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Impact Assessment of Technology Adoption in Microfinance in India Page 1
Impact Assessment of Technology Adoption in
Microfinance in India
B L Mishra
Dr. Manesh Chowbwy
Centre for Microfinance Research
Bankers Institute of Rural Development
Chandragupt Institute of Management, Patna
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CONTENTS
SR. NO. TOPIC PAGE NO
Contents i
List of tables ii-iii
List of graphs and exhibitsiii
List of abbreviationsiv
Executive summaryvi-xvi
1.Introduction
1-8
2. Methodology 9-133.1 Adoption of modern technology in microfinance institutions and
banking for financial inclusion in India and other countries14-59
3.2 Computerisation in banks 60-71
3.3 Use of various technologies by selected banks and mFIs 72-75
4 Factors affecting Technology Adoption in Microfinance 76-89
5.1 Awareness and impact of modern technology in microfinance 90-100
5.2 Awareness and impact of modern on microfinance and bankclients
101-148
6 Management information system in Microfinance 149-152
7 Strategy for penetration of technology based products andservices
153-160
8 Suggestions and Recommendations 161-165
9 Bibliography 166
AnnexureI
Legal status of the institutions167
AnnexureII
Sources of Fund169
AnnexureIII
No. of staff in banks and mFis170
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AnnexureIV
Outreach of the institutions171
AnnexureV
Various technologies used by banks and mFIs172
Annexure
vi
OFFICES OF COMMERCIAL BANKS IN INDIA from 2005
TO 2009
173
AnnexureVII
STATE AND POPULATION GROUP-WISE DISTRIUTIONOF OFFICES OPENED BY COMMERCIAL BANKS as onMarch, 31, 2009
176
AnnexureVIII
Status of National Electronic Fund Transfer (NEFT)177
ANNEXURE IX
Nation-wide network of banks as on 31 March 2009178-182
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LIST OF TABLES
Sl. No. Topic Pages3.1 Adoption of modern technology in microfinance institutions
and banking16
3.2.1 Status of Computerization in Public Sector Banks as on 31March 2009 in percentage terms.
60
3.2.2 Computerization in Public Sector Banks (As on March 31,2009)
64
3.2.4 Branches and ATMs of Scheduled Commercial Banks (As atend-March, 2009)
66
3.2.5 Branches and ATMs of Scheduled Commercial Banks(Continued) (As at end-March 2009)
68
3.2.6 Finance Indicators for India, 2001-08 71
3.3.1 Officials response on use of following technology 73
4.1.1 Factors that affect the adoption of technologies 76
4.1.2 Reasons for not using the following technologies 79
5.1.1 Awareness regarding following technology 82
5.1.2 Changes on cost structure they have experienced after
incorporating technology
83
5.1.3 Changes on outreach delivery after incorporating technology 84
5.1.4 Ranking for the Benefits of Technology 85
5.1.5 Cost of adoption of different technologies 86
5.1.6 Problems faced by mFIs and banks in adoption of technology 87
5.2.1.1 Age wise classification of clients 89
5.2.1.2 Education received by clients 92
5.2.1.3 Gender-wise classification of the clients 93
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Sl. No. Topic Pages5.2.1.3 Marital Status of the clients 93
5.2.1.4 Social group wise classification of clients 94
5.2.1.5 Family Size of the clients 95
5.2.1.6 Income wise classification of clients 96
5.2.1.7 Occupation wise distribution of clients 97
5.2.2.1 Clients response on Awareness regarding following technology 98
5.2.2.2 Clients response about the use of technology 99
5.2.2.3 Facilities for which the technology are being used 100
6.2 Microfinance and Banking technology providers in India 104
6.3 Software used in the various Banking and MFI institutions 1109
LIST OF GRAPHS & EXIHIBITS
Sl. No. Topic Pages
Figure 6.1 MIS technologies employed worldwide 96
ABBREVIATION
ATMs Automated teller machines
ACH Automated Clearing House
BC Business correspondentCA Correspondent Agent
CD Cash Dispensers
CGAP Consultative group to assist the poor
CRDB Co-operative Rural Development Bank
CSC Common Service Centre
FOCCAS Foundation for Credit Community Assistance
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FINCA Foundation for International Community Assistance
GCC Gulf Cooperation Council The
GK Grameen Koota
GSM Global System for Mobile Communications
GXI G-Xchange Inc
ICICI Industrial Credit and Investment Corporation of India
ICT information and communication technology
JCS Jitegemea Credit Scheme
LFIs Local Financial Institutions
mFIs Microfinance Institutions
MITRA Mobile Based Information and Transactions
MFT Micro development Finance Team
MGNREGA Mahatma Gandhi National Rural Employment Guarantee Act
NRI Non- Resident Indians (NRIs).
OIBM OPPORTUNITY INTERNATIONALBANK OF MALAWI
OTC Over-the-counter
PDAs Personal Digital Assistants
POS Point of Sale
PRODEM Fondo Financiero Privado
RBAP Rural Bankers Association of the Philippines
RTS Remote transaction system
SBI State Bank of India
SECDEP Saint Elizabeth Community Development Enterprise Philippines
SHGs self-help groups
TAD Text-a-Deposit
UML Uganda Microfinance Limited (UML)
UMU Uganda Microfinance Union
USAID United States Agency for International Development
USSD Unstructured supplementary service data
VSAT Very Small Aperture Terminal
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Executive Summary
Microfinance institutions in India face a number of constraints in trying to serve the poor. Many
of these constraints can be linked to insufficient availability and use of technology. There is no
reporting mechanism that correctly captures performance data. Information on the financial and
operational performance of microfinance institutions (MFIs) is paper-centric and not timely,
while data are not complete and cannot be independently verified. This situation is detrimental to
MFIs, microfinance clients, and microfinance industry regulatory bodies. Paper-based operations
consume a significant amount of loan officers time. There is not, in most MFIs, a timely
connection between the head office, the branch offices, and the loan officers in the field due to
lack of, or incomplete use of, appropriate technology applications. Technology can help
microfinance institutions to reduce costs, improve efficiency, and increase outreaches. Modern
technology based solution proves proficient in enabling micro financing institutions to
conceptualize,develop and operate projects for financial inclusion.
Thus there are only few studies explaining impact of technology adoption in microfinance
institutions in India. The need remains, however, to examine the use of various technology
products and channels in the delivery of micro finance in India. In Bihar there is hardly any study
to understand local technological and socioeconomic environment to understand the adoptionprocesses of modern technology. The current study Impact Assessment of Technology
Adoption in Microfinance in India is an attempt in this direction.
The objectives of the project are stated as follows:
To review presently available technology for microfinance (for delivery channels andMIS) in India. Extent of usage of modern technology in Indian Microfinance. Compare
the same with other countries based on secondary data.
To analyze the factors influencing the use of technology in microfinance in India.Compare the same with other countries based on secondary data.
To analyse awareness about modern technology among MFIs and bankers, compare theimpact of use of technology on cost structure, outreach and delivery efficiency,
adaptability etc. Separately for banks and MFIs.
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Management information system on microfinance by banks and awareness of this amongbankers.
To formulate the strategies for penetration of technology based microfinance productsand processes.
Keeping the broad aspects of the study, two sets of questionnaires were prepared for Banks
officials & mFIs officials and clients. Stratified random sampling was used for the study. The
primary data were collected from 10 banks situated in Bihar and 20 mFIs from Bihar, Andhra
Pradesh, Orissa, Karnatka, West Bengal and Gujrat. Twenty clients each were selected from 10
banks and 10 mFIs.
Advanced and specialized tools like SPSS software were used to ensure authentic data analysis.
Cross-tabulation, comparison and processing were done to get detailed insights.
Major findings of the study are follows
Fully computerized public sector banks branches were 95.7% of total branches which81.4% branches were under core banking solution. Out of 171 banks 95 banks in the country
did using NEFT mechanism for transfer of funds constitutes 55.56% of the entire banking
system NEFT facility is still out of reach of the vast section of economy.
In private sector banks percent of ATMs to branch was three times as compared to publicsector banks. There was large variation amongst private banks in terms of percent of
ATMs to branches. Highest percent of ATMs to branches was found in Axis bank
(457.4%) followed by ICICI bank (334.5%) and HDFC bank (234%).
