Jason Polen works as a Social Media Intern for Grameen Foundation based out of our Seattle office.
In developing countries, the demand for financial services still far exceeds the supply. Usually when this occurs, businesses scale-up to meet the demands of the market. However, microfinance institutions (MFIs) are still not fulfilling the financial demands of the world’s poor. What is preventing MFIs from reaching everyone hoping to break the cycle of poverty? The key barrier is technology; many small and medium sized MFIs lack affordable, efficient, and usable technology.
In New Delhi, on November 17th, Grameen Foundation and Microsoft are holding a conference focused solely on the intersection between technology and microfinance. The 2010 Microfinance Leadership Summit entitled, “Fueling Growth: Strategic Technology for Microfinance” will bring together leaders from throughout the microfinance and technology ecosystem to discuss how they can better leverage technology to meet their business and social goals. Grameen Foundation and Microsoft will outline how MFIs can use technology to decrease administrative and transactions costs, increase social benefits, and maximize transparency.
Unfortunately, most small and medium sized MFIs charge relatively high interest rates (though they are still lower than the alternatives offered by informal loan sharks). Providing a thousand $25 microloans has significantly higher administrative costs than providing one $25,000 loan. Charging high interest rates is the only way for most MFIs to be sustainable, but adopting the appropriate technology can change this. It has the potential to significantly reduce the cost of distributing, monitoring, and collecting microloans, which decreases administrative costs and therefore interest rates. MFIs that have successfully integrated their banking software with mobile banking technology have experienced enormous decreases in overhead costs. Transactions become automated, reducing accounting costs and thousands of hours spent calculating inefficient or duplicate data entry. With the increased use of technology, MFIs can decrease the interest rates charged to borrowers and focus on reaching more people in need.