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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 microcred IT/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 &andMF 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.
The Indian MF/IT paradigm:
Tremendous diversity in scale and operations and heterogeneity of MF models in MF sector which requires corresponding IT & C applications addressing the diverse needs of the MF sector. Large and new MFIs use with highly limited application of IT & C by small MFIs. The software is customized to individual MFI needs despite the availability of basic generic packages based on MFI models and donor audit requirements. IT & C applications are devised according to the local needs with drawing learnings from across the world. On the one hand software packages are devised for the use of a single MFI, on the other hand multiple MFIs use a package through process of collaboration. Development of customized package as well as application of an international generic package such as Grameen. IT & C is used for credit, credit plus, livelihood and enterprise development services, as well as e-applications such as health, commerce, education, agriculture. Single totally customized software package exists along with generic packages developed on the different MFI models using CGAP ratios. Both copyright and copyleft issues co-exist. Diverse range of IT applications ranging from MIS for a small MFI to integrated technology application package inclusive of providing IT & C consultative services to other MFIs.
B MF sector and IT: IT Trajectory in MF
This section delineates the IT trajectory into MF sector using the MF Linear Growth Model which has been taken up for reasons of the basic thrust and ideology and the system requirements based on size and financial volume transactions and portfolio of the MFI positioned at a stage in the growth curve-small, medium, transitioning and large. That is, MFIs begin from small and develop into medium and transitioning before finally evolving into large MFIs. Hence, where does IT&C fit into this growth model and what are the levels of complexity, expansion and technology intervention s well as the kind of intervention-high technology and low, exotic or demystified, are some of the issues which are examined in this and the following section( C ).
MF Growth Model: Needs and IT interventions
The typical MFI growth curve is small, medium transitioning MFIs, and large MFIs- has been taken up as the systemic requirements of MFI logically grow with the growth in scale of operations of the MFI. A small scale of operation requires small system and a large scale of operation requires large system. The scale of operation ranges from simple to increasing complexity, which necessitates the continuous investment and development of the systems of the MFI. Therefore, MFIs necessarily need to have MIS systems which are responsive to the current operational status of the MFI.
MFIs at different levels along the growth curve address the issues of MIS, financial systems and loan portfolio tracking in different ways. On the scale of complete manual operations to complete technology systems, most of the MFIs fall into the category of manual operations while some are in the process of integrating e- MIS/Financial/Loan portfolio tracking into their operations with a view to convert completely in the future to e-system, while there are only about couple of examples for the end of the scale that is where there is complete e-system.
A small MFI typically adopts manual operations and information flows at this level are handled by MFIs without any technology hardware/software. The focus is to establish the MFI among the clients in order to ensure the sustainability of the system and the MFI. The MIS is often at a basic/rudimentary level-financially and institutionally, with the MFI using manual operations.
Typically, IT is not used as its prohibitive expense is a deterrent which comes in the way of the financial well being of the MFI. Once the institutional and financial stability of the MFI is ensured, that the MFI begins to consider adopting IT. At present IT & C integration has been made possible largely due to the support given by partner agencies (such as CARE India’s CASHE programme and SIDBI).
A medium MFI which has attained institutional and financial stability and expanded its outreach and range of operations, as well as loan portfolio, requires the establishment of complex operations to keep track of its operations, loan portfolio and to take timely and informed decisions. In order to have consolidated data which is timely, speedily and regularly available, it requires a well developed MIS for which it upscales its MIS system which is manual to electronic with technology playing varying roles. The technology intrusion at this level is typically of computerization of its office/s, provided that funds permit. Typically, both manual and technology operations are integrated at this level.
Large MFIs with increased outreach and scale of operation and which possess financial and institutional sustainability require more frequently consolidated data of the operations. This is when the organization goes in for high investment in technology and looks towards integrating technology into its regular operations. SEWA Bank is one example of a large MFI opting for increased technology adoption in its operations. Its future plans for IT include developing information kiosks on the lines of ATMs, experimentation with hand held devices and inter-office computer connectivity in Ahmedabad city.
New generation MFIs which have begun in the 1990s when IT had made significant inroads inroads into the development sector, have a clear vision of the organization as well as the role of IT&C can do and integrated into their vision and operating systems- such as SKS and BASIX, right at the planning stage. Others like SEWA have integrated and developed IT & C along their growth curve, and their point of intervention varies according to the vision, mission, and type of operations of the MFI. This is illustrated by the example of SEWA and SEWA Bank— it was mandatory for SEWA Bank to have a well developed MIS in place at the planning stage itself as the banking system demands it, whereas SEWA can develop it gradually according to its need and scale of operations. New generation MFIs begin small, but as their growth is quick and transitioning is faster, they are typically medium to large by the time they have IT & C systems in place beginning with computerized operations to MIS to integrated technology such as smart cards, internet kiosks etc.
