According to the World Bank, between 2 and 3 billion people worldwide still do not have access to financial services. While many banks, international organizations, NGOs and microfinance institutions are committed to meeting this immense global demand for basic banking and insurance services, the question is how to expand microfinance affordably.
 | "We need to figure out how to scale microfinance more effectively, and that's where IT becomes a huge tool to create more efficiency," says Peter Bladin of Grammen Foundation (Photo: Adam Rogers/UNCDF) |
Information technology appears to be one of the answers. Many of the thousands of microfinance institutions (MFIs) worldwide recognize that technology is essential, not only to reach new people, but also to make the business of microfinance more cost-effective and sustainable. Mobile phones, ATM machines, and a host of new innovations promise to help MFIs more efficiently provide services to people typically considered "unbankable."
"We need to figure out how to scale microfinance more effectively, and that's where IT becomes a huge tool to create more efficiency," says Peter Bladin, who heads the technology wing of the US-based Grameen Foundation.
"Once you've improved your efficiency, you can reach many more people," Bladin adds. "I think we need to focus more on that, because there are still not enough of institutions that are reaching scale despite their great potential."
Lowering costs, improving efficiency
According to a survey published in January by the World Bank's Consultative Group to Assist the Poor (CGAP), dozens of banks and microfinance institutions are already beginning to rely more on ATM machines, mobile phones and other "point-of-sale" (POS) terminals to conduct business with their clients.
 | Access to Financial ServicesClick on the picture to find out what fraction of households in a given country has access to financial services. |
POS terminals - often computers, bank card readers, or even mobile telephones - enable bank transactions from balance inquiries, money transfers, bill and loan payments, to cash withdrawals and deposits. Although most POS terminals still require staff to operate, CGAP reports that they cost less than 0.5 percent the price of building and staffing a bank branch.
"We can't just build brick and mortar branches everywhere. It's too costly a model to reach large numbers of people today," says Bob Annibale, head of the microfinance division at Citigroup. "But we already have the products and the technology. We don't need to build every branch or repeat the whole infrastructure of the financial system in Mexico or India. Where are you going to get the capital to do that?"
To illustrate the benefits of technological leapfrogging, Annibale offers the analogy of telephones: "You can skip whole generations. You can wait forever to get a landline that comes down every time it rains, run by some legacy company that has never been capitalized properly. Or, you just skip it all, and go from no access to having a mobile phone. In a way, financial services need to do the same."
Indeed, one of the most-used devices by both microfinance providers and their clients is the mobile phone. With the number of African and Asian users increasing by tens of millions each year, many organizations are looking for ways to best utilize mobile phones as a tool for microfinance.
"I personally believe that the mobile phone is the ubiquitous technology that is being rolled out," says Peter Bladin. "If you don't have to put new devices into the system, you're much better off."
Other new technologies could broaden the reach of mobile phones in the developing world even more. Earlier this year, the Clinton Global Initiative acknowledged a UK-US firm, Better Energy Systems, for its new "Solio" line of portable solar power panels, which can charge mobile phones and other electronic devices without access to a traditional power grid.
'We can do that'
Meanwhile a number of back-end devices and software packages, such as the FAO/GTZ MicroBanking System, the PortaCredit system used by ACCION International, or the "Mifa" system pioneered by Grameen, aim to make the transaction-heavy business of providing basic financial services to thousands of rural clients easier and cheaper.
"The big challenge is bringing costs down," says Bob Annibale. "Most of us never want to see our bankers. If you're a microfinance client, you've got to meet them every week in a group. It's enabling and empowering, and often other services and programs share this time, but it's expensive. In the end, the client is paying, so we must use their time wisely and technology as much as possible to support the process."
"I believe that most microfinance institutions want to provide microfinance clients with the same quality of products and services that clients receive from other financial service providers, and they want them delivered efficiently and at a lower cost," he adds.
Many agree that one key to expanding microfinance affordably is applying practical technologies to address the real, but diverse needs of MFIs and their clients. According to Annibale, much of the technological capability is already there.
"We need to leverage technology and those who understand its capabilities best. I often talk to innovation teams and ask them, for example, if its possible to have a biometric ATM that displays in six languages and speaks to the client, while recognizing my preferred language when I put in my card, and they look at me and say, 'We can do that. Nobody ever asks us to, but we can do it.'"
publishing date: November 17, 2006
editor: Valdis Wish
