How would you describe the nature of the microfinance
industry?
The microfinance industry is growing at an accelerated rate and the
increasing degree of fragmentation is equally keeping pace. The absence of a
central database, leave alone a credit bureau, has given rise to multiple
borrowings. Hence, there is a higher risk of default. Information inefficiency
is delaying the structuring of the MFI market and preventing it from tapping the
capital pools. Capacity building remains a serious challenge when a unified view
is unavailable. The tiers within the domestic microfinance industry are also
separated by a huge chasm. Consider the case of India, where on one end of the
spectrum, SKS Microfinance, one of the top Indian MFIs is announcing that its
IPO will raise about $250 mn, while on the other end are MFIs that dont even
have a single Excel worksheet to count (keep track of) their members and
collections.
What are the challenges faced by IT entities in this
industry?
The principal challenge faced by technology enablers is the insufficient
allocation of funding by the institutions towards their technology
infrastructure, especially during the formation period. If MFIs focus on
competing without building capacity through the implementation of robust risk
management systems, they are likely to fail. Everyone knows the case of the
Moroccan MFI that didnt invest adequately in a proper IT system and went full
steam to grow by 150% in a year, only to tumble down soon after due to
misleading manually calculated reports. The real challenge, in the true sense of
the word, remains the spreading of adequate awareness among MFIs about the
criticality of implementing good IT solutions that are functionally rich and
scalable.
How can IT companies make the most of the microfinance
opportunities?
While it is fine to be a for profit company, but it is not appropriate for
them to function with profit-making as the sole objective in the microfinance
sector, when the MFIs are staggering to get on their feet. We all need to
understand that microfinance is intended to assist the poor who have been
historically neglected by the financial system. Its an opportunity to help
alleviate poverty in a sustainable manner by helping people help themselves. IT
companies can come and work together to do their bit by reducing costs for those
MFIs that are genuinely engaged in improving the lives of the unbanked. For
smaller MFIs that cant afford to implement a good solution, we at Agile
Financial Technologies provide software-as-a-service to enable them to spread
their payments; and at times we link it to their growth so that investment in IT
is not a burden, but a true investment for them.
Shilpa Shanbhag
shilpas@cybermedia.co.in