Tech savvy microfinance: low cost or increased threat?

Microfinance is a business of scale. It operates on principles of maximum utilization of finance, with minimum cost. As microfinance serves tens of thousand clients in its endeavor of empowerment of poor, saving even several cents per micro loan transaction matter very much. This is why the advent of new technology matters for microfinance. Technology allows micro-finance institutions (MFIs) to save those pennies otherwise spent on inefficient techniques and methods of transactions.

Microfinance thrives on economies of scale. Therefore it is highly sensitive to variable costs. By saving as much as possible, the MFI could then pass the benefit to its clients. The Point-of-Sales (POS) and mobile phone technologies are but two such methods that enable these savings. These technologies, identified as key components for the industry, were already in place by the beginning of the new millennium. The rapid developments of technology through specialized mobile apps, rapid fire internet and broadband, coupled with savvy marketing techniques have also opened up microfinance to a new and exciting era to scale its costs further down. Personal Digital Assistants or PDAs, smart phones, net books and laptops and even the new advances through i-phone and i-pad has increased customer attraction while decreasing cost of transaction for the MFI network.

Benefits attributed to these techniques are many. With the advent of mobile banking apps and banks allowing online facilities for mobile payments, MFIs and its clients found reliability, speed, low cost access and security for their transactions. MFIs found economies of scale among suitable countries. Business plans thrived with the mass market and rapid transition of technology.  India with its 370 million and rapidly expanding (about 15 million subscriptions per month – in 2010) SIM card network, Pakistan with 90 million customers with 2 million monthly additions, Philippines and Indonesia with rapid growth and access to mobile networks, South Africa with Wizzit virtual commercial bank facility are but several examples of the dynamism created and spurred through technology. Mexico, Venezuela, Ecuador, Dominican Republic has shown increased usage of PDAs, which has helped MFIs to standardize their transactions. New tech on biometrics has facilitated fingerprint recognition, while photo recognition further increased the security of each client transaction.

The advent of technology along with tech savvy market has made the reliance on paper currency less and on mobile cash more. But are the advantages of mobile cash seamless and is it devoid of any possible threat? What would the future hold for the MFI?

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About Ayesh Ariyasinghe

Senior Asst. Director of the Central Bank of Sri Lanka, Interested in nation rebranding, Did work for the Sri Lankan government on nation branding and sovereign rating upgrades for Sri Lanka, Sovereign bonds, Monetary policy, Payments and settlement systems, anti money laundering, investments in gold, blue chip, public debt and currency trading. Also an Attorney at Law who formerly worked as a Prosecutor of the Attorney Generals Department. Has dual degrees of BSC in microbiology, chemistry and Attorneys at Law. MALD at Fletcher School of Law and Diplomacy in development and international economics and International banking and finance...
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