In India various experiments of technology use in micro financing and financial inclusionhas been attempted. Few examples are ICICI Banks partnership with FINO, Business
Correspondents (BC) model- ICICI, ICICI Bank - I-Express, HDFC Bank financial
inclusion programme, SBI ties up with OXIGEN, Technology Assisted Financial
Inclusion- by BASIX, Dhanna X, E-Docs and real time monitoring by Equitas, mobile
banking by Eko financial services as business correspondence of SBI and ICICI, These
organizations use various types of technology which had helped micro financing and
financial inclusion.
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In other countries, ATM networks are being rolled out by a number of banks and have beentested by a handful of microfinance institutions as well. MFI clients in the Dominican
Republic can even access international ATM networks. Many of mFis has stated using
technology eg. Smart card, mobile banking, PDA etc.
Banks officials were generally more aware about the various technologies than the MFIofficials. Majority of the officials surveyed, were of the view that usage of technology have
reduced the transaction cost, total cost and bad debts. While most of them also said that after
adoption of technology they have experienced increased return on fund, productivity per
employee and productivity per branch. Technology had helped them to satisfy their clients
in better manner through proving quick transaction, loan amount assessment, processing of
loan, transfer of funds and other financial services. There was improvement in
disbursement, average debt per borrower, recovery % because monitoring of borrowers
became faster than earlier. Officials were not able to quantify the impact and some were not
clear about actual impact.
Availability of finance/capital and technological awareness were the major factors thataffected the adoption of technology in their organization. 40% of the bank officials and 50%
of the MFI officials ranked availability of finance/capital as the main factor affecting the
adoption of technology. The factors which were least important according to the officials
were Government regulation, demand of customer and degree of diffusion of technology.
Major technology provider to microfinance institutions are RM IT solution, Hyderabad,Jayam Solution, Hyderabad, BASIX /Sathguru Hyderabad, Elitser IT Solutions,
Hyderabad, Force ten Technology, Kolkata, Graditum IT, Bangluru, Craft Silikan,
Bangluru, Surya Software Solution, Bangluru, Financial Information Network &
Operations Ltd, Zero Mass foundation, Kredits, USA, Bangalore (In India), Snowwood,
Chennai, Surya Software Systems, FINO, Mumbai, Eko India Financial Services Pvt. Ltd,
New Delhi, Eko India Financial Services Pvt. Ltd, New Delhi, ClassifEye's solution etc.
That there are various types of management information softwares used in variousmicrofinance institutions in India and abroad. There is no uniformity of the softwares. These
are location specific and designed according to need of its local and regional customers.
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Various management information systems used by various microfinance institutions areSouth Asia major Apparent Microfinance Manager, Common Cents 101 Micro Finance
Software, Southtech Ascend Banking, BEACON, IMP@CT, BankSoft, W-Bank,
MFASYS-Mobile Enabled Micro Finance, Micro Financer Standard Edition, ThemeproTM
Universal Micro Finance Solution (UMFS), Finance Solutions, McFinancier, Microfin360.
The various software used in Africa are Delta-Bank, e-Finance, El Mohassil 1.3, ELOGEBANK, Delta Loan Tracking System, eMerge 1.0, EVOLAN PACK for Financial
Companies, Fin@ncia, FINCORESOFT, FinnOne Loans, GLOBAL BANK, Kredits
5.5503, Kredits 5.5539, LMS (Loan Management System, Loan Performer, Loan Tracker,
Loan Traking System (LTS), M2, Margill Loan Manager (MLM), MaxiSoftCB Banking
Software, MBWin - FAO-GTZ MicroBanking System, Microbank Information System
2.00, MICROFINA, Microfins, Mifos, MLAS (Microloans Administration System),
Octopus Micro Finance Suite.
In Latin America major software used are BANTOTAL COBIS, Conexus, CoopLeader,eSIACOM, eConx, Emortelle, SIFCO, Topaz Microfinance, Orion, SIMCO PLUS, eConx,
SIFC Net. In North America the various microfinance institutions were using various kinds
of software. major software used are Mercury, Down Home Loan Manager 2.05, SYSDE
BANCA, Mimota etc.
In India different mFIs used different MIS softwares. FIMO developed by Jayam Solutionwas major MIS software used by different mFIs. Other software were FAMIS developed by
BASIX and Sathguru, Hyderabad, BIJLI developed by Force ten Technology, Kolkata, mf
expert developed by RM IT solution.
Recommendations
Infrastructure support like increasing power supply and increasing connectivity may beadequately provided for increasing use of technology. Capacity of micro financial
institutions has to be increase by providing them technical and financial support.
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Awareness about technology should be increased by capacity building of differentstakeholders.
Due to high initial cost micro financing institutions were not able to adopt latesttechnology. Costs can be shared by assisting technology provider with financial support
which will reduce the cost by scaling up of technology. mFIs may get technology at
subsidized/ reduced costs. Incentive should be provided to mFIs who adopts technology.
It will help them in to scale up their business.
Appropriately staffing should be done by the mFIs to handle latest technology.Recruitment of technical staff and their regular training on updates of latest technology
would help in adoption of technology.
Regular feedback should be provided to the service provider regarding functioning of thesoftware and other technology tools.
Requirement of mFIs differ amongst MFIs according to size, organizational form,technical competency and adequacy of the technical staff. Tailor made solution should
be provided according to the need of mFIs.
Systems should be introduced to make for transparent reporting regarding their loanportfolio and produce reports. It will help mFIs in timely and appropriate decision
making.
In choosing an appropriate technology, it is highly recommended that MFIs get their coreMIS right first before building any kind of delivery system on top of it. Technology
provider should address the problem of mFIs promptly.
Research done on mFIs about those who have successfully introduced new technologiesshould share the finding with others which will help in penetration of technology.
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CHAPTER I
INTRODUCTION
Financial inclusion is delivery of banking services at an affordable cost to the vast sections of
disadvantaged and low income groups. Unrestrained access to public goods and services is the
sine qua nonof an open and efficient society. As banking services are in the nature of public
good, it is essential that availability of banking and payment services to the entire population
without discrimination is the prime objective of the public policy. In India the focus of the
financial inclusion at present is confined to ensuring a bare minimum access to a savings bank
account without frills, to all. Internationally, the financial exclusion has been viewed in a much
wider perspective.
According to the United Nations the main goals of Inclusive Finance are
i. Access at a reasonable cost of all households and enterprises to the range of financialservices for which they are bankable, including savings, short and long-term credit,
leasing and factoring, mortgages, insurance, pensions, payments, local money transfers
and international remittances. Sound institutions, guided by appropriate internalmanagement systems, industry performance standards, and performance monitoring by
the market, as well as by sound prudential regulation where required.
ii. Financial and institutional sustainability as a means of providing access to financialservices over time
iii. Multiple providers of financial services, wherever feasible, so as to bring cost-effectiveand a wide variety of alternatives to customers (which could include any number of
combinations of sound private, non-profit and public providers).
Thus having a current account / savings account on its own is not regarded as an accurate
indicator of financial inclusion. There could be multiple levels of financial inclusion and
exclusion (V.Leeladhar, 2005). Financial inclusion may be defined as the process of ensuring
access to financial services and timely and adequate credit where needed by vulnerable groups
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such as weaker sections and low income groups at an affordable cost. (Rangarajan Committee
Report 2008),Out of 6 lakh villages, just 30,000 had been provided with banking services
mere five percent of total villages in the country (S. Karuppasamy, Executive Director, Reserve
Bank of India (RBI), June 2011). 134 million households are financially excluded, which is 60
percent of countrys population. (Microfinance Focus, January 2009). Moreover, Financial
Exclusion in Urban India is about 44 percent where as exclusion in Rural India is about 76
percent. National Rural Financial Inclusion Plan has been launched with a clear target to provide
access to comprehensive financial services to at least 50 percent of the financially excluded
households (approximately 55.77 million) by 2012 through branches of Commercial Banks and
Regional Rural Banks. The remaining households are to be covered by 2015. Fund for financial
inclusion of about Rs. 500 Crore to meet cost of technology adoption was set up by Finance
Ministry in 2007-08.(Fr ost & Sull ivans Roadmap for I T-Enabled Financial I nclusion, 2010).