Though IT & C is mainly adopted by the New and Large MFIs, yet there is a small but increasing trend of small MFIs adopting IT & C primarily with support from partner agencies (such as CARE’s CASHE programme) and or from SIDBI.
Challenges to incorporating IT & C into MFI operations/ MF sector
The
reasons for the current limited IT & C applications in MF sector are manifold- first of all the costs associated with the hardware is the main deterrent, secondly, awareness is limited about the application of IT & C for Mm operations as well as development activities which are engaged in by the NGOs/MFIs, thirdly, limited or even lack of access to the hardware and software vendors, and fourthly, limited sharing within the MF sector about the application and use of IT & C in the MFIs which have adopted IT & C.
Economy plays a critical role in the integration of IT & C into the organization’s systems- and the critical factor is the price- as high prices of both hardware and software, function as a deterrent and low prices act as an incentive.
Manual operations continue to play a crucial role in the MFIs until they have attained institutional and financial stability and sustainability-this is the case even for MFIs who have gone in for IT & C right from the planning and visioning stage. At present manual operations are economical and especially more so in the face of the present high costs of technology, and also are in consonance with the operating and philosophical/ideological focus of MFIs which is people who are the focus and their capacity building is important. And given the constituency of MFIs who are the poor who are often illiterate and require capacity building in understanding the savings and credit systems, so there is a gestation period before they can handle technology. That they are able to do so after having become familiar with the operations of their Self Help Groups (SHGs)/ savings and loan repayment activities, has been demonstrated time and again by organizations which have integrated IT & C into their systems.
IT & C requires capacity building of the MFI as well as their clients. There is long gestation period before clients can use IT & C, and a shorter gestation period if staff handle.
The following section C examines the IT & C experiences in the MF sector in India.
C Who is using IT,when,where, why and what are the results?
A representative sample of MFIs which have used IT & C, is used to understand the range of IT & C applications in India, the rationale behind the adoption of IT & C and the critical issue of source of funds. A quick survey of the Indian MF sector’s IT & C users shows that large and new generation MFIs have gone in for IT & C applications and integration into their systems. At this stage it is possible to see the existing and emerging trends in India which ranges from using basic technology-both hardware and software to provide credit services to using a combination of integrated package of hardware and software systems often customized to provide varied range of applications such as credit and credit plus services, livelihood promotion and e-governance, e-health, e-education e-etc.
The DNA of IT & C in MF sector consists of the intertwining strands of technology-hardware and software, the needs of the MF sector, and the larger economy. The present MF/IT DNA structure consists of expensive, exotic, high end, and customized technology used by large and new MFIs.
The current trend is to go in for MIS and computerization of the office. The most common denominator and basic IT & C application is the computerization of the office systems, and developing an MIS system.
The emerging trend is to experiment with new technology such as hand held devices Personal Digital Assistants, Smart Cards, which are currently being tried on an experimental basis by large and new MFIs- such as NBFCs like BASIX, Bank such as SEWA Bank, and SKS. Additional IT & C adaptations and adoptions vary according to the needs of the organization but a common denominator is the experimentation with the use of hand held devices and smart cards and these are more preferred by MFIs which have a dense and vast geographical outreach. It is considered that by the use of hand held devices and smart cards, not only transparency, but also considerable time saving and provision of increased quality of services and outreach is made possible to the clients.
A new development is the use of internet kiosk for livelihood promotion. Both ASA and DHAN are experimenting with livelihood promotion options with internet kiosks which are considered to provide livelihood for its clients on the same lines as that of the STD PCO. Such an initiative is in conformity with the ideology of both ASA and DHAN which is that the poor should not be left out of technology, and that the digital divide should be bridged. DHAN is carrying out this experimental initiative in its areas of operations by establishing a technology tie up with a premier science and engineering research institute-IIT Madras which as a concept is based on that of the STD PCO phone booths as an livelihood option, and which are now a common sight in most of the villages in India.
As software customization is required, there is considerable gestation time before a customized software is generated. The experience of SKS, BASIX, and ASA shows that it is year/s before the customized package is available. But if an MFI already has an MIS installed, then its upgradation would cut down on time like BASIX did. Before bringing in Integrated Technology into the organization, it had over years invested substantially in developing MIS and financial accounting software, which made it easy to adopt and integrate the additions. As customized software package is the norm in the MFI sector, what is emerging is that some very basic generic software packages have been developed, which require varying levels of customization based upon the MFI operations.
This section has relied on the data provided on the web by the websites of BASIX, SEWA BANK, DHAN Foundation, and SKS which were accessed between December 1st to 21st, 2003, and all the quotes are attributed to the material available on the websites.
1 BASIX
BASIX is a new generation MFI and currently one of the blue chip MFIs. It was founded in 1996 with the mission to prove that MF with a social mission is a viable and profitable business proposition giving competitive rate of interest to its investors thereby opening up regular access to the mainstream capital markets. Integrated financial and technical services promote sustainable livelihoods of people the rural poor and women. In order to provide these integrated services to its clients, BASIX has formed different holding companies — a local area bank, a financial and insurance service provider, and a technical assistance and research provider. It operates in Andhra Pradesh, Karnataka, Maharashtra and Madhya Pradesh.
