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Impact Assessment of Technology Adoption in Microfinance in India Page 1

Impact Assessment of Technology Adoption in

Microfinance in India

B L Mishra

Dr. Manesh Chowbwy

Centre for Microfinance Research

Bankers Institute of Rural Development

Chandragupt Institute of Management, Patna


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CONTENTS

SR. NO. TOPIC PAGE NO

Contents i

List of tables ii-iii

List of graphs and exhibitsiii

List of abbreviationsiv

Executive summaryvi-xvi

1.Introduction

1-8

2. Methodology 9-133.1 Adoption of modern technology in microfinance institutions and

banking for financial inclusion in India and other countries14-59

3.2 Computerisation in banks 60-71

3.3 Use of various technologies by selected banks and mFIs 72-75

4 Factors affecting Technology Adoption in Microfinance 76-89

5.1 Awareness and impact of modern technology in microfinance 90-100

5.2 Awareness and impact of modern on microfinance and bankclients

101-148

6 Management information system in Microfinance 149-152

7 Strategy for penetration of technology based products andservices

153-160

8 Suggestions and Recommendations 161-165

9 Bibliography 166

AnnexureI

Legal status of the institutions167

AnnexureII

Sources of Fund169

AnnexureIII

No. of staff in banks and mFis170


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AnnexureIV

Outreach of the institutions171

AnnexureV

Various technologies used by banks and mFIs172

Annexure

vi

OFFICES OF COMMERCIAL BANKS IN INDIA from 2005

TO 2009

173

AnnexureVII

STATE AND POPULATION GROUP-WISE DISTRIUTIONOF OFFICES OPENED BY COMMERCIAL BANKS as onMarch, 31, 2009

176

AnnexureVIII

Status of National Electronic Fund Transfer (NEFT)177

ANNEXURE IX

Nation-wide network of banks as on 31 March 2009178-182


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LIST OF TABLES

Sl. No. Topic Pages3.1 Adoption of modern technology in microfinance institutions

and banking16

3.2.1 Status of Computerization in Public Sector Banks as on 31March 2009 in percentage terms.

60

3.2.2 Computerization in Public Sector Banks (As on March 31,2009)

64

3.2.4 Branches and ATMs of Scheduled Commercial Banks (As atend-March, 2009)

66

3.2.5 Branches and ATMs of Scheduled Commercial Banks(Continued) (As at end-March 2009)

68

3.2.6 Finance Indicators for India, 2001-08 71

3.3.1 Officials response on use of following technology 73

4.1.1 Factors that affect the adoption of technologies 76

4.1.2 Reasons for not using the following technologies 79

5.1.1 Awareness regarding following technology 82

5.1.2 Changes on cost structure they have experienced after

incorporating technology

83

5.1.3 Changes on outreach delivery after incorporating technology 84

5.1.4 Ranking for the Benefits of Technology 85

5.1.5 Cost of adoption of different technologies 86

5.1.6 Problems faced by mFIs and banks in adoption of technology 87

5.2.1.1 Age wise classification of clients 89

5.2.1.2 Education received by clients 92

5.2.1.3 Gender-wise classification of the clients 93


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Sl. No. Topic Pages5.2.1.3 Marital Status of the clients 93

5.2.1.4 Social group wise classification of clients 94

5.2.1.5 Family Size of the clients 95

5.2.1.6 Income wise classification of clients 96

5.2.1.7 Occupation wise distribution of clients 97

5.2.2.1 Clients response on Awareness regarding following technology 98

5.2.2.2 Clients response about the use of technology 99

5.2.2.3 Facilities for which the technology are being used 100

6.2 Microfinance and Banking technology providers in India 104

6.3 Software used in the various Banking and MFI institutions 1109

LIST OF GRAPHS & EXIHIBITS

Sl. No. Topic Pages

Figure 6.1 MIS technologies employed worldwide 96

ABBREVIATION

ATMs Automated teller machines

ACH Automated Clearing House

BC Business correspondentCA Correspondent Agent

CD Cash Dispensers

CGAP Consultative group to assist the poor

CRDB Co-operative Rural Development Bank

CSC Common Service Centre

FOCCAS Foundation for Credit Community Assistance


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FINCA Foundation for International Community Assistance

GCC Gulf Cooperation Council The

GK Grameen Koota

GSM Global System for Mobile Communications

GXI G-Xchange Inc

ICICI Industrial Credit and Investment Corporation of India

ICT information and communication technology

JCS Jitegemea Credit Scheme

LFIs Local Financial Institutions

mFIs Microfinance Institutions

MITRA Mobile Based Information and Transactions

MFT Micro development Finance Team

MGNREGA Mahatma Gandhi National Rural Employment Guarantee Act

NRI Non- Resident Indians (NRIs).

