Microfinance from LDCS to DCS

Microfinance (MF) has demonstrated great success in poverty-relief in less-developed countries (LDCs) and is experiencing rapid growth and interest in developed countries (DCs). However, the current literature on DC MF leaves a general impression that DC MF is failing and its original core intent of poverty relief is being diluted by survival concerns. Descriptive analysis is used in this chapter to infer that DC MF must be redesigned to meet DC socio-economic conditions, if it is to avoid a reputation of being too poorly focused, ineffective, and inefficient for use in DCs. After demonstrating that poverty in LDCs is harsher than in DCs, this chapter reviews current-performance concerns of DC MF, discusses how it can still effectively relieve poverty in DCs, examines how regulatory and other socio-economic factors affect micro-enterprise, and concludes that MF should be refocused before DCs commit to further developing/adapting MF infrastructure.

Information Technology and Microfinance in Developed Countries

As Information Technology becomes increasingly more present in the so called Information Society, its potential to constitute a strategic resource also increases. Whether, and to what extent, strategic changes linked to the adoption of IT have effectively reached specific economic sectors or industries is therefore of interest. This chapter is meant as a contribution in that area, analyzing the relationships between IT and microfinance, focusing on the microfinance sector in Spain. Our study shows that the microfinance sector’s basic IT infrastructures are above the Spanish average. Two main uses of IT tools are revealed: (1) to provide information, both to prospective clients and to those sustaining microfinance, and (2) as a management and support tool, including on-line direct support to would-be entrepreneurs. Strategic use of IT is less widespread, related primarily to financial transparency issues, more clearly shown by MFIs linked to the social economy. Finally, depth of outreach related to the actual IT use in the sector is also discussed.

Portal to Portaloo

2.5 billion people do not have access to a toilet; instead they have no choice but to practice open defecation, having a potentially detrimental effect on their health. The chapter asks whether microfinance and IT can play a role in tackling the problem. Drawing on the experience of Grameen Telephone it is argued that this is analogous with attempts to promote the purchase of toilets, in particular the technological leap where expensive infrastructure is bypassed. Drawing on three case studies we show that such a process is underway and while there are a limited number of microfinance institutions (MFIs) engaged in this market it is insufficient to address the myriad of both organizational and cultural problems. However, the use of a prospective web portal may help create the environment for a viable market to emerge.

The Role of Credit Scoring in Micro Lending

This chapter aims to present credit scoring as a technology meant to improve micro lending significantly. We consider that credit scoring is an advanced technology because statistical procedures, some sophisticated, are required to design powerful scorecards. In the same time, we want to show that scoring is not an elitist tool. It is not for every institution, as some prerequisites are required, but we are convinced that there is an enormous potential market for credit scoring in micro lending. Credit scoring can be efficient only in massive homogeneous markets. Microfinance usually addresses this kind of markets. This is the opportunity we want to exploit. On the other hand, quantitative measurements, required for statistical developments, suffer from the fact that micro-entrepreneurs operate mostly in the informal or semi-formal sectors. Some variables like the profit of the business or the turnover cannot be measured accurately because there is no reliable source. This is a challenge. Implementation of credit scoring and follow-up in an environment that has limited access to data infrastructure solutions could also be considered as a challenge. Here we describe in detail possible applications of credit scoring in micro lending. We explain main technical aspects and point expected benefits versus implementation and maintenance efforts. This chapter is written from the point of view of several scoring experts that develop credit scoring models for micro and SME lending on a commercial basis.

Marketing Analysis of Emerging Peer-to-Peer Microlending Websites

The marketing trends of the emerging sector of peer-to-peer microlending websites have been left largely unexplored during its rise to recognition. Based on a sample of nine popular social lending sites, this exploratory chapter uses observational research methods to analyze the uncontrollable and controllable marketing elements of online social lending websites in order to better understand its present and future tendencies. A more comprehensive understanding based on similarities and differences of the marketing movement within this industry will be the end result of this chapter, and therefore, a more reliable prediction of the future it holds.

The Use of Web 2.0 Technologies in Online Lending and Impact on Different Components of Interest Rates

Microcredit interest costs remain higher than those of commercial banks in spite of significant donor funds, largely owing to transaction costs relative to small loan sizes. With the rise of Web 2.0 and online social interactivity, can these transaction costs be reduced through peer to peer lending? Peer to Peer transactions and Web 2.0 have two things in common. The first common denominator is that both of them are rather newcomers in their respective fields and growing fast. The second is that they are both based on mutual and social exchanges between people instead of intermediary based relationships. The main objective of this chapter was to investigate whether peer to peer online lending transactions are integrated to support a higher level of social interactions and associations with a promise of reducing (transaction) costs through disintermediation and risk reduction. We find that “peer to peer” lending consists of diverse websites of microcredit (Kiva, Wokai, Babyloan), social investing (MicroPlace) as well as small loans at market rates (Prosper, Zopa, Lending Club), and even lending between friends and family members (Virgin Money). The chapter studies the use of web 2.0 technologies (blogs, interactivity between lenders and buyers, peers‘ reviews and comments, peers communities and chats) in seven such online lending sites. It finds that most of the so called “peer-to-peer” lenders are in fact intermediaries between the peers (lender and borrowers) and there is little direct contact between the peers. One website used none of the web 2.0 tools. None of the websites used all the web 2.0 tools. The impact on transaction costs should therefore be very little as there is neither disintermediation nor risk reduction. A discussion of difficulties in establishing platforms in this field and directions for future research are provided.

EDA CapitalConnect

Since its inception in July 2008, EDA CapitalConnect (EDACC) has sought to address inefficiencies in the market for funding to social enterprises worldwide. To tackle these challenges, the company has developed an online platform that allows social enterprises and institutional funders to communicate with one another, initiate financial transactions, and analyze market trends. The platform seeks to increase deal flow and transparency in the social enterprise space by facilitating information dissemination and the exchange of funding offers between capital providers and seekers of all sizes. As the platform develops, the challenges of achieving financial sustainability and scale will require EDACC to continue to fine-tune its services to meet the evolving needs of the social enterprise community. EDACC’s experience in its nascency suggests that technology providers to microfinance institutions and social enterprises – particularly start up organizations – must pay close attention to the behavior of their target users, and modify their services based upon trends in usage and market perceptions.

A Case Study of Mifos Implementation at Asomi

Mifos is an open source enterprise solution for microfinance. This chapter is a practitioner’s point of view on implementation of Mifos in an organization, based on the author’s experience in implementing Mifos at Asomi, a microfinance institution operating in the state of Assam, India. The factors to be considered in selection and implementation of Mifos are discussed. Various inputs, analyses and resources required for implementation are discussed. Any organization must have a concrete set of operational strategies that enables it to track its borrowers and loan portfolio effectively and on time in order to succeed. Wrong assumptions and choice of wrong technology may only aggravate MIS implementation. Development of technology has removed all the barriers to technologies and has enabled organizations to develop computerised systems streamlined to their operational needs and not the other way round. It is attempted to justify this by using the case of Mifos.

IT and MIS in Microfinance Institution Effectiveness and Sustainability Issues

According to a recognized survey, only 11% of the world’s 240 million poorest families are currently served by Microfinance Institution (Daley-Harris, 2002). In order to increase the outreach of MFI, institution will have to go a step further and start their operation in the rural areas. Implementing sustainable IT infrastructure in such areas is a challenge with numerous obstacles. Further, employee training also poses challenges that are unique to the microfinance industry. In this chapter, we articulate some of the challenges faced by microfinance institutions and some potential solutions with the help of real world case studies. We also propose a framework, which will help microfinance institutions implement IT based management information systems effectively.