According to Frost & Sullivan (2010) On one hand, there are 234 million mobile users today
the CAGR since 2001 is 87.9 %. While each mobile phone is an indicator of connectivity, it can
be presumed to be an enabler of Financial Inclusion. Since the number of mobile phones
currently is more than the number of borrowers from the banking system, it is envisaged that a
convergent technologies involving Information Technology and Telecom would be the most
efficient vehicle for achieving Financial Inclusion.
Financial exclusion is most acute in Central, Eastern and North Eastern regions having a
concentration of 64% of all financially excluded farmers households in the country. Overall
indebtedness to formal sources of finance alone only sector 19.66 % in these three regions.
(Rangarajan Committee Report, 2008). The topography in hilly terrains is such that banks
cannot open branches in every corner. Mobile banking as a technology is certainly an answer to
the growing demand for banking facility at the village level.
RBI has granted permission to transfer fund across various mobile phone service provider. Three
public sector banks have started mobile banking solution. SBI had partnership with EKO
financial services and Spanco system. Union Bank of India and Bank of India have started their
mobile banking services in Mumbai. The RBIs guidelines call for a two-factor authentication for
validation of a customer. Several MFIs today act as a business correspondent (BC) to reach areas
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where opening a bank branch is not viable. The bank through a BC can enroll clients; the clients
can be served by the bank using mobile banking thus fulfilling the objective and the spirit of
financial inclusion.
Microfinance institutions in India face a number of constraints in trying to serve the majority of
the poor. Many of these constraints can be linked to insufficient availability and use of
technology. There is no reporting mechanism that correctly captures performance data.
Information on the financial and operational performance of microfinance institutions (MFIs) is
paper-centric and not timely, while data are not complete and cannot be independently verified.
This situation is detrimental to MFIs, microfinance clients, and microfinance industry regulatory
bodies. Paper-based operations consume a significant amount of loan officers time. There is not,
in most MFIs, a timely connection between the head office, the branch offices, and the loanofficers in the field due to lack of, or incomplete use of, appropriate technology applications
(www-wds.worldbank.org/.../528630PUB0link101Official0use0Only1.pdf).
Technology can help microfinance institutions to reduce costs, improve efficiency, and increase
outreaches (Lauren Braniff, 2008). Modern technology based solution proves proficient in
enabling micro financing institutions to conceptualize,develop and operate projects for financial
inclusion. It supports sector initiatives, which are aimed at enabling rural and remote un-banked
areas to enjoy the benefits of formal financial products and services. The entry of technology has
opened more options in the field of finance that lead to lower costs, greater efficiency, real time
information and better customer service. Micro finance offers a great, largely untapped market
for modern technology and a chance to make a big difference in outreach, sustainability and its
impact.
In a survey (CGAP, 2008), 62 financial institutions in 32 countries report using technology
channels such as automated teller machines (ATMs), POS terminals, and mobile phones to
handle transactions for poor customers. Some are using new technology to better serve existing
customers. But other institutions are using technology to develop branchless channels that
reach new clients in areas where setting up a bank branch may be too costly. The widespread
use of mobile has offered a gateway for handling financial transactions. After a number of years
where the innovative products in developed markets stalled, there are number of innovations that
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have found in developed markets. It was observed thatthat around 45% of existing microfinance
institutions still track and record their operations and accounting in excel sheets or even
completely manually.
Technology can reduce transaction costs and improve transparency in delivering financial
services, both of which can translate into increased access and lower costs for many lower-
income clients. Streamlined and automated processes allow financial institutions to extend
services to harder-to-reach and more costly clientele by replacing people and branches with
point-of-sale (POS) devices and branchless banking strategies. Technology undergirds the
management information and reporting systems that are essential for efficient financial service
delivery. Despite the appeal of advanced delivery technologies, relatively few financial
institutions have successfully deployed them to reach poor and low-income clients. Developing asolid management information system still remains one of the most important tasks facing
microfinance institutions, particularly those scaling up. Challenges include the high cost and
limited availability of existing technological solutions, lack of widely available local technical
support to support MIS software, consumer adoption rates of technology, lack of basic
communications infrastructure in many countries, and inadequate policy environments.
(www.microfinancegateway.org/p/site/m/template.rc/1.11.48240/)
Adoption of technology is expensive for MFIs, while use of currently available technology does
not always correspond to gains in revenue or increases in productivity in the short term. Due to
non-use of appropriate technology applications, there is a lack of holistic, sector-wise data on
MFI borrowers and outstanding portfolios. MFIs are unable to share useful information about
clients with each other. This contributes to the persistent client overlap seen in the microfinance
sector (RBI, financial inclusion, 2008).
Branchless banking is a distribution channel strategy used for delivering financial serviceswithout relying on bank branches. While the strategy may complement an existing bank branch
network for giving customers a broader range of channels through which they can access
financial services, branchless banking can also be used as a separate channel strategy that
entirely forgoes bank branches. ATM and Internet banking have been around in India for a
while. While both modes have had some success, penetration and use levels have been moderate.
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While ATMs offer convenience, they pose a perceived security threat in India given instances of
mugging around them. Senior citizens and women appear reluctant to use ATMs if they have a
choice to of the to a branch and withdraw money in safety. The security situation in India shows
little sign of improvement and therefore a large-scale proliferation of ATMs will remain a
challenge. Internet banking, on the other hand, relies on P C and Internet penetration. Estimates
suggest that there are approx 40 million Internet users that are expected to rise to 100 million
soondespite this growth; penetration and use levels remain low, especially in non metro area.
Harma and Dubey (2009) stated that mobile banking, a symbiosis of technology and financial
services, is the hottest area of development in the banking sector and is expected to replace the
debit/credit card system in future. Unlike online banking, mobile banking has certain advantages
on its side. It would not attract much investment from the bank and would not need a change inthe existing infrastructure of the bank. Mobile banking has the potential to bring a whole host of
people that have no/little access to land lines/internet connections onto the electronic platform
an innovative way to generate financial inclusion. To do so successfully will require customer
training, technology stabilization and managing carefully the know your customer issues.
(Microfinance Focus, 2009).
Management information system has become an essential part of microfinance institutions. The
MIS involves all aspects of gathering, storing, tracking, retrieving and using information within a
business or organization. The information system helps loan officers track their clients
repayment schedules and balances. It helps management assess the quality of the loan portfolio
and to monitor progress toward operational objectives. Management Information System
software can improve transparency and efficiency, lower costs, improve reporting, and allow
management to make more informed decisions. The right technology is invaluable in helping
microfinance institutions become better managed and more transparent institutions. Strong
information systems are the foundation of any financial institution. Yet many microfinance
institutions struggle with their systems resulting in inefficiencies which limit their ability to grow
and eventually take advantage of other technologies, such as branchless banking. A good back
office system lies at the core of every successful financial institution. In many cases, however,
MFIs struggle to generate accurate information and reports for themselves, funders, and
supervisors. This limits the soundness and efficiency of MFIs, reduces the governments ability
http://portal.acm.org/author_page.cfm?id=81440620092&coll=DL&dl=ACM&trk=0&cfid=34931340&cftoken=16394973http://portal.acm.org/author_page.cfm?id=81440620092&coll=DL&dl=ACM&trk=0&cfid=34931340&cftoken=16394973 -
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to supervise the market, and in turn, negatively impacts the expansion of access to financial
services (Lauren Braniff, 2009). A study by the Consultative Group to Assist the Poor (CGAP)
in 2004 showed that just half of all MFIs around the world have automated information systems,
and those that do invest in technology spend duplicative resources on custom-built systems that
are extremely costly and difficult to maintain.
Jim Rosenberg (2007) stated that IBM, had been touting its foray into open source solutions,
will partner with Grameen Foundation to help expand its MIFOS solution for information
systems. Grameen and IBM noted that microfinance institutions were inhibited from extending
their reach because they lack a flexible, cost-effective technology infrastructure that enables
them to expand their operations to provide loans to more people and to develop new products
and services. Many MFIs are still using pen and paper or simple spreadsheets to process loans.