OIBM OPPORTUNITY INTERNATIONALBANK OF MALAWI

OTC Over-the-counter

PDAs Personal Digital Assistants

POS Point of Sale

PRODEM Fondo Financiero Privado

RBAP Rural Bankers Association of the Philippines

RTS Remote transaction system

SBI State Bank of India

SECDEP Saint Elizabeth Community Development Enterprise Philippines

SHGs self-help groups

TAD Text-a-Deposit

UML Uganda Microfinance Limited (UML)

UMU Uganda Microfinance Union

USAID United States Agency for International Development

USSD Unstructured supplementary service data

VSAT Very Small Aperture Terminal


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Executive Summary

Microfinance institutions in India face a number of constraints in trying to serve the poor. Many

of these constraints can be linked to insufficient availability and use of technology. There is no

reporting mechanism that correctly captures performance data. Information on the financial and

operational performance of microfinance institutions (MFIs) is paper-centric and not timely,

while data are not complete and cannot be independently verified. This situation is detrimental to

MFIs, microfinance clients, and microfinance industry regulatory bodies. Paper-based operations

consume a significant amount of loan officers time. There is not, in most MFIs, a timely

connection between the head office, the branch offices, and the loan officers in the field due to

lack of, or incomplete use of, appropriate technology applications. Technology can help

microfinance institutions to reduce costs, improve efficiency, and increase outreaches. Modern

technology based solution proves proficient in enabling micro financing institutions to

conceptualize,develop and operate projects for financial inclusion.

Thus there are only few studies explaining impact of technology adoption in microfinance

institutions in India. The need remains, however, to examine the use of various technology

products and channels in the delivery of micro finance in India. In Bihar there is hardly any study

to understand local technological and socioeconomic environment to understand the adoptionprocesses of modern technology. The current study Impact Assessment of Technology

Adoption in Microfinance in India is an attempt in this direction.

The objectives of the project are stated as follows:

To review presently available technology for microfinance (for delivery channels andMIS) in India. Extent of usage of modern technology in Indian Microfinance. Compare

the same with other countries based on secondary data.

To analyze the factors influencing the use of technology in microfinance in India.Compare the same with other countries based on secondary data.

To analyse awareness about modern technology among MFIs and bankers, compare theimpact of use of technology on cost structure, outreach and delivery efficiency,

adaptability etc. Separately for banks and MFIs.


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Management information system on microfinance by banks and awareness of this amongbankers.

To formulate the strategies for penetration of technology based microfinance productsand processes.

Keeping the broad aspects of the study, two sets of questionnaires were prepared for Banks

officials & mFIs officials and clients. Stratified random sampling was used for the study. The

primary data were collected from 10 banks situated in Bihar and 20 mFIs from Bihar, Andhra

Pradesh, Orissa, Karnatka, West Bengal and Gujrat. Twenty clients each were selected from 10

banks and 10 mFIs.

Advanced and specialized tools like SPSS software were used to ensure authentic data analysis.

Cross-tabulation, comparison and processing were done to get detailed insights.

Major findings of the study are follows

Fully computerized public sector banks branches were 95.7% of total branches which81.4% branches were under core banking solution. Out of 171 banks 95 banks in the country

did using NEFT mechanism for transfer of funds constitutes 55.56% of the entire banking

system NEFT facility is still out of reach of the vast section of economy.

In private sector banks percent of ATMs to branch was three times as compared to publicsector banks. There was large variation amongst private banks in terms of percent of

ATMs to branches. Highest percent of ATMs to branches was found in Axis bank

(457.4%) followed by ICICI bank (334.5%) and HDFC bank (234%).

