THE USE OF TECHNOLOGY IN MICROFINANCE & HINDERANCE FACED BY MFIs
“A good information system is a necessary tool for managing a MFI successfully.”
The MFI organizations’ use different IT systems for tracking client information, managing applications and reporting.
The majority of MFI would like to use more technology for the following reasons:
- To improve reporting on financial, operational and social/economic performance.
- To reduce costs and improve efficiency.
- To add and attract new clients and retain existing ones
- Finally to expand geographical outreach.
Technology for running the MFIs Business:
Most of the MFI organizations completely lack a vibrant application to ensure that the data flows automatically from the portfolio management application to the financial accounting software without duplicate data entry. And the organizations also don’t have renowned application to electronically share data relating to the repayment record of loan accounts with a credit bureau.
In contrast, even though they do have an application that automatically generates required management reports, out of these most are identified as outdated and there is room for improvement in the application.
Though many MFI organizations use some kind of application to store loan/portfolio management data on a single central database, they are mostly outdated and need an update to solve their problem in an efficient and time bound manner.
Finally, two-thirds of MFI organizations do have core systems accessible via the Internet for all staff, but half of them see room for improvement.
Most organizations have plans to improve or introduce technology in applications in the years to come. This especially concerns automation processes (automatic generation of reports, automatic data flows) as well as storage of all loan/portfolio management data on a single central database and accessibility of the core systems via the Internet.
Organizations perceive need for improvement with regard to sharing data relating to the repayment record of loan accounts electronically with a credit bureau and hosting of data and MIS software within their own offices.
Outreach to customers in a novel way by different MFI’s:
Social Media can be one of the tools that can help microfinance institutions to reach out to clients and this has been done by some MFI’s. Some Institutions have started using Facebook to establish contact with people who are willing to start their own business.
Another solution could be the CREDINFO system used by Fejér Enterprise Agency or Qredits’ MicroNet. Both systems enable clients, even in rural areas, to have access to finance by providing them with the opportunity to submit their loan applications online and upload the necessary documents without having to travel big distances.
Technology Constraints faced by MFIs:
The main constraints of the MFI organizations are as follows:
- Lack of funding.
- The ability to accurately define requirements.
- The fear of making poor choices.
- Finally not being sure of what are all the benefits that will be available for the organization when going in for technology upgradation.
Internet-based technology is a useful tool in the hands of MFIs since it can be used for all kinds of purposes. Some MFIs use the Internet to have active discussions with their clients, donors, staff and volunteers or to enhance business-to-business collaboration. Other MFIs provide financial and non-financial services, and there are also others that use technology for monitoring and coaching purposes or for satisfying group lending needs.
CREDINFO (www.CREDINFO.eu) offers complex services for both MFIs and clients. It has an internal back office system and an advanced front end.
Services offered to various users in MFIs:
- can introduce their institutions and credit products on a uniform interface
- can receive loan applications online
- can introduce themselves, their enterprise, the products and services they offer
- can perform a creditability check (scoring)
- can submit loan applications online
- can prepare a financial analysis for themselves
- can find business partners
- can create their own client database
- can provide services for their clients
- can prepare a financial analysis for their clients
- can submit loan applications for their clients
To Net –Admin (For MFI Users)
- Administration interface: to set parameters necessary for the operation
- Loan applications interface: to view and handle applications
- Loan assessment module: to assess received loan applications electronically.
- Possibility to query information from the internal records
- Reporting functions
- Internal communications tool
Back Office System (Internal Recording System)
- Complete information about clients can be recorded
- Word form of letter files can be prepared from the client database in accordance with the various filtering conditions
Loan application records:
Applications, propositions and approvals can be recorded (Off-line support (paper-based) assessment processes)
Loan agreement module:
- It can prepare contracts from a Word template
- It stores the contracts in the Media Storage account of the client, making the future handling of the files easier
- It can handle and record contract modifications (like addition or reduction of loan amount), rescheduling, cancellations, interest stop, repayment calculations, repayment schedule modifications, taking over loans, etc.
- It can record and handle transactions, accounts, in-payments, disbursements and costs (commissions, fees, other charges)
- Monthly/quarterly closing (repayment calculation, advices preparation etc.)
- Individual reports (on the movement of money, client datasheets, etc.) can be prepared.
- Analytical reports (portfolio, overview table, trend analysis, etc.) can be prepared.
- Cash flow report can be produced.
Transparency and Adaptability:
Relevant documents of customers, photos and even videos can be uploaded into the system and all the people participating in the loan assessment process have access to the system, but access rights are provided based on their tasks. This makes the whole system very transparent.
Due to its flexibility it can be adapted to different kinds of procedures and can be translated easily.
Through Social Media:
Having examined the opportunities provided by Facebook, an interface can be established from the application system to FACEBOOK, that simplifies and accelerates the use by displaying news/information recorded by the MFI on the Facebook page of the MFI automatically.
Available Software Products:
Various companies have launched software products for Micro finance, some of them are free to access and rest of the products are monetised.
Below mentioned are some of companies which have launched their products for MFIs.
Finsoft is a versatile software solution that cuts down reports preparation time and increases quality and accuracy of information. Defaulters list, Guarantors information, Subscriber- wise ledger, Agent- wise Business, Automatic Intimation Card Generation, Balance Sheet, and Profit & Loss Statement etc. can be generated. All these will lead to full utilization of man- power, quality and accuracy in information and image among subscribers.
- Cloud Lending INC
Automated processes reduce costs and enhance efficiency.
Configurable credit decision making and document management ensure compliance with latest regulations.
Supports mobile banking and on-field transactions improving collaboration and customer experience.
- 3. Virmati Group’s mFIN solution
As & when a Micro -Finance Institution/ Credit Company would go into a (Full) Banking License, this mFIN solution delivers a leap-frog advantage. With no much difficulty, it can be migrated to a Full Blown Core Banking Solution.
To be contd….