m going to concentrate on the Kenyan market, because it is seen to be a market leader in mobile money and innovation, and I have a little more first-hand experience in Kenya than in other countries. On-line loans and text loans are starting to become available. Products like M-Kesho provide easy credit.  Peer to peer lending to businesses and SMEs will definitely make an impact, and may mean that MFIs will have to start working harder to retain their customers. Kenya is considering implementing a Credit bureau for MFIs (this has already been done in several other developing markets such as Peru, Guatemala and Bolivia, and I know Pakistan is also introducing a credit bureau.) In theory, being able to credit score customers means that there is a reduced risk of delinquency for customers with a good credit score, and they should benefit from this by attracting a lower interest rate on their loans. I have no idea, and would be keen to find out, whether that has been the case in countries where credit bureaux for MFIs have been implemented.

BUT who is going to benefit the most out of all of these advances which technology is providing? The software providers? The MFIs? Hosting companies? The investors? The MNOs running the mobile money services and providing the shortcodes for SMS traffic? The middle men running the service to match investors and borrowers?  Or will it be the Customers i.e. the poor? Are those of us who think we’re providing a service to improve the lives of poor people just kidding ourselves? Are we actually going to make a difference to peoples’ lives? It’s something I personally worry about, and I am genuinely interested in other peoples’ views.

Category: Payday loans

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