Outsourced core banking systems could increase the efficiency and capacity of microfinance
institutions (MFIs). MFIs, however, have been slow in adopting the use of outsourced core
banking systems. They are concerned about finding a system that works for their unique
situation, fear losing control over sensitive client data, and worry about security risks. Moreover,
they are not convinced outsourcing will lead to reduced costs (Jim Rosenberg, 2008).
Although there is plenty of literature on adoption of new technology, only a handful of studies
look specifically at the financial services industry. There is a general recognition of the particular
importance of financial innovation (e.g. Silber, 1975; Van Horne, 1985; Miller, 1986, 1992;
Faulhaber and Baumol 1988; Campbell, 1988; Siegel, 1990; Finnerty, 1992; Merton, 1992).
Empirical studies on the technology adoption in financial services have focused on the
introduction of automated teller machines (Hannan and McDowell, 1984, 1987; Sinha and
Chandrashekran, 1992; Sharma, 1993; Ingham and Thompson, 1993; Saloner and Shepard, 1995;
Gourlay and Pentecost, 2000, 2002; Hester et al., 2001), small business credit scoring (Akhavein
et al., 2001), video banking (Pennings and Harianto, 1992), teleprocess terminals (Escuer et al.,
1991) and cash dispensers (CD), Point of Sale (POS) and remote banking (Buzzacchi et al.,1995).
Mark Pickens and Claudia McKay (2010) studied the data about 8 branchless banking services
M-PESA in Kenya and Tanzania, Banco Postal in Brazil, FINO in India, G-Cash and Smart
Money in the Philippines, WIZZIT in South Africa, and WING in Cambodia. They found 37%
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of active clients were previously unbanked. They also found that 5 of the 7 countries, branchless
banking serves more previously unbanked people than the largest MFI. Branchless banking is
scaling faster than MFIs. The branchless banking services needed 3 years to surpass the outreach
of the largest MFI in the same market, which on average operated for 15 years. (Branchless
Banking, CGAP, 2010).
It is quite significant that most of the studies are related to developed markets, e.g. US or
European banking markets. Arguably, this paucity in the literature needs to be addressed. Thus
there are only few studies explaining impact of technology adoption in microfinance institutions
in India. The need remains, however, to examine the use of various technology products and
channels in the delivery of micro finance in India. In Bihar there is hardly any study to
understand local technological and socioeconomic environment to understand the adoption
processes of modern technology. The current study Impact Assessment of Technology
Adoption in Microfinance in India is an attempt in this direction.
Objectives of the study:
The objectives of the project are stated as follows:
To review presently available technology for microfinance (for delivery channels andMIS) in India. Extent of usage of modern technology in Indian Microfinance. Compare
the same with other countries based on secondary data. To analyze the factors influencing the use of technology in microfinance in India.
Compare the same with other countries based on secondary data.
To analyse awareness about modern technology among MFIs and bankers, compare theimpact of use of technology on cost structure, outreach and delivery efficiency,
adaptability etc. Separately for banks and MFIs.
To study Management information system on microfinance by banks and awareness ofthis among bankers.
To formulate the strategies for penetration of technology based microfinance productsand processes.
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CHAPTER 2
METHODOLOGY
Both primary and secondary data were collected. The primary data were collected from various
stakeholders e.g. banks, mFIs, clients of banks and mFIs, technology providers.
For the first objective to review presently available technology for microfinance (for delivery
channels and MIS) in India, extent of usage of modern technology in Indian Microfinance and
compare the same with other countries based on secondary data, data were collected both from
primary and secondary sources. Secondary data were collected through various reports, news
papers, websites of microfinance and technology providers organisations.
To analyze the factors influencing the use of technology in microfinance in India and compare
the same with other countries data were collected from above secondary sources.
For primary data collection two different sets of questionnaires were developed each for
Banks/MFI officials and clients. Pre testing of questionnaires / schedules was done. Based on
the pre-testing, questionnaires / schedules were modified. SPSS software was used to ensure
authentic data analysis. Cross-tabulation, comparison and processing were done to get detailed
insights.
For technology provider interviews were conducted to understand the operations.
Pretesting of questionnaire was done by taking 40 samples of different stakeholders.
Questionnaires were revised with the help of opinions and suggestions made by different
stakeholders.
Sampling:
The sampling method followed was purposive sampling. The primary data were collected from
10 banks situated in Bihar and 20 mFIs from Bihar, Andhra Pradesh, Orissa, Karnataka, West
Bengal and Uttar Pradesh. 20 clients each were selected randomly from 10 banks and 10 mFIs.
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The purpose of the selection was to analyse awareness about modern technology among MFIs
and bankers, compare the impact of use of technology on cost structure, outreach and delivery
efficiency, adaptability etc for banks and MFIs. The samples were taken from various region.
More representation was from South India because of availably of technology adopter
microfinance institutions.
The following microfinance institutions were selected.
1. Bihar Development Trust, Bihar2. Trust Microfinance Services, Muzaffarpur3. Disha Microfinance Pvt. Ltd. Gujrat4. Nav Achetana Microfin Services Private Limited,5. Mahashakti Foundation, M. Rampur Kalahandi, Orissa6. Star Microfin Service Society (SMSS), Andhra Pradesh7. Ushodaya Integrated Urban and Rural Development, Andhra Pradesh8. Share Microfinance, Hyderabad, Andhra Pradesh9. Agricultural Science Foundation, Hyderabad, Andhra Pradesh10. Sambandh Finserve Pvt. Ltd, Hyderabad, Andhra Pradesh11.SKS, Hyderabad, Andhra Pradesh12.BASIX , Hyderabad, Andhra Pradesh13.Spandan Sphoorty Finance ltd, Hyderabad.14.Nano Financial Services India Private Limited Chennai, Tamil Nadu15.Janlaxmi, Tamil Nadu16.Gramin Koota, Karnatka17. IDF financial service Pvt. Ltd, Karnatka18. Ujjivan Finance Service Pvt. Ltd19.Sanghamithra Rural Financial Services,20. Bandhan Financial Services, West Bengal
Various banks were also selected to analysis the type of technology available with these
banks which help in financial inclusion.
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1. RIG, HDFC Ranchi2. State Bank of India3. Canara Bank4. Uttar Bihar Gramin, Bank5. UBI, Patna, Bihar6. Syndicate Bank, Patna Bihar7. UCO Bank, Zonal Patna8. PNB, Patna, Bihar9. ICICI Bank, Patna, Bihar10.Samastipur Kshetriya Gramin Bank
Technology providers were selected to understand the various kind of technology available in
microfinance and their uses by various microfinance institutions.
The purpose of the selection these technology providers were to understand description of the
various technology, its uses and different microfinance institutions adopting their technologies.
They were interviewed to understand technology solution in microfinance.
1. RM IT solution, Hyderabad2. Jayam Solution, Hyderabad3. BASIX /Sathguru4. Elitser IT Solutions, Hyderabad5. Force ten Technology, Kolkata6. Graditum IT Banglore7. Craft Silikan, Bangaluru8. Surya Software Solution, Bangaluru9. EKO financial services10.Zero Mass foundation
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Analysis of data:
The data collected were tabulated to facilitate easier sharing, referencing and analysis. Review of
available technology was done by analysing secondary information available on literature from
World Bank, Consultative Group to Assists the Poor (CGAP), Asian Development Bank,
Reserve Bank of India, NABARD, Microfinance focus journal, websites of different
microfinance and other financial institutions.
Use of various technologies by selected banks and mFIs were collected from primary and
secondary sources. Factors responsible for adoption of technology was collected and analysed.
Awareness about modern technology among MFIs and bankers were collected from
microfinance institutions and banks and analysed.
To study impact of technology, the use of technology was collected and their impact on cost
structure, outreach and delivery efficiency, adaptability were analysed separately for banks and
MFIs.
To analyse factors that affect the adoption of technologies the data were collected from 10 banks
and 20 microfinance institutions and analysed. The variables were identified and weighted
averages of response were calculated.
