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 Information Technology for MicroFinance
Opportunities and challenges in India ‘Kuch Apni Soch aur Kuch Jugaad’: Crafting the MF/IT Paradigm - The Indian Experience
An Introduction
The last decade has been marked by the increasing outreach of Information Technology and Communications (IT & C) in all walks of life. MicroFinance (MF) is no exception, but as yet in MF sector in India IT&C has only of late that is since the 1990’s, begun making inroads and the number of microFinance Institutions (MFIs) using IT&C in their operations continues to remain a minority. A uniquely Indian MF/IT paradigm is being crafted and is still in the making consisting of the interplay between the existing specificity of the Indian MF diversity and international practices. We propose that IT & C has a significant but as yet limited role to play in the MF sector, as the prime focus is accorded to enabling access to microcredit/MF for the poor people through people’s institutions. And that IT & C would play a significant role in the MF sector for which there is considerable potential only if technology downscales-both in terms of price and products, and the MF sector upscales in adopting technology into its operations. The present and emerging trend in areas of technology application is Management Information System (MIS) which has emerged as the most pressing need of the MF sector and the integrated IT & C package addressing credit, livelihood and credit plus services.
The role of technology in the MF sector has raised issues of the digital divide, technology in the hands of the poor as opposed to being esoteric, indigenous versus exotic, expensive or economical, high end versus low end, generic or customized and finally specific or customized technology products. Some of these issues continue to be addressed by MFIs as ideological positions, while some are factors in opting for technology. These issues will be analysed in this paper.
We argue that, in MF digital divide as yet is not of much significance as its primary emphasis is and would continue to remain-people and their MF requirements. Further, the use of IC&T in the MF sector is contingent upon the emergent technology needs of the MF sector, the technology advancement in the IC&T sector, the infrastructure especially power (including alternative sources) and telecommunication and the wider economy, or the operating larger economic forces. The interplay of these four sectors determines the future role of IC&T in the MF sector. As yet, there is limited interaction between the four sectors and it is expected to grow in the future as MFIs scale up and the technology develops/downscale/upscale according to the needs of the wider market as well as the MF sector and the larger economy which determines the growth of the both technology & and MF sector.
We argue that not only at present but also for some time to come, manual operations would continue to remain the norm as they are more suited to the systems established and economical. But now there is the existing trend of co-existence and integration of both the manual and technology systems.
Technology entry into the MF sector has entered in a small but in a significant way. The pioneering breakthroughs have been made by MFIs which have attained financial and institutional stability and sustainability enabling them to have well defined MIS systems and a clear vision of what IT can do for their organizations. These organizations have been able to either raise funds from donors or fund them from their own funds-eg. SEWA(Self Employed Women’s Association) Bank, or else take assignment to develop IT software like BASIX (Bharatiya Samruddhi Financial Services) has done with International Finance Corporation(IFC). Among those MFIs which have used technology, the new MFIs have integrated IT & C and MIS into the design and planning of the MFI and its operations-for eg., BASIX and Swayam Krishi Sangham (SKS), The Activists for Social Alternatives (ASA) and Development for Humane Action (DHAN) Foundation
But small MFIs are not in the picture at all. Large MFIs, medium and transitioning MFIs feel the need for having an integrated and well developed MIS to handle its portfolio and transactions and also take appropriate policy decisions and need IT to handle their growing operations as well as to provide efficient and effective, transparent services to their clients, effective time management, increase the outreach and to better the quality of services to the clients. To invest in MIS requires substantial funds and for this the MFI has to generate funds to develop or even buy the required software package as well as hardware say computers. In addition, training and capacity building of the staff is another Human Resource Development expense. Often MIS packages are not available off the shelf, and need to be designed according to the needs of the organization. The option of sharing of costs between different activities of the MFI-credit and credit plus activities needs to be explored.
So for the IT market the MIS is the entry point. Across the country, MFIs are sourcing local software vendors for developing their MIS requirements, which is a new business opportunity for the IT sector, and growth of the IT sector vis a vis MF is spread across the country with small and big vendors catering to the needs of the different MFIs, resulting in spatial and sectoral spread of IT in MF sector.
The government policy is towards the support of the growth of both IT and MF, but needs clearer directions as to where it should go, and as of now, the needs of the sector are predominantly focused on developing MIS software as a large number of MFIs are increasingly scaling up and smaller MFIs are beginning to use MIS in their operations. The government agencies can provide soft loans for development of software and keep continuous check on the usage of the software by the organization and also rate the available software and develop rating standards and benchmarks.
This paper presents an overarching view of the MF/IT and IT/MF interface/interaction, the existing and the emergent trends and explores the role that IT is envisaged to and plays in the MF sector, the IT sector interventions in the MF sector, the policy implications and the existing trends in the MF sector in India.
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