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Its an opportunity to alleviate poverty

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DQI Bureau
New Update

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.

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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

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