Data regarding Management Information System of banks and microfinance institutions were
collected and analysed. The secondary information regarding information was collected from
various sources and classified by various regions of the world.
Strategies for penetration of technology based microfinance products and processes were
prepared with feed back provided from different stakeholders.
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Chapterisation of report
Report is divided into following eight chapters.
Chapter I: IntroductionChapter II: Methodology
Chapter III: Adoption of modern technology in Banks and microfinance Institutions
Chapter IV: Factors affecting Technology Adoption in Microfinance
Chapter V: Awareness and impact of modern technology in microfinance
Chapter VIII- Suggestions and Recommendations
Chapter VIManagement information system in Microfinance
Chapter VII- Strategy for penetration of technology based products and services
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CHAPTER III
ADOPTION OF MODERN TECHNOLOGY INMICROFINANCE
Technological advances have contributed to major improvements in the quality of financial
service delivery and have lowered transaction costs. Use of computers has reduced the time and
cost of dealing with transactions, clearing of cheques and screening of loan applicants. The
benefits are beginning to reach developing countries, but many rural communities remain
excluded. Buchenau (2003) reported that some MFIs are experimenting with technical
innovations to reduce operating costs and improve the quality of service in rural areas. A good
information system equips managers to make informed decisions and produce reliable reports
that follow recognized international and national standards. This transparency can also attract
funders and provide clients with immediate information about their accounts, thereby attracting
more customers.
The most important contribution of technology is lower operating costs. Researchers have tested
the relative costs of tellers and ATMs in several emerging market countries (including Brazil,
India, Kenya, Malaysia, Mexico, Nigeria, and South Africa). The comparison shows the potential
of cost reduction through technology, which is particularly important today as financial
institutions face increasingly competitive markets (CGAP).
The purpose of this chapter is to review presently available technology for microfinance and
banks in India and other countries.
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Rural cash handling options for M F I s.
Major technologies used by microfinance institutions and banks are ATM, Biometric ATM,
solar powered ATM, automated teller machines (ATMs) linked to smart cards and palm-top
computers for rural loan officers, IVR, mobile banking, POS, hand held devices, GRPS system,
mobile banking etc.
The data were collected from primary and secondary sources to analyse the various kind of
technology adopted by microfinance institutions in India and other countries.
3.1: Adoption of modern technology in microfinance institutions and banking
in India and other countries
Both primary and secondary data were collected from various sources to understated the various
technology adopted by banks and microfinance institutions in India and other countries and
presented in table 3.1.
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Table 3.1: Adoption of modern technology in microfinance institutions and banking for
financial inclusion in India and other countries.
Technology Banks/mFIs Partnership Uses
Smart card
Smart card ICICI Bank Partnership with FINO Client identificationwith biometricsClient and agentauthentication withPINsOffline transactions,includingwithdrawals
Government of Biharfinancial inclusion, EShakti project
Glodyne Technoserve
SBI Zero Mass
PNB, BOI TCS
PRODEM,BOLIVIA
Smart card and
POS devices in
GSM Network
Remote Transaction
System (RTS) at
Uganda Microfinance
Limited
Electronic passbook
Interest calculation
Mobile banking
ITZ Cash Tata DOCOMO Remittancetransactions andLoan servicingCashpor Microcredit
VaranasiAtom technology
Reliancecommunication
Atom Technology
SBI Eko financial Services
ICICI, SBI andCenturion Bank of
Punjab
Eko financial Services Remittancetransactions and
Loan servicing
SmartCommunications,Philippines
Faulu/Vodafone
Remittancetransactions andLoan servicing
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(Tanzania,Kenya)
Brand Banking,
Korea
Remittancetransactions andLoan servicing
K-REP BANKS
KENYA
Remittancetransactions
VISA Apple i Phone Remittance
transaction
Duch Bangla Bank Banal link and Citycell Remittancetransactions Loanservicing
endaTunisia Mifos platform MIS
Safaricoms M-Pesa,
Pakistan
Tamer and Telenor Remittancetransactions
Mobile Branches SBI Madhya Pradesh,India
AISECT Remittancetransactions andLoan servicing
Equity BuildingSociety (Kenya)
Money transactionLoan processing
Hand held Device
Hand held deviceusing GRPStechnology
Sanghmitra RuralFinancial Services
- Loan processing
Hand held device Putiskar, Udaipur Albertson Loan processing
Common servicecentre - point ofsale (POS)terminals andinformationtechnology enabledkiosks,
HDFC bank -Jharkhand government Remittancetransactions andLoan servicing
POS Teba Bank (SA)
FOCCAS
Loan servicing
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FINCA
Uganda Microfinance
Union.
Combination of
POS terminal and
magnetic strips
Correspondent
banking Model in
BANCOLAMBIA
CONAVI in
Colambia and
Interbank in Peru.
Teba Bank (SA)
Loan servicing
Palm Pilot (a brand
of PDA)
Equity Building
Society, Kenya
Loan servicing
ATM Prodem(Bolivia)
Innova (Bolivia)
PSHM (Alania)
Paynet (Kenya)
Banko Ademi
MEB Kosovo
Remiitance
transaction
Loan servicing
KIOSK Banking
Kiosk basedoxygen webRetailers
SBI -Oxygen supported bySahyog foundation
Customer acquisitionProduct servicing,disbursements,andcollections
Kiosk banking - I InfoTech as BC Customer acquisition
Transfer to homeserviceremittancefacilities
Standard Chartered -Times of money Product servicing,disbursements,
Bankingcorrespondencewith IGSHub
KBS bank IGS Customer acquisitionProduct servicing,disbursements,
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and spoke model andcollections
e- based remittance services
Green money
transfer
Tata Indicom - Remittance
transaction
SMS basedpayment system
Iway media - Remittance
transaction
E- Remittanceservice
ICICI bank I- express Remittance
transaction
Other technology
No frill account Axis bank SunTec's TBMS-F Remittance
transaction
IVR Edyficar (Peru) / Voxiva (Peru,worldwide)
Client informationaccess, and product,account, or branchinformationAccount transaction
E pass book &authenticationdevice
ICICI bank Partnership with VikasSahyogis
Client identificationSystem security
Solar PoweredRural ATM
Vortex Engineering -
Mifos Software ASOMI Grammen foundation MIS
Mifos software Grameen Koota,Banglore
Grammen foundation MISD
STEMTechnology,Technologyassisted financialinclusion
BASIX - Financial inclusion,accounts opening
Person to personfinancing platform
Dhann - X - Person to personloaning
e-docs, Equitas -
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IT system Bank
2000
Equity Building
Society, Kenya
USSD in SMS like
format
G-CASH I-
Philippines
Globe telecom
Scoring BancoSol (Bolivia),Mibanco (Peru)Banco Solidario(Ecuador)CMM Medelln,CMM Bogot(Colombia)Unibanka (Lativa)LAPO (Nigeria)
Loan originationloan applicationprocessing andapprovalProduct servicingcollectionsCustomerretentionloyaltyprogramsand incentives
Source: Primary and secondary data
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Smart Card
Smart Cards are emerging as a solution for microfinance institutions (MFIs) to easily keep
accounts and record loan transactions. Wallet-sized plastic cards with embedded computer chips
that can process information or simply store data. It uses in Client identification with biometrics
and helps in client and agent authentication with PINs. It also helps in office transaction and
withdrawals. It helps clients in repayments of their microloans. The smart card allows for
withdrawals, deposits, currency exchanges, money orders and other services. As a security
precaution, fingerprint images are stored on the microchip and are compared with those taken by
biometric scanners at the time of transaction. Since Smart Cards hold their information on thecards (in the microchip), transactions do not require a transfer of information from a central
source; transactions can be entirely off-line, rendering telephone lines and fibre-optic cable
unnecessary. In addition, since smart card transactions can reduce some of the paperwork,
transaction times are much shorter, enabling loan officers to service more clients. Information
reconciliation/consolidation from the vendor/loan officers to head office can occur through
information transfers at regular intervals.