In India various experiments of technology use in micro financing and financial inclusionhas been attempted. Few examples are ICICI Banks partnership with FINO, Business

Correspondents (BC) model- ICICI, ICICI Bank - I-Express, HDFC Bank financial

inclusion programme, SBI ties up with OXIGEN, Technology Assisted Financial

Inclusion- by BASIX, Dhanna X, E-Docs and real time monitoring by Equitas, mobile

banking by Eko financial services as business correspondence of SBI and ICICI, These

organizations use various types of technology which had helped micro financing and

financial inclusion.


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In other countries, ATM networks are being rolled out by a number of banks and have beentested by a handful of microfinance institutions as well. MFI clients in the Dominican

Republic can even access international ATM networks. Many of mFis has stated using

technology eg. Smart card, mobile banking, PDA etc.

Banks officials were generally more aware about the various technologies than the MFIofficials. Majority of the officials surveyed, were of the view that usage of technology have

reduced the transaction cost, total cost and bad debts. While most of them also said that after

adoption of technology they have experienced increased return on fund, productivity per

employee and productivity per branch. Technology had helped them to satisfy their clients

in better manner through proving quick transaction, loan amount assessment, processing of

loan, transfer of funds and other financial services. There was improvement in

disbursement, average debt per borrower, recovery % because monitoring of borrowers

became faster than earlier. Officials were not able to quantify the impact and some were not

clear about actual impact.

Availability of finance/capital and technological awareness were the major factors thataffected the adoption of technology in their organization. 40% of the bank officials and 50%

of the MFI officials ranked availability of finance/capital as the main factor affecting the

adoption of technology. The factors which were least important according to the officials

were Government regulation, demand of customer and degree of diffusion of technology.

Major technology provider to microfinance institutions are RM IT solution, Hyderabad,Jayam Solution, Hyderabad, BASIX /Sathguru Hyderabad, Elitser IT Solutions,

Hyderabad, Force ten Technology, Kolkata, Graditum IT, Bangluru, Craft Silikan,

Bangluru, Surya Software Solution, Bangluru, Financial Information Network &

Operations Ltd, Zero Mass foundation, Kredits, USA, Bangalore (In India), Snowwood,

Chennai, Surya Software Systems, FINO, Mumbai, Eko India Financial Services Pvt. Ltd,

New Delhi, Eko India Financial Services Pvt. Ltd, New Delhi, ClassifEye's solution etc.

That there are various types of management information softwares used in variousmicrofinance institutions in India and abroad. There is no uniformity of the softwares. These

are location specific and designed according to need of its local and regional customers.


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Various management information systems used by various microfinance institutions areSouth Asia major Apparent Microfinance Manager, Common Cents 101 Micro Finance

Software, Southtech Ascend Banking, BEACON, IMP@CT, BankSoft, W-Bank,

MFASYS-Mobile Enabled Micro Finance, Micro Financer Standard Edition, ThemeproTM

Universal Micro Finance Solution (UMFS), Finance Solutions, McFinancier, Microfin360.

The various software used in Africa are Delta-Bank, e-Finance, El Mohassil 1.3, ELOGEBANK, Delta Loan Tracking System, eMerge 1.0, EVOLAN PACK for Financial

Companies, Fin@ncia, FINCORESOFT, FinnOne Loans, GLOBAL BANK, Kredits

5.5503, Kredits 5.5539, LMS (Loan Management System, Loan Performer, Loan Tracker,

Loan Traking System (LTS), M2, Margill Loan Manager (MLM), MaxiSoftCB Banking

Software, MBWin - FAO-GTZ MicroBanking System, Microbank Information System

2.00, MICROFINA, Microfins, Mifos, MLAS (Microloans Administration System),

Octopus Micro Finance Suite.

In Latin America major software used are BANTOTAL COBIS, Conexus, CoopLeader,eSIACOM, eConx, Emortelle, SIFCO, Topaz Microfinance, Orion, SIMCO PLUS, eConx,

SIFC Net. In North America the various microfinance institutions were using various kinds

of software. major software used are Mercury, Down Home Loan Manager 2.05, SYSDE

BANCA, Mimota etc.