The driving force behind the establishment of Information Technology Solutions for Livelihoods (ITSL), was BASIX’s perception that IT was integral to its operations as it would increase and deepen outreach, reduce transaction costs, enhance flexibility and accuracy of transactions in MF and livelihood support services.
IT was integrated into the systems so that high quality of service was provided, reliability improved and transaction costs cut. This vision and practice of BASIX got a major boost when BASIX got the assignment from IFC’s Small and Medium Enterprise Global Capacity Building Technical Assistance Facility for 3 years for a sum of US $ 350,000 from July 2001, so that IT solutions could be developed as well as product and channel innovations, and the required human resource development. In terms of investment, BASIX has reportedly allocated US $ 500,000 (BASIX presentation at the i4d seminar, December 2003) for IT & C which also includes IFC and SIDBI’s contribution.
IT & C in BASIX: Stage 1: MIS and Technology
Since BASIX had planned for IT & C in its operations right from the planning stage, its gestation period from manual to computerized systems was relatively brief/negligible, and also moving from different versions of software and technology combinations was relatively smoother and integrated with operational systems. BASIX, from the beginning developed its software - Financial Accounting and Management Information (FAMIS) which subsequently went through numerous upgraded versions according to the requirement of the organisation, and computerized office systems and MIS.
IT & C in BASIX: Stage 2: Integrated IT & C solutions and consultancy services
But its quantum jump for developing and providing integrated IT & C solutions not only for its inhouse requirements, but also for other MFIs as part of consultancy services, was made possible only because it got an assignment in July 2001 from IFC. BASIX’s integrated IT & C solutions consisted of the existing range of IT & C applications:
- Upgrading its core software FAMIS to a more comprehensive FAMIS PLUS which has modules for insurance, savings, credit etc. Until July 2002, FAMIS PLUS was being used in 25 BASIX locations and by more than 10 MFIs.
- Pilot testing of the hand held device-the Portfolio Manager for automatic transaction and data entry. Integration into the systems of the Portfolio Manager after successful test piloting in 2 locations and post evaluation. SIDBI is rolling it throughout Samruddhi.
- “Identifying, negotiating terms for, supervising development and installation of software and staff training in KBSLAB, Sarvodaya, ASSEFA, Mulkanoor Cooperative, Rashtriya Gramin Vikas Nidhi and other MFIs.”
- Developing “Delphix” software for enterprise resource planning which can integrate financial functions with HRM, CRM, and MIS. Under advance testing in 2 locations.
- Test piloting in 3 locations with more than 300 borrowers of the viability of using STD PCOs as distribution channels for micro-credit with the use of smart cards issued to borrowers.
- With IFC support BASICS Ltd has
acquired the capability to develop ITSL in other
organizations as well. It is now able to provide consultancy
services to different clients and develop customized ITSL
for different organizations as well as project management,
and provide training and capacity building necessary for
attaining steady operational levels.
BASIX has allowed the use of its software developed in more than 12 MFIs. Partnerships have been established with vendors of both software and hardware in developing solutions. It has also received international enquiries from Kenya and Sri Lanka.
Issues:
Current issues which are being addressed at an early stage by BASIX are Intellectual property rights, sharing of marketing and development costs addressed, so that enduring partnerships can be built with co-developers.
BASIX’s approach to IT & C was a clear vision of its goals and means, integrated strategic planning, establishment of integrated systems right from the beginning, strategic sourcing of funds, and establishing working partnerships with collaborators. Its strategy wass to develop, test, refine technology systems initially inhouse, and then share with other partner organizations who function as co-developers which further refinesand fine tuns, so at the end of the exercise a comprehensive and well tested technology package has emerged within a short space of time. Further, establishing partnerships in testing technology solutions helps the MF sector per se.
2 SEWA BANK
SEWA Bank established in 1980s, currently reaches out to 175,000 clients-mainly poor women and operates in Ahmedabad. SEWA Bank’s vision was to aggressively consider and adopt appropriate technology and innovation which can be customized to needs of the clients. Tools and methods which have “clear and significant value propositions” are quickly learnt and accepted.
IT & C applications in SEWA Bank
SEWA Bank computerised in the 1990s and at present has 45 computers with the main office on on-line access. Its head office is completely computerized, and of the 11 collection centers about 2 or 3 have stand alone computers. It has an Information Technology department with three staff of which one staff is a full time consultant. The IT department’s functions are troubleshooting, data entry, hardware maintenance, and refining software products. Of SEWA Bank’s 70 staff, 60 use computers. The data scrolls generated by the handholder is entered into the database on a daily basis by 8–10 women data entry workers using 10% of their time at the head office. So, at the end of the day not only cash collection information is available, but daily books are balanced and operational discipline is ensured. The computer system is currently on Novell platform but SEWA Bank plans to move to a more secure and larger capacity server.