In many countries Smart card was used by several microfinance institutions. Prodem, a BolivianmFI, has conducted a pilot project using Smart Cards to replace much of the paperwork
previously needed for transactions. A savings account with a smart card uses microchip
technology. A card with an embedded microchip allows microfinance institutions to have saving
deposits without being on-line. The balance and account transactions are kept in the
microchip.One large advantage Smart Cards have over traditional ATM and credit cards (which
are also being used by MFIs) is their ability to store and track purchasing and transactional
histories. The fingerprint as a control method for the savings account was developed because
twenty-seven percent of our clients do not read or write. Most clients are women who live in
rural areas. In the past, many of their clients instead of signing credit contracts used their
fingerprint because they did not know how to write. This fact led to use this tool as a means of
identification and given the fact that no two fingerprints are alike, company could be assured of a
secure identification.
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Remote Transaction System (RTS) in Uganda Microfinance, supports both group and individual
lending, online and batch offline processing, and back office synchronization. The RTS is based
on the use of sturdy hand-held devices that can communicate over GSM cellular networks. This
solution was intended to become an industry standard, helped MFI reach isolated clients cost
effectively, and enable microfinance to reach a new stage of development. Combined with the
use of smart cards given out to clients and microfinance agents, the system allows MFI agents to
collect crucial financial data in the field and subsequently to transfer the data directly into the
MFIs computerised financial management systems. The RTS eliminates the need to prepare,
transport, and enter hand-written reports, reducing costs for rural operations. In addition,
electronic collection of data raises client confidence in MFIs, as well as reducing fraud. Finally,
the system, if used by the industry as a whole, might allow MFIs to take full advantage of latent
synergies that exist among geographically and financially diverse institutions.
With prototype technology, the MFT implemented a pilot of the system in Uganda in partnership
with three MFIs active in this country. The three MFIs were Uganda Microfinance Union
(UMU), a cooperating partner of ACCION; the Foundation for International Community
Assistance (FINCA), and the Foundation for Credit Community Assistance (FOCCAS), a
collaborating partner of Freedom from Hunger. The difference in size and modus operandi for
each MFI has allowed the MFT to assess the value of RTS against a range of practices currently
in use in the microfinance industry, including group, branch, and individual clients. This
assessment showed that the most commercially-oriented of the three MFIs gained the most value
from the technology, in large part because they were most willing to re-engineer their business
model to take advantage of the RTS. The advantages of the system as implemented included
automation of transactions, reduced client time and travel, more frequent payments, reduced cash
management risk, and avoidance of costs for brick and mortar branches.
Modular Corporation, a wholly owned subsidiary of Modular Techcorp Holdings of Malaysia,
announced the launch of its first Microfinance Smart Card for the Mahasemam Trust, a
microfinance institution based in Madurai, India. Field officers of the Mahasemam Trust will use
the Smart Card in combination with a small hand held device to record data such as payments
and transactions. This information would then be downloaded daily to a central server. The
Smart Card should help in better managing the collection and distribution of microloans, as well
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as reduce fraud and increase information security such as user identity and account information.
This Smart Card will hopefully prove to be a more efficient management system than previous
manual processes.
In India ICICI Bank has partnership with FINO to provide technology solutions to the micro
finance sector. The technology solution comprises of core banking and smart card systems. In
light of the technology solutions available through FINO, the Bank has designed a new process
for delivering loans under the partnership model. Some of the key aspects where a strong
technology platform will add value to the micro finance operations include reduction in
transaction cost; better data management and reporting capacities and capability to interface with
multiple peripherals, etc. This would also enable enhanced disclosure and transparency in the
operations of MFIs, setting a platform for robust securitization / buyout opportunities to meet the
priority sector lending objectives of the regulator.
www.cab.org.in/ICTPortal/Lists/.../icicibank_strategy_promoting.pdf)
ICICI Bank also employed delivery channels backed by technological innovations to achieve
scale and outreach in a sustainable manner. The Banks channel architecture includes branch and
non-branch channels. Branches act as a business hub providing banking services on the one
hand, while facilitating the fulfillment of products that have been sourced by the business
facilitators and business correspondents. Non-branch channels are of two types, business
facilitators and business correspondents. Business facilitators, referred to as Vikas Sahyogis, are
outsourced channels that generate business opportunities for the Bank. Network of Vikas
Sahyogis has been set to act as referral or sourcing agents for loans, insurance and investment
products such as mutual funds. These centers are operated by local people with existing
relationship with the Banks customer segments. Vikas Sahyogis include agri input dealers,
tractor dealers, automobile dealers and diesel dealers.
In India ZERO Microfinance and Savings Support Foundation (ZERO MASS Foundation/ZMF)
also uses Smart cards not needed for biometric authentication in local service area.
Union Bank is serving the underprivileged and disadvantaged 68000 beneficiaries serving
through biometric smart card and forging ahead to service 2.5 million customers through smart
cards in coming year.
http://www.cab.org.in/ICTPortal/Lists/.../icicibank_strategy_promoting.pdfhttp://www.cab.org.in/ICTPortal/Lists/.../icicibank_strategy_promoting.pdfhttp://www.cab.org.in/ICTPortal/Lists/.../icicibank_strategy_promoting.pdfhttp://www.cab.org.in/ICTPortal/Lists/.../icicibank_strategy_promoting.pdfhttp://www.cab.org.in/ICTPortal/Lists/.../icicibank_strategy_promoting.pdf -
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Tata Consultancy Services (TCS), also launched its smart card solution that would enable banks
to reach the remote areas and address their need for micro financing. To begin with, the Punjab
National Bank (PNB) and Bank of India (BoI) have come forward to implement the solution on a
pilot basis. While PNB intends to apply it in three locations spread across Punjab, Gujarat and
Delhi, BoI is planning to enforce it in Maharashtra.The smart card technology enabled banks to
provide a multi-application smart card to the account holders. The card stores the necessary
customer information including demographic details and financial applications such as loans,
deposits and insurance. It also contains secure identification and authentication, and can be
integrated with the core banking system for automatic account update and fraud control. Both
fingerprint and PIN are provided for user authentication.
BASIX in Andhra Pradesh has worked as banking correspondence using smart card for their
account holders. BASIX also launched Technology assisted Financial Inclusion (TAFI)
operations in some slums of East Delhi, A tripartite agreement was signed between Axis Bank, A
Little World (our technology partner) and Indian Grameen Services. (Source: Annual Report
BASIX, 2009)
Mann Deshi Mahila Bank is undertaking an initiative to become one of the first rural banks in
India to utilize cutting-edge SMART card technology for its banking operations. These plastic
'credit cards' will display women's names and photographs, utilizing micro-chip technology to
store financial information. The cards instantly allow the bank's field agents and clients to view
savings account balance, loan account status, and repayment history. The use of SMART cards
will increase the efficiency and business capacity of the bank and provide clients with enhanced
security and service. The card benefits the client by discreetly keeping her account information
free from unwanted inquiries and alterations. However, it has been challenging to find an
appropriate vendor to supply the technology and the hardware for this innovative new idea.
Swadhaar Finance, an ACCION microfinance partner, offers savings accounts to its poorer
clientele by becoming a banking correspondent of ICICI Bank. Through the partnership,
Swadhaar sets up small kiosks where clients can make basic transactions (e.g., balance inquiries,
deposits, withdrawals). Clients needed to pay INR 200 (US $4) for smart cards to use these
kiosks.
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Thus it can be seen from the above that smart card is widely used by banks in India and other
countries. The use of smart card was less prevalent in microfinance institutions in India except
few like BASIX. The reasons of less adoption are high cost to manage and maintain and
illiteracy among the clients.
Point of Sales (POS) devices
Small machine located at a third party merchant that can be used to authenticate the transfer of
funds from the customer to the retailer or the reverse depending on the transaction type.
Similarly, POS and cell phone systems offer an opportunity to MFIs to increase their outreach in
remote and rural areas. When the country infrastructure allows, POS-based systems are a less
expensive solution for providing financial services to remote and rural clients when compared
with the expenses associated with opening a new branch.
