Ratan Mf Tech Path Bmgf

8/3/2019 Ratan Mf Tech Path Bmgf

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On microfinance

(and technology)

Aishwarya Ratan, MSR India, March 2007

Dhobis (washermen), tailors and barbers contribute more to the GDP of Andhra

Pradesh than the IT sector. (Vikram Akula, SKS; Source CSO, 2004-05)


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Urban Rural

>$2000/year

$1-2000/year


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Outline

Microfinance and development

Demand

Supply ICTs and microfinance

Nature of problems

Appropriate solutions



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The poor use finance for growth and

survival

Sustenance (40%) Fulfill basic consumption

Protect against shocks

Access lump sums for

lifecycle needs

Growth (60%) Enterprise (30%)

Buildup assets: education,

home (30%)

Survey of 64 LI & LMI urban and rural HHs, 2006



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but face very high prices for finance.

No acceptable collateral/ surety

No unique ID

No record of previous borrowings/ repayments

Irregular income flows

Low literacy

9-12%APR

24-120%APR

0-60%APR



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So they turn to a variety of old and new

providers to fill the gap

Microfinance targets urban and rural low-income (


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India used to offer targeted financial

services to the poor & excluded

Priority Sector Lending

The 1:4 rule for bank branch expansion

Growth of Bank Branches in India

Source: Burgess and Pande, Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment. 2003



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but these are declining.

Direct formal credit to Small Borrowing Accounts (


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High growth India: $4 mn lent (1995-96) to

>$2.8 bn (2006-07)

High potential growth

India: Market size estimated at$16-22 bn

Large outreach

India: >33 mn HHs

Large number of players India: >3000 MFIs

Few industry leaders

Only 1% of providers WW fully

financially self-sustaining

Hence the rising importance of the

microfinance industry, characterised by



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5members

Current models of microfinance delivery

12-20members24-36%APR

NGOfacilitator

Cooperative

RS.@ 9-12% APR

The group is the MFIInterest accrues to member-borrowers~33 mn outreach in IndiaLess profitableMore welfare focused flexible paymentsMost common model in India

Commercial

RS.

RS.

@ 9-12% APR

@ 24-36% APR

External provider is the MFIInterest accrues to 3rd party intermediary~8 mn outreach in IndiaMore profitableMore commercially focused EMI paymentsMost common model worldwide

MFI



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Can ICTs enable microfinance?

Front-end IS1. Account creation (loan, savings

& insurance)

1. Collecting client data

2. Screening/ verification

2. Transaction data

3. Processing claims (savings,

transfers & insurance)

E-/M-paymentsEnabling cashless transactions

1. Disbursal of amount (loan)2. Collection of dues/ payments (loan, savings & insurance)3. Transfers

Back-end IS1. Aggregation of client data

1. Actuarial analysis

2. Target offerings

GRAMEENTECHNOLOGY

CENTRE

CGAP


m-banking


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Case: PRADANs Computer Munshi experiment

Problem area Poor quality of financial data No aggregate record

Issues Costs associated with:

Time spent on accounting each week Mistakes discovered at annual audit

Experiment Goals

Improve SHG data quality & aggregate data Outsource weekly accounting function createsustainable business model

MethodsHave an Accountant with a PC serve a Federation ofSHGsCharge nominal fee for data processing serviceUse manual transport to ferry data back and forth

ResultsWeekly meeting time cut by halfInstant evaluation of financial performance of largegroup of SHGs possible

Original workflow

Improved workflow

(90,000 rural clients, EAST/CENTRAL India)

Weekly collections

Book-keeping done locallyAnnual auditing by NGO

Weekly collections

Copy of transactionrecord put in drop-box

CM updates records &prints balances & dues

Annual auditing by NGO



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Can ICTs enable microfinance?

Front-end IS1. Account creation (loan, savings

& insurance)

1. Collecting client data

2. Screening/ verification

2. Transaction data

3. Processing claims (savings,

transfers & insurance)

Back-end IS1. Aggregation of client data

1. Actuarial analysis

2. Target offerings

GRAMEENTECHNOLOGY

CENTRE


m-bankingE-/M-payments

Enabling cashless transactions1. Disbursal of amount (loan)2. Collection of dues/ payments (loan, savings & insurance)3. Transfers CGAP


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MSRI Urban pilot with UJJIVAN

Customer Profile formfilled on paper in field

Branch Manager ApprovalPost all forms to Head Office

Head Office entersinfo to database

Piles of extra paper andmoney gone to waste

Customer is approved!

Problem areaNew Customer Profile Creation

IssuesCosts associated with:

Double data entry Error correction Data transport

Stationery Back-office staff

ExperimentGoals

Reduce costs Improve client data quality

MethodsSimple mobile-phone application to

record client data in fieldData transmission via SMS

Automatic upload of data into databaseusing a smart phone SMS-server

Existing workflow

Customer Profile formfilled electronically infield

Manager Approval

Customer is approved!

SMS all forms to Head Office

Improved workflow

COSTSAVINGS?-Low labour cost-Relative efficiency

(25,000 urban clients, SOUTH India)



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Key take-aways

Have a balanced appreciation of microfinance as one of many killer

apps to target poverty and/ or promote growth

The value-addition of ICTs in enabling microfinance greatly depends ondelivery model, operational efficiency and labour/ technology costs

Hybrid, cost-aware approaches and accurate matching of device withtarget functionality are key

Photo sources: CCD Mahakalasam & Ekgaon; PRADAN



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Others involved:

Ujjivan and Pradan staff & members, Shabnam Aggarwal,

Mahesh Gogineni, Sean Blagsvedt, Kentaro Toyama, Vibhore Goyal,

Jonathan Donner, Indrani Medhi, Rajesh Veeraraghavan

? [email protected]

Thanks!

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Ratan Mf Tech Path Bmgf