SEWA Bank developed customized software in collaboration with a software vendor (TM Systems) who earlier had developed cooperative bank software in Ahmedabad. At present there are two track systems of reporting that of the TM systems and the excel spreadsheet which is used for cross-tally reporting figures generated by banking software.
Future role of technology in the next 3-5 years:
- Yet to computerize the customized rigorous client risk rating instrument for microloan evaluations developed by SEWA Bank.
- Develop efficient and effective information provision to clients through information dispensation machines like ATMs/ information kiosks.
- To facilitate data transfer and communication with the field bank staff, and decentralize loan applications process-Computerise all extension centers and linked with the HO.
- For efficient loan assessment and client guidance to integrate all databases which will provide comprehensive information about a client
- To develop software programme that allows them to identify the most suitable SEWA products and services. to provide long term financial counseling for clients
- Increased communication between HO and field staff with provision of inexpensive pagers to the field staff.
- To reduce time on data entry and
cross checking of data on the manual transferring system by
providing palm pilots/electronic scrolls to each handholder
who will feed data in the field and then directly transfer
to the main database at the end of the day.
To sum up, SEWA BANK had a clear vision of its goals and means and being a bank it had an MIS and operating systems clearly laid down which were implemented in order to provide effective and speedy services while maintaining transparency. Technology is considered to play a crucial role and for which SEWA has invested substantially.
3 SKS
Swayam Krishi Sangham (SKS) is working since 1998 in Andhra Pradesh with the poorest of the poor so that they become self reliant. It is a Grameen model replicant.
Its vision statement states that: “Management will use the computerized MIS to obtain, routinely and on demand, a complete picture of the state and performance of the organization in relation to our over-riding goal of reducing poverty through the provision of financial services to the poor in an efficient and sustainable manner.”
To cut down outreach costs to its poorest of the poor clients, to reduce data transfer errors in the manual system, and to increase the number of meetings in the short time available with the clients, SKS was the first MFI to experiment with smart cards and palm pilots. The smart cards enabled deepening and increasing SKS’s outreach by eliminating the time consuming manual data sheets with electronic system in a three step process, thereby saving time in each group meeting and at the center meeting the time saved was considerable, thereby enabling staff to hold additional meetings with other clients. In the smart card system the staff member with the palm pilot (a hand held computer) uploads client data from the branch computer, and at the client meeting enters data of the meeting using smart cards of the members, comes back to the branch office and uploads the fresh data into the branch computer. This process reduced chances for error, saved time, increased efficiency of services and increased transparency.
IT & C applications in SKS:
SKS first developed MIS for office, and then outsourced the integration into the MIS to a local software vendor. SKS was able to go into the adoption of handheld technology with total funding of US $ 1,25,000 from three different sources. The start off was provided by the grant of US $ 50,000 from CGAP which was used to develop the necessary software and acquire the hardware. An additional US $ 75,000 was sourced to further refine the system. SKS used the local software vendors to develop and fine tune its software. The development of software required additional funding-
SKS found that time was saved at a village level where multiple center meetings were held, but not significantly for a center meeting. Significant time was saved in data uploading as reentry was not needed, and reduced errors and frauds. At present SKS plans to continue with the existing palm pilot application as it is useful at center level.
To sum up SKS has a clear articulated vision statement, and established systems, and has found that IT & C has reduced loan transaction time, brought in transparency, and is currently fine tuning its software.
4 DHAN Foundation
DHAN Foundation’s (DHAN) vision is that the poor should not be left out of technology. Therefore, through DHAN’s organizational programs of MF, agriculture, health and social development through research and pilot activities, IT is made accessible to the poor and the digital divide abridged. DHAN’s technology collaborators are TCS India, SARI project of IIT Madras, and other local vendors. Its technology partners are for different activities, such as TCS India is the partner for education and SARI is for livelihood promotion (in addition to other services) through internet kiosks.
DHAN’s Information and Communications Technology projects are:
- installing hardware systems to bring MF activities online of 2 SHG federations;
- through the SARI (Sustainable Access in Rural Areas-providing Internet access to rural areas) project of IIT Madras introduced computers and internet connectivity in Melur block, in Madurai district through innovative technology and business models to prove that a viable market for Information and communication technology exists in rural areas. For the internet kiosks, SARI provides free hardware-computers and software, and corDECTWLL for establishing internet kiosks which use corDECTWLL which is developed by IIT, and each kiosk has now a dot matrix printer, and is run by local villagers, and internet charges levied. E-post with kiosk interconnectivity with assured message delivery in 2 hours. E-eye care-web camera in 3 kiosks and linked with a hospital. E-commerce-buying and selling site-much like ebay
- education- where 10 villages run adult literacy centers use innovative computer based teaching methodology developed by TCS India;
- micro-credit programme by developing necessary software and assistance. Field testing hand held devices such as iStation and Data Vision which do single entry with instant transfer and data consolidation and which are customized to DHAN’s requirements. Data is sent by email (iStation), or uploaded to the PC (Data Vison).