Benefits to POS/ PAD
Microfinance can increase the security of financial transactions Reduce transaction cost to service clients Reach new areas without branch infrastructure Staff can focus on customer acquisition and service Additional services and revenue streams
Benefits for Clients
Reduced transaction cost educed risk of cash handling Prestige of access to international payment networks (VISA)
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In Colombia the correspondent agent model (CA) allows financial institutions to reach remote
areas by using a combination of POS terminals and magnetic strip cards. This model is currently
implemented in several Latin American institutions, including BANCOLOMBIA-CONAVI in
Colombia and Interbank in Peru. In this model, the financial institution works closely with an
external technology provider to identify potential locations for the remote branches. The ideal
locations include retail stores, supermarkets, convenience stores, and gas stations. The hardware
requirements for these locations are minimal, mostly consisting of the POS device. From the
Colombian and Peruvian experiences, the main benefit the CA model offers to financial
institutions is the fact that this solution is a cost-effective way to increase outreach in remote
areas. CA model provides great savings for financial institutions to increase their local coverage:
a branch is 40 times more expensive than using a CA agent and similarly, an ATM is seven times
as expensive as a CA agent.
(Source: Client-Focused Technologies in Microfinance, microNOTE # 31, USDA)
Another example of an organization experimenting with Palm Pilot technology to optimize field
operations can be found in the Grameen Banks own backyard in Bangladesh. Remote transaction
Model system at UGANDA MICROFINANCE LIMITED currently allows clients to make savings
deposits and payments of microfinance loans through a network of agents. This system is at the final
stages of its pilot phase at Uganda Microfinance Limited (UML). Once the pilot of the solution is over,
this technology should be able to support a full range of financial transactions, including withdrawals and
account- to-account transfers. The RTS technology currently works through a combination of smart cards
and POS devices in a GSM network. The system uses wireless POS devices running the RTS client
software. These POS terminals wirelessly communicate with a central server, which then connects to the
MFIs main MIS.
In Malawi, OPPORTUNITY INTERNATIONAL BANK OF MALAWI (OIBM) has combined
biometric-enabled POS devices and smart cards to provide banking services to Malawis low - income
population. OIBMs biometrics and smart card model overcomes the identification problem by using
fingerprints. This eliminates the need for clients to have PINs and makes the transaction process easier for
illiterate customers because they do not have to select and memorize any numbers to access their
accounts. As part of this model and through partnerships with small retail outlets, the bank has set up a
network of POS agents in rural areas. OIBM is using the POS solution at one of its branches located in a
high-transit area, allowing the institution to bring its POS services to more peri-urban and rural clients.
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The institution currently has more than 60,000 clients using the service on a regular basis. Use of POS in
OIBM has the Increased in outreach, Productivity and customer satisfaction gains, Efficiency of
operations and Lowered operating costs.
(Source:www.opportunity.net/.../opportunity_international_bank_malawi)
In Uganda Microfinance Union in Uganda, FINCA, Teba Bank, FOCCAS using POS devices.
Banco Solidario, with support from ACCION International, implemented a PDA-based
application for microfinance purposes. This first generation of ACCIONs Porta Credit
application was called Credi Palm. The Palm-OS-based application was implemented in all of
the bank branches to create an easy way to capture and store credit evaluation information in the
field, A solution that allowed credit officers to become more familiar with the use of technology
for their daily field activities, and an effective interface between the main MIS of the institution
and the PDA application.
(Source:www.mixmarket.org/mfi/banco-solidario)
In India, HDFC bank using branches as hubs for other inclusion initiatives such as direct
linkages to self help groups and joint liability groups, bank on wheels, point of sale (POS)
terminals and information technology enabled kiosks, and other information & communication
technology (ICT) backed initiatives in these locations. Under the Project Jharkhand program
the Bank has launched its services at a Common Service Centre (CSC) in Kanke (Ranchi)comprising over 1.5 lakh households spread across 100 villages in 30 Panchayats. The Bank
also adopted Chakala village near Ranchi as part of the programme. The programme
envisages covering over 45 lakh households in the State through both the CSC and village
adoption models, subject to regulatory provision. CSC is an integral component of the Central
Governments National e-Governance Plan that seeks to set up over 5,000 CSCs in Jharkhand
and about 100,000 in the country (HDFC Bank Annual Report 2011). POS device was also
used on trail by ICICI bank in Karnataka and Wrana Sugar cooperative in Maharashtra.
ICICI bank has supported several of its mFIs partners in Madurai, India. ICICI supported
community internet and tele centre projects in the region.
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Manvish MiFAUN-Micro finance device developed in Bangalore is
an internet enabled hand held device that is stand alone, (IP
addressable) and can communicate to any remote server located
anywhere on the net via TCP/IP/Wifi, GSM/GPRS or a PSTN
Modem. This makes it completely PC independent. Data files can be
encrypted and can communicate with Oracle (tested already) or any
other database (DB2, SQL etc) and vice-versa with a high level of
data integrity.
KBS Bank Chincholiis able to provide banking services in Chincholi town (hub) and door-step
services in about 25 villages (spokes). Together with IGS, KBS Bank has established such
Business Correspondent outlets in 18 Hub locations and 45 spoke locations in the three districts
of its operation. In the next three to five years, the bank seeks its presence in all the 147
blocks/hoblis through hub outlets and over 1500 villages through spokes. (Source: Annual report
BASIX, 2009-10).
SKS Microfinanceintroduced a prototype data collection system using the popular Palm Pilot
PDA devices and smart cards in May of 2001. Loan officers used the PDAs to record client
transactions in the field, which were simultaneously recorded on the smart cards that were
provided to clients as a form of backup. During the year-long pilot program, SKS tested the new
system in two client centers, marking improvements in accuracy, loan officer productivity and
operational efficiency. This initial pilot was supported through $125,000 in grants and soft loans
received from CGAP (the World Bank's apex body on microfinance), Digital Partners and
Grameen Foundation USA (two US-based non-profits working on technology based solutions for
international development challenges). (http://www.sksindia.com/Milestones.htm).
Sanghmitra Rural Financial Services, Bangluruhas used 45 hand held device for online real
time reporting of transactions particularly in regard of repayment of loan installment by using
GPRS technology. It has purchased another 35 instruments from Quantam System, software,
Bangluru. Total cost of up gradation and 35 new machines costs 10 lakhs funded by SIDBI.
They dispensed with issuance of manual acknowledgement receipt to SHG since January, 2010.
This ensured prompt reporting by field staff and eliminated opportunities to misuse of money
recovered from groups, besides it facilitated proper monitoring of recovery at regional office and
head office.
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(Annual report, 2010, Sanghmitra Rural Financial Services, Bangluru)
Pushtikar,a Jodhpur-based cooperative MFI, has introduced handheld devices to cover clients
at their doorsteps especially for collecting periodic payments. This is an MFI, registered under
the Multi-State Cooperatives Act, engaged in thrift and credit. It provides individual loans and
also forms and finances women self-help groups (SHGs), through four branches. Handheld
devices (similar to credit card transaction machines, but without any reading capability such as
magnetic strip or biometric) with a printer and inbuilt memory are used by their field staff. As
indicated by the MFI, the device costs Rs 12,500 per machine (supplied by Albertsons).
Thus it may be concluded here that Hand held devices are used in India as well as other part of
the world. Prevalence was more in African countries. India adoption was less as compared to
African and Latin American countries.
PERSONAL DIGITAL ASSISTANTS
PDAs are small, handheld digital computers that can run specialized programs to manage MFI
and client data and perform financial calculations. Using PDAs, loan officers can consult an
electronic list of borrowers in arrears to plan collections visits, review clients ready to apply for
their next loans, and refer to historical client information, while working in the field. Loan
officers can even fill out that that loan applications forms on the PDA and calculate the
indicators used for loan review and approval. Virtually all client data and client visit records are
stored electronically and are immediately available in a device small enough to fit in a shirt
pocket. Since PDAs are a platform that can run various software programs, MFIs can use the tool
to improve performance in a range of tasks. MFIs may want to employ PDAs to standardize their
credit methodology and operating policies, improve loan officer efficiency, and increase data
accuracy and access in the field.
