Innovation in the Microfinance Industry

By Robert Lowry, Unitus

Microfinance is a powerful, sustainable way of reducing poverty. However, despite its tremendous strength, it’s just not available to enough people. Three decades after Muhammad Yunus started giving microloans to women in the village near his university in Bangladesh, fewer than 20% of the world’s working poor have access to basic financial services.

Unitus and other microfinance organizations are focused on dramatically expanding the number of people served by microfinance. Technological innovation in the microfinance industry will help us reach that goal. What are some developments on the horizon?

One important innovation in the field will be improved management information system (MIS) software. Current MIS tools—all too often, pen and paper, spreadsheets and rudimentary or unconnected databases—make systematic management of a loan portfolio difficult and time consuming, and impede growth.

Grameen Technology Center, a Seattle organization affiliated with Grameen Foundation, is developing MIFOS, an open source software system that helps microfinance institutions with loan and savings portfolio management and other MIS functions. You can read more about the Grameen Technology Center on their website here.

In the coming months and years, we’ll also see an increase in technology systems resulting in “cashless” microfinance, so that clients will use ATMs, cell phone banking and plastic cards to conduct and record their financial transactions – resulting in a huge improvement in transaction security and convenience. Other developments likely include the use of recruiting software to find qualified employees, credit scoring, and an increased ability to do sophisticated market research, with the goal of better serving a particular population’s financial needs.

Unitus recently formed a group called the Global Solutions Team to identify, source and employ the latest innovations in technology and human resources tools and connect microfinance institutions to those resources. We recognized that a big problem among microfinance institutions is that they often don’t have access to the same commercial-level products and services that companies do. Instead, they may use off-the-shelf solutions that aren’t customized to their unique industry, cultural or local business needs. The Global Solutions Team is rolling out new software later this year called the Assessment Recommendation Tool, which will allow microfinance institutions across the industry to find the vendors that best supply their needs.

As Maria Otero and Elisabeth Rhyne of ACCION, a leading microfinance organization, have pointed out, “technology is the wild card in microfinance” – we can’t predict what innovations will take hold and make the biggest impact. But the IT revolution has definitely trickled down to microfinance. The next decade will see a tremendous leap forward in the number and quality of tools available to microfinance institutions. With new technologies at their disposal, microfinance institutions will be positioned to run more efficiently, lower interest rates, offer more and better products and services, and bring life-changing financial services to more clients and their families.