- operating communication centers by
Kalanjiam members with development and commercial services
such as computer education, internet usage, email etc.
To sum up, Dhan had a clear vision and systems in place. Its IT experience is that off the shelf products-including hardware need to be re-programmed according to the system requirements. The implications for the IT sector that huge market for customized services, for the hardware vendors it is an opportunity for refining their generic products for a specific sector use.
4 International Practices:
A comparative analysis between international and national practices shows that there is tremendous synergy, sharing of experiences, borrowing and adapting concepts, practices and technologies to local sensibilities and requirements. The Indian IT & C paradigm is the crafting together of the Indian and the relevant international practices. Couple of relevant international practices are briefly mentioned here which have found applications in India:
ACCION has developed a microloan processing software called PortaCreditTM (developed in 1999 and subsequently refined) loaded into Personal Digital Assistants which are handheld computers, used by the loan officers to record client data, deal with loan applications, and make calculations and quickly upload to the centralized database of the MFI, thereby saving time in loan decisions, data entry and reducing opportunities for error. Currently in operation in Latin America and South America in ACCION’s partner programs. Advantages of the technology: saves time on a microloan, lowers operation costs, significant reduction of human error, allows loan officers to increase outreach and strengthen existing outreach by eliminating time consuming paperwork, credit process standardized and streamlined.
Provides consultancy services for its software application by designing customized software application according to the organisation’s MIS configuration, and provides staff training.
PortaCreditTM requires: stable and well functioning Information Technology system which has not been changed for the last 6 months; “well established lending process with clear procedures and written manuals”, and a liaison staff member for the PC Team. To establish ACCION’s credit scoring model which is automated, one year of customized service is required.
BASIX’s project with IFC is an adaptation of the ACCION model. Further, the advantage of using hand held devices as demonstrated by ACCION, has been experimented with by SKS, DHAN and BASIX, and for MFIs which are going in for integrated IT solutions, it is one of the key areas to be explored.
Grameen: It is a trend setter by showing the possibilities of IT & C applications in credit, and credit plus services, livelihood promotion and technology development and consultancy. It provides four software technology products downloadable in a free demo version from its website. It has different softwares for different IT requirements-account, audit etc. Grameen also uses internet kiosks to generate employment as well as to provide information at the village level.
CASHPOR in India uses the Grameen IT package. Activists for Social Action (ASA), which is a Grameen replication is experimenting with internet kiosks as livelihood promotion. DHAN which is not a Grameen replication, is also experimenting with internet kiosks which provide not only employment but additional services like health services through online consultation between patients and doctors, for which purpose a web camera is installed.
Hence, there is considerable synergy in developing appropriate IT & C solutions by MFIs in India, which draws both from the Indian and international experience.
D IT Sector and MF
IT & C solutions have made significant inroads into the development sector. And many MFIs have come into the MF sector through the development sector, that is as NGOs they have been working in the areas of health, education etc. and over time have entered into MF sector. Often they use IT & C solutions in these activities, and there is a possibility that they would extend the use of IT and C to MF as well. CARE’s CASHE programme is an example of this. The current trend is moving from Information Technology to Integrated Information Technology which is eclectic, broad, open technology based and has multiple uses-both credit and credit plus.
The issue of technology divide and the isolation of the poor from technology has played a significant role in the development sector. But, within the MF sector, the issue is that of how to use technology in order to provide better, efficient, transparent and increased credit as well as credit plus services to the poor clientele .Technology divide issue per se is not of much significance as the focus is more on people-people bonding and building and developing trust networks, though for some MFIs bridging technology divide is an ideological position.. Given the focus of building peoples’ capacities and people’s institutions, technology is considered to be a tool which is used as and when required.
The current situation is that IT plays a significant and limited role as yet in the MF sector and integrated IT & C applications are highly limited and to few MFIs which are large and profitable. The rest of the MFIs function with manual operations and some and this is an increasing trend where IT MIS are established in medium/transitioning MFIs and in a highly limited manner in some profitable small MFIs. The MF sector has yet to respond to or come up with generic requirements-which is difficult not only because of the sheer diversity of and offered by the sector in terms of the types of MFIs, but also because of the numerous and different loan portfolios of MFIs which vary from each MFI, thereby giving rise to additional levels of complexities.
