ICTs IN MICROFINANCE – A SURVEY OF THE TANZANIAN LANDSCAPE
This survey attempts to establish the extent of usage, role, impact, needs and challenges that accompany the use of ICTs in the microfinance industry, using a microfinance technology and stakeholder ecosystem framework. This work is at the intersection of inquiry on ICT for development and the digital divide, the impact of microfinance, and the use of ICT in the financial services industry.
If you're a stakeholder, please contribute to this survey measuring institutional expectations, perceptions, and experiences with client-focused technologies, as reported by the MFIs. Your insight is invaluable to this research and will be treated confidentially.
The Millennium Development Goals of the United Nations address a series of global social development issues, including halving extreme poverty by 2015 (United Nations MDG, 2008). Since the publication of the millennium goals in 2000, much attention in the field of ICT has been focused on bringing ICT to poverty-stricken areas. Such projects have often not been evaluated scientifically, so there was until recently little evidence of the efficacy of ICT for development (ICT4D) in these environments (Batchelor et al, 2003). However, most evidence supports deployment of ICTs in such areas and by some reports, ICTs can assist with several of the MDGs simultaneously (Harris and Rajora, 2006).
Provision of microfinance services reduces poverty as they enable the poor to increase their household income, expand their asset base, and also improve their livelihood (Parikh, 2006; Hishigsuren, 2006). This has been further supported by the father of microfinance Mohammad Yunus, the founder of Grameen Bank in Bangladesh who surmises that 5% of the clients of the Grameen Bank exit poverty every year (The Economist, 2009). It is noted that MFIs serve as better avenues for providing microfinance services to the disadvantaged members of society and small and medium enterprises (SMEs), than the well-established financial institutions (Parikh, 2006). Yet, MFIs face a lot of challenges, as most of their served customers depend on agriculture which is subject to weather risks, seasonality and poor productivity, and involve weak SMEs. The customers are mostly rural dwellers and live in geographically dispersed areas with sparse population, and have limited financial transactions. Other customers live in urban areas which have very poor infrastructure. These challenges increase transactions costs for services provided by the MFIs. To succeed, MFIs should be efficient through the use of technological innovations.
According to Brynjolfsson and Hitt (2000), the use of ICT can help to cut down the costs of coordination, communication, and information processing, and to enable efficient service provision at lower cost. ICT is a strategic tool that enables users to be efficient and effective. ICT promotes the dual objective of microfinance, which is the sustainability and outreach to the poor people. Although ICT can help MFIs to reduce transactional costs, expand their market, and provide affordable and flexible services to customers, many of them continue to rely on inefficient manual data processing systems (Parikh, 2006) which create inefficiency. While some MFIs belong to SMEs which are characterized by limited technology and management capabilities (Caldeira and Ward, 2002), and a plethora of studies on SMEs and ICT usage (Harindranath et al., 2008, Ssewanyana and Busler, 2007 and Frempong, 2007) have been carried out, none of these studies focus specifically on MFIs and ICT usage in developing countries.
Difficulties of providing financial services to the poor
Open Source Software has the potential to increase the impact of microfinance (MF) especially for the very poor. Small and medium organizations play a crucial role, because they are more flexible in operations and familiar with the local context. New information and communication technology (ICT) can increase the outreach of MF to the very poor within a self-sustainable holistic approach. Although no suitable solutions have emerged yet, free/open source software projects have a potential to address the computing needs of small and remote MFIs. While the use of FOSS and ICTs in general can help increase outreach, there’s a need to draw attention to the challenges that come with it; one should not forget that access to basic financial services is not all that is needed – especially by the very poor.