In Latin America, where increasing competition is forcing MFIs to lower costs and improve
service, several MFIs are using PDAs to save on relatively high labor costs (CGAP). It helps in
Customer acquisitions, Certification to origin, tracking produce for payments. PDA technology
does not replace an MIS. Rather, it requires a well-functioning MIS for effective results. Any
changes to an MIS after implementation of PDAs may necessitate changes to the PDA software
to maintain compatibility.SKS Microfinance (India) implemented PDAs to record transaction
data during group meetings, not for detailed loan analysis. PSHM (Albania) and ACCION Latin
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America are using Personal Digital Assistants. BanGente and Banco Solidario have improved
workflow efficiency, reduced operational costs, and made better information available to loan
officers. Fin Comuns used PDA technology which has increased the consistency of work among
loan officers and saved staff time in the field.
in Mexico Asociacin Programa Compartamosan MFI targeting very low-income women
is experimenting with Palm Pilot (a brand of PDA) usage in cases where greater productivity is
predicted and integration with MIS is justified. PDAs are small portable handheld computers that
can allow loan officers access to his/her Institutions MIS from the field. Depending on location,
information can be updated by the loan officer to the head office instantaneously or every day,
which decreases the need for data entry clerks.
In India Dharani Mahila Macs,a microfinance institution in Andhra Pradesh, has decided to introduce
first Personal Digital Assistant (PDA)-based Management Information and Credit Monitoring System
with technology back up by Hyderabad-based Elitser IT Solutions. The PDA, a hand-held device, will
help to carry information, make collections and issue receipts instantly to the clients. The collected data is
stored and updated to the computer at the headquarters. Based in Bachannapet, Warangal District,
Dharani Mahila Macs has 3 branches and around 7,000 members. Using a tailor-made solution for
member-lending methodology, the technology can integrate PDAs, biometric solutions and smart cards
for enabling ease in managing field operations typical to microfinance organisations, said a statement.
The software solution also supports mobile phone based technologies and is available with multilingual
facility.
Figure: Dharani Mahila Macs
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Based in Bachannapet, Warangal District, Dharani Mahila Macs has 3 branches and around
7,000 members. Using a tailor-made solution for member-lending methodology, the technology
can integrate PDAs, biometric solutions and smart cards for enabling ease in managing field
operations typical to microfinance organisations, said a statement. The software solution also
supports mobile phone based technologies and is available with multilingual facility.
Equipped with features like automated SMS alerts, e-mails to clients, mail-merge facility for
sending letters to clients, facility to track, scan and store documents, the product also features
Financial Accounting and Management Information systems to serve any microfinance
institution irrespective of its lending model, said the statement, highlighting further that the
savings module covers all types of thrift activities pertaining to microfinance.
The software enables financial accounting reports, comparative financial statements, member-
related reports, operating reports, management reports, funder reports, field officer-wise reports
and other miscellaneous data that is required by all stakeholders in microfinance operations.
Thus it may be concluded here that PDAs are used in India as well as other part of the world.
Prevalence was more in African countries, Maxico, Latin America. India adoption was less as
compared to African and Latin American countries.
BIOMETRICS TECHNOLOGY
It Measures an individuals unique physical or behavioural characteristics to recognize and
confirm identity. It helps in clients identification and system security. In Malawi it helps in
client identification and system security. In Malawi Opportunity international also uses this
technology.
In India Punjab national Bank has started using biometric ATM for their rural and uneducated
customers. Vortexs solar-powered Gramateller with built-in Biometric capabilities, Gramateller
ATMs have been used by the Government to disburse wages under the MGNREGA (Mahatma
Gandhi National Rural Employment Guarantee Act) programme.
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Thus it may be concluded here that biometric devices are used in India as well as other part of
the world. Prevalence was more in Malawi. In India adoption was less as only restricted to
banks.
MOBILE PHONES/BANKING
Mobile phones can be used for financial services in three different ways: for micropayments (m-
commerce), as electronic money (e-money), and as banking channel Consumersof Tata. The
key potential benefits of using mobile phones to deliver banking services are lower cost of
deployment for MFIs and greater choice and control over financial services by the client. The
potential benefits of mobile banking should be related to an MFIs own strategicdrivers. The
four core strategies that MFI may follow to promote and protect growth are: 1) increase market
penetration; 2) sell more services to existing clients; 3) retention of most valuable clients; and 4)
reduce cost of service provision. In a year of 2010, mobile banking users soared over 100 percent
in Kenya, China, Brazil and USA with 200 percent, 150 percent, 110 percent and 100 percent
respectively.
In South Africa WIZZIT Bank was established as a commercial, mobile phone-based bank,
operating off of the banking license of the South African Bank of Athens. With a combination of
ATMs, POS devices, and Maestro cards, WIZZIT clients have access to cash across the country,
allowing them to perform more than just mobile banking transactions. WIZZIT uses USSD
technology that allows for a continuous session with instantaneous responses. The transactions
are done in a single session and the system notifies the client when the transaction is completed.
The WIZZIT service works with any type and generation of cell phone. Customers of WIZZIT or
MTN Banking in South Africa use their phone as the primary way of accessing their bank
account. MTN, a mobile network operator, is partnered with Standard Bank, and WIZZIT is
partnered with the South African Bank of Athens. Customers load cash into their bank accounts
at branches or automatic teller machines (ATMs), or through a direct deposit of salary, and can
use their mobile phone to purchase airtime and make payments, transfers, and balance inquiries.
With the help of international agencies like International Finance Corporation these
technologies were tired in least developed countries like Africa, Latin America, and Asian
countries. In June 2010, the Financial Services for the Poor initiative at the Bill & Melinda Gates
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Foundation partnered with USAID on the Haiti Mobile Money Initiative (HMMI), featuring a
$10 million fund to provide incentives to mobile service providers to quickly launch and expand
m-money services. Notably, Digicel, Haitis leading mobile provider, won the first-to-market
prize of $2.5 million in January 2011 after launching its Tcho Tcho Mobile service. Soon
thereafter, Voila, Haitis second largest mobile provider, released its T-Cash m-money service
and received a $1.5 million USD second-to-market award. To help monitor the impact of the
HMMI as well as m-money service use and financial access in general, the Gates Foundation
commissioned InterMedia to design and conduct a series of household surveys of Haitian adults
(aged 18+). The first Haiti Mobile Money Tracker (HMMT) survey was conducted in March
2011, in the early days of m-money usage, and sampled all ten Haitian administrative
departments based on figures from the latest census in 2003. Follow-up surveys will be
conducted to establish usage trendshopefully based on a more up-to-date 2011 census.
InterMedias HMMT Online Data Analysis Tool allows financial access practitioners and
stakeholders to dive into the survey data themselves in a user-friendly way. The combinations of
financial, mobile and demographic data are easily cross-referenced to support project planning
and analysis.
In the Philippines, Globe Telecom lets customers load cash (or G-Cash) onto their mobile phones
at partner merchants or Globe outlets. For one million customers, G-cash is real value that can be
stored and withdrawn as hard cash, transferred to a friend across town or across the world, or
used to pay for products at restaurants and stores. In addition, customers of Globe, and of
Safaricom in Kenya (which has a similar product called M-Pesa), can use their virtual money to
repay loans to, or make deposits in, microfinance institutions.
HIFIVE was established in June 2010 as part of a longer term response to the disaster in an effort
to establish long term financial services for all Haitians; HMMI was created by the Bill &
Melinda Gates Foundation in partnership with USAID. HMMI, implemented by the USAID
project HIFIVE, provides incentives to encourage mobile operators and financial institutions to
launch mobile money services. It has tied up with Haiti Mobile Money Initiative (HMMI).
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Visa, is actively working with leaders in the mobile and financial services industry to deliver the
next generation of payments and financial services. VISA believed that mobile technology can
democratize financial services for billions of people worldwide by helping the industry overcome
historical challenges to deliver mobile financial services to more than 1 billion consumers
worldwide who own mobile devices but do not have a formal banking relationship.
Safaricoms M-Pesa is in the mobile banking world that it has come to be accepted by some as a
blueprint for mobile financial services. The service relies on the phone in the hands of the
customer (now more than 12 million) to perform transactions and the phone in the hands of the
agent (all 20,000 of them) to credit and debit accounts. But in markets that have either lower
penetration of mobiles or higher fragmentation among operators, offering over-the-counter
(OTC) payment services.
G-Cash in Philippines is a mo