The IT sector looks for generic requirements from the MF sector which would enable it to develop generic products which require minimum if at all customization, which would make the IT industry possible to offer products at economical prices, which at present are expensive and high end due to inadequate demand. For IT, MF is a new opportunity sector, and with increasing demand, foresees that the supply would increase. Currently, the trend is for local IT software vendors to offer solutions for MF clients in different regions of the country. Similarly, IT software vendors have developed generic softwares which are designed according to the predominant MFI types operating in their region such as MACTS software has been developed in Andhra Pradesh, and SHG Bank Linkage model in Karnataka and also Federations etc. Each region’s specificity is reflected in the customized softwares developed by the vendors for their clients across their region of operation. Andhra Pradesh and Karnataka have a fairly vibrant MF software sector. IT & C in MF sector consists of developing MIS and financial and loan portfolio software, maintaining website, promoting livelihoods using means/methods/tools such as internet kiosks with possible intra-kiosk connectivity, e-commerce in the area of operation, and in the credit plus activities-health, agriculture, and education, and other livelihood promotion activities.
Factors in technology application in MF sector:
- Scale of operations determines largely the use of technology. Small scale operations typically have manual operation systems, and it is a rare MFI which has used technology early on and it has been able to do so because it is new, has a clear vision, has systems in place, has a clear vision of the role that technology would play and finally it is able to leverage funds required over time. The increasing scale of operations both by volume and geographically requires technology, which would streamline operations, speedy identification of errors, fraud and quick rectification, able to track portfolio expansion, and regular financial information collection besides giving inputs into research and development of new products. An MFI whether SHG or BASIX has different scales of operations and requires different technology interventions. The SHG most simple and fundamental/basic unit, while at present BASIX is the most evolved in terms of the range of instituitions/products and services it has are very diverse and its technology requirements are complex.
- Customised software is the Mantra the world over. Each situation demands its custom made solutions and that means that the systems are decentralized and in people’s hands, which means that it makes possible for the development of and choosing of appropriate technology. The solution is that the service provider first should understand the needs and live of the clients and then develop systems.
- Price:-Hardware is determined by the market economy as MF uses multiple use products such as Personal Computers, Palm Pilots.
Software prices are high and continuous, as the software was designed with certain range of operations and with the growth of the operations the software needs to be redesigned. Further, the software vendors give license to use their product for a certain period of time which also requires renewal.
- Faster technology growth results in greater obsolescence and MFIs need to address this. SKS, BASIX have worked out systems with multiple technology products which are integrated and developed into a system, and they would need to address the issue of technology obsolescence in each of the products and collectively its impact on the system. It is not technology obsolescence per se but combined with increase in range and scale of operations which brings about the problem.
- Heterogenous MF sector with
different models of MF coexisting which require
customization, and developing a generic software product is
risky as it is not comprehensive enough while the mantra of
the IT sector is to develop as comprehensive a product as
possible.
MF sector: Business opportunities for IT & C
At present the entry of IT sector into MF is in hardware and software. Computer hardware technology which is not exclusive to the MF sector, but is used extensively in the wider domain, and is available off the shelf, is the most common and increasingly fast spreading trend in the MF sector. Other hardware such as Palm Pilots and Personal Digital Assistants are as yet in the experimental stage. Software packages are primarily customized. Among the software packages, MIS-financial and loan portfolio tracking is the most common software package in demand, which are customized according to the client’s requirements. Off the shelf generic packages for different kinds of MFIs do exist, but require customization for the MFI based upon the products and services offered as well as the loan portfolio. A recent trend is developing audit software according to donor reporting requirements. An MFI offering different products and services with funds from different donors would need to provide accounts in the manner that each donor requires for the donor’s project. Hence, different accounts/financial reporting packages are required by an MFI if it is sourcing funds from different donors.
Therefore, in order to develop off the shelf products, the IT sector needs to know the requirement of the MF sector regarding credit and credit plus activities. As yet this is highly limited.
Deterrents to IT & C adoption in MF sector
Technology entry into MF is determined by the institutional and financial sustainability of the MFI which is the primary objective and technology being as yet very expensive-is out of the reach of the scores of MFIs which are small and cannot yet afford a computer.
A critical factor for the increasing connectivity and use of IT is infrastructure. Without an adequate electricity supply, ISP, phone connection, internet inroads into the rural areas is a mirage. So, IT is dependent upon other sectors’s development to be effectively within the reach of target audience it is addressing. Without adequate electricity and ISP (and Dhan is experimenting with Wireless Local Loop [WLL]Technology), DHAN Foundation’s internet kiosks in its project areas would cease to function.
The key deterrent to adoption of technology has been its high price both for software and hardware. Hardware prices continue to remain high for palm pilots and personal digital assistants, but have come down for computers. Since, multiple use hardware is used, its price is determined by its demand in other sectors. Customised hardware (such as ATMs as proposed to be used by DHAN and which are developed and marketed by IIT Madras), for MF sector is as yet in experimental state. As software needs to be developed for the organization, developing generic software is risky as customization would still be needed. The trend for MFIs is to go in for customization despite the high price. Smaller MFIs have gone in for generic software with customization, and whose price is relatively within their reach. Generic software if priced economically, does not easily allow customization due to the additional cost factor. The MFI then would need to invest additionally for customization. Software vendors providing generic software have adopted CGAP and other accepted ratios while developing their products. As MIS is the entry point for IT & C applications, considerable market exists for the software vendors, who operate on the fundamental principle of developing as comprehensive a product as possible and which can be available off the shelf and which requires little or nil customization. But in order to develop generic products, the software vendors need to know the requirements of the MF sector for both credit and credit plus activities.
A typical small scale software package consists of limited customization of generic software and training for few days for couple of staff who would operate the system. Software vendors share their experience that often small MFIs do not use the package installed not because of faulty development and installation of the package as well as staff training, but because the MFI has not accorded it its importance by not using it at all, not sending the account person for training, irregular and incomplete data entry. Vendors do not get feedback, as most MFIs do not respond to the vendors’ requests. Vendors then have problem in developing appropriate products for the MF sector. (Interview with Java Softech at the i4d Seminar, December 22-23, 2003)
SEWA, BASIX, SKS and DHAN Foundation all have customized IT solutions which are expensive and they have either raised the funds themselves or got awards (SKS from CGAP) or assignments such as BASIX from IFC. Only CASHPOR has the generic Grameen IT system.
With the use of multiple use products like palm pilots in the wider economy, it is likely that the prices of such products will come down with increased number of products available off the shelf.
IT in Corporate Sector : Lessons for MF
The corporate sector has already demonstrated the potential of the internet in providing support to agriculture and livestock initiatives. The issues that confront the MF and Development sector are the high costs (which the corporate sector can afford), establishing and maintaining systems, addressing infrastructure challenges, continuous link maintenance with the economy-national and international, in addition to human resource development. The private corporate experience of ITC in agriculture and aquaculture holds possible pointers and lessons for the Development and MF sectors. ITC’s soya chaupal and aqua chaupal provide the farmers with access to the world and national market, and where the farmers can access the internet from their village and know among other things, the latest price of product in the market, the latest seed in the market and the current trends etc. But this feature is available only to those farmers who are linked with ITC. Currently, ITC has expanded its choupal as a place to sell ITC products as well as local e-commerce-items such as bicycle etc. for sale by farmers, and from which ITC gets significant revenue from the choupal intervention. But nevertheless, IT has found widespread applications.
Opportunities: Way Ahead
For the IT sector, MF is a new opportunity sector whose potential still needs to be explored. As yet, only initiatives have been made. Given that a fairly vast market exists in the MF sector for both credit and credit plus activities, for the IT sector this is an opportunity to do market research and come up with software solutions for the MF sector in combinations generic and customized.
Software has huge potential for the IT sector, for developing common software products and also for customized products-made possible because of the diversity of MF and development sector. The range of products that the IT & C sector can generate for MF and development sectors especially in an MFI which is involved in both sets of activities are fairly vast given the diversity inherent in both the sectors. As most MFIs are also involved in development activities such as health, livelihoods, education and so on, and often their entry into MF is through these activities rather than MF per se, technology solutions would be required for them as well. IT has made significant inroads into the development sector through the areas of education, health, agriculture, and livelihoods. It is likely that organizations which have used technology in their developmental activities, would expand the use of technology to their remaining activities. Hence given the increasing inroads and IT & C into the development sector, as well as the MF sectors, there is possible for widespread applications of IT & C.
- To answer the question whether the need has emerged from the MF sector for IT, which is partly and whether the IT sector has as yet looked at MF is again partly with the MF sector remaining a relatively unknown territory. What is required from the MF sector is to scale up-articulate its sectoral needs and for the IT to scale down economically/financially that is cut down costs.
- What can be done is that IT sector can do market research about the needs of the different players of the sector and develop generic and customized software solutions.
- Within the MF sector the existing software solutions can be shared and adopted and adapted. Currently the same system software is being shared by Grameen of Bangladesh-which developed its own software solutions and has even a demo version which can be downloaded from the net from Grameen web site. The Grameen software can be applied to Grameen replications and CASHPOR in India has adopted it. So the principle is that of like to like here.
Whereas at present given the heterogeneity and diversity of the MF sector, there are too many unlikes, which makes it difficult to generate generic software solutions from the IT sector, and instead the focus is on customized solutions. But what is emerging is the trend of different generic types such as Grameen, SEWA and what is now being experimented by BASIX. Within each kind of generic type there is possibility of replication as is seen in CASHPOR which replicated Grameen system.
- 4 What is needed is within the MF
sector to share information about the software packages
which have been developed, which serves besides generating
awareness, also the possibility of the existing software
being used by other MFIs possibly with few adaptations or
modifications. It is possible that the MFI which originally
developed the software can charge a licensing fee from the
replicating organization and also make it mandatory to share
the changes made in its software by the replicating
organization, thereby addressing the intellectual copyright
issues. Further, this can enable cross-fertilisation and
additional developing of the software. Over time, a generic
software can be evolved which then can be used by the wider
MF sector. It is realistic to expect that there will be a
number of generic software packages available over a period
of time, for example as of now Grameen is available, SEWA
and SKS-which though is a grameen replication has developed
its own software package. The availability of these generic
software to the public domain-either freely(copyleft) or at
a cost with intellectual copyright to the primary product
vested with the primary developer(copyright), and the
subsequent modifications’ intellectual copyright resting
with the partner agency/replicating agency. What is
envisaged is that the mutual pooling of funds either in a
sequential manner and possibly even at one time, such as a
group of MFIs share costs for a common software programme,
and bear the subsequent modification costs which would be
considerably less on an individual basis. The group
commissioning of a software programme would be economical
for MFIs which are small and which are transitioning.
BASIX under its ITSL programme has developed an Indian version of the ACCION model, where software is shared between partners during the pilot testing and subsequently consultancy services are provided to MFIs.
MFIs are exploring various combinations of IT & C packages from different software and hardware vendors- as a result there is the availability of a fairly diverse software packages available. The varied experience of developing software packages for the MFIs available for the MF sector, which shared among different MFIs would lead to development of developing varied generic software packages for the MF sector.
E Government: IT & C in MF Policy
IT & C is a missed sector in the reports presented to the PMO Standing committee on MF (Sa-Dhan’s Compilation 2002) –especially in the capacity building reported presented by the DHAN Foundation, where only MIS and related HRD is mentioned which is also indicative of the requirements for the sector. The only mention IT & C gets and substantially so was in the Bankers’ report by the Indian Bankers’ Association to the PMO Standing Committee, which specifically focused on the need to develop software solutions to the large volume of transactions that they would need to handle, and also the need for hardware including hand held devices, smart cards, Kisan cards and ATMs etc. which can be used to dispense funds etc. As the Banks are a very different player dealing with large volumes, and so it is from them, that the need for technology has emerged, instead of the MFIs, whose focus is building up the capacity of the people and establish institutions. But then it was also natural for banks to think of technology which can reach out to people as they have been operating with computerized office systems for quite sometime now and also deal with large volume of funds. Hence, for them it was easy to think of technology to address the vast number of transactions involved in micro-credit/finance operations.
But that in the MF sector there is need for developing software solutions which require funding support as developing the customized software is a very expensive proposition and so, possibly SIDBI’s support to software development for small MFIs can be expanded.
The recent practice of rating of software packages by SIDBI is a timely step in monitoring the developments in the sector and laying down standards. This serves as an operational guide for MFIs opting for the available software packages and for the software vendors the requirements of the MF sector are assessed. The practice of the rating of software packages should become part of the normal operations of SIDBI and the rating agencies.
The government can reconsider reducing the excise taxes and duties on hardware used by the MFIs-handheld devices etc. Though market economy operates here, it would help a great deal as these devices have multiple uses across sectors.
Conclusion
Technology penetration into MF market has been slow and is as yet in R & D stage, while in the development sector it has been considerably more. Hence, at present, MF sector is operating in the development sector which has accepted IT, so MF is surrounded by IT, but its adoption of IT is constrained by its very constituency-which is building up people’s networks and capacities.
Until now IT has been an add on to the organisation’s operations, and it comes in at a point where the MFI has built up the MFI client base and structure. Once these operations have stabilized and have become financially viable/sustainable/ it is clear that the operations are profitable and would not collapse, then the scaling up operations occur and subsequently, IT is brought in. So there is a significant growth of an MFI before IT is thought of. In this situation, often IT is custom designed and its design stage is also considerable as well as field testing, before being integrated into the system.
Typically, IT is custom designed for an MFI based upon its needs, and off the shelf products are limited across the world. Some have found wide acceptance, but would still require fine tuning based upon the application in a specific situation.
Finally, MF sector goes in for IT as:
- IT is not difficult to master/handle
- IT is economical in the long run
- IT makes operations easy for large systems-dispersed spatially
- IT cuts down time delay in maintaining and updating accounting systems
- Ensures transparency and decentralization of operations
- It is literally technology in the
hands of the people-for the people, by the people and of the
people.
What we are arguing for is that: The MFI upscales and the IT- costs-hardware and software downscale and increased variety of software packages available off shelf, and downscale/economical customized software costs. Group of MFIs can share the costs of the software development, with minimal capacity development of the staff, and alternatively within the MFI costs can be shared across different activities between credit and credit plus activities.
Alternatively, vendors can approach MFIs and offer off the shelf products-both hardware and software-this is really an future ideal situation, where IT solutions are easily and economically available in the market.
At present IT in MF is in a research and development stage-new tech avenues explored, existing ones adapted, collaborations established with research institutions and vendors to develop suitable IT solutions, and partner organizations. The result is that there is development of not only a MFI specific solution (SEWA, SKS, DHAN), but also of a more generic package such as BASIX. Given the operating principle of kuch apni soch aur kuch jugaad, the MF sector is crafting its paradigm in addressing the challenges posed within its sector but also in technology.
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