In India different mFIs used different MIS softwares. FIMO developed by Jayam Solutionwas major MIS software used by different mFIs. Other software were FAMIS developed by

BASIX and Sathguru, Hyderabad, BIJLI developed by Force ten Technology, Kolkata, mf

expert developed by RM IT solution.

Recommendations

Infrastructure support like increasing power supply and increasing connectivity may beadequately provided for increasing use of technology. Capacity of micro financial

institutions has to be increase by providing them technical and financial support.


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Awareness about technology should be increased by capacity building of differentstakeholders.

Due to high initial cost micro financing institutions were not able to adopt latesttechnology. Costs can be shared by assisting technology provider with financial support

which will reduce the cost by scaling up of technology. mFIs may get technology at

subsidized/ reduced costs. Incentive should be provided to mFIs who adopts technology.

It will help them in to scale up their business.

Appropriately staffing should be done by the mFIs to handle latest technology.Recruitment of technical staff and their regular training on updates of latest technology

would help in adoption of technology.

Regular feedback should be provided to the service provider regarding functioning of thesoftware and other technology tools.

Requirement of mFIs differ amongst MFIs according to size, organizational form,technical competency and adequacy of the technical staff. Tailor made solution should

be provided according to the need of mFIs.

Systems should be introduced to make for transparent reporting regarding their loanportfolio and produce reports. It will help mFIs in timely and appropriate decision

making.

In choosing an appropriate technology, it is highly recommended that MFIs get their coreMIS right first before building any kind of delivery system on top of it. Technology

provider should address the problem of mFIs promptly.

Research done on mFIs about those who have successfully introduced new technologiesshould share the finding with others which will help in penetration of technology.


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CHAPTER I

INTRODUCTION

Financial inclusion is delivery of banking services at an affordable cost to the vast sections of

disadvantaged and low income groups. Unrestrained access to public goods and services is the

sine qua nonof an open and efficient society. As banking services are in the nature of public

good, it is essential that availability of banking and payment services to the entire population

without discrimination is the prime objective of the public policy. In India the focus of the

financial inclusion at present is confined to ensuring a bare minimum access to a savings bank

account without frills, to all. Internationally, the financial exclusion has been viewed in a much

wider perspective.

According to the United Nations the main goals of Inclusive Finance are

i. Access at a reasonable cost of all households and enterprises to the range of financialservices for which they are bankable, including savings, short and long-term credit,

leasing and factoring, mortgages, insurance, pensions, payments, local money transfers

and international remittances. Sound institutions, guided by appropriate internalmanagement systems, industry performance standards, and performance monitoring by

the market, as well as by sound prudential regulation where required.

ii. Financial and institutional sustainability as a means of providing access to financialservices over time

iii. Multiple providers of financial services, wherever feasible, so as to bring cost-effectiveand a wide variety of alternatives to customers (which could include any number of

combinations of sound private, non-profit and public providers).

Thus having a current account / savings account on its own is not regarded as an accurate

indicator of financial inclusion. There could be multiple levels of financial inclusion and

exclusion (V.Leeladhar, 2005). Financial inclusion may be defined as the process of ensuring

access to financial services and timely and adequate credit where needed by vulnerable groups


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such as weaker sections and low income groups at an affordable cost. (Rangarajan Committee

Report 2008),Out of 6 lakh villages, just 30,000 had been provided with banking services

mere five percent of total villages in the country (S. Karuppasamy, Executive Director, Reserve

Bank of India (RBI), June 2011). 134 million households are financially excluded, which is 60

percent of countrys population. (Microfinance Focus, January 2009). Moreover, Financial

Exclusion in Urban India is about 44 percent where as exclusion in Rural India is about 76

percent. National Rural Financial Inclusion Plan has been launched with a clear target to provide

access to comprehensive financial services to at least 50 percent of the financially excluded

households (approximately 55.77 million) by 2012 through branches of Commercial Banks and

Regional Rural Banks. The remaining households are to be covered by 2015. Fund for financial

inclusion of about Rs. 500 Crore to meet cost of technology adoption was set up by Finance

Ministry in 2007-08.(Fr ost & Sull ivans Roadmap for I T-Enabled Financial I nclusion, 2010).

According to Frost & Sullivan (2010) On one hand, there are 234 million mobile users today

the CAGR since 2001 is 87.9 %. While each mobile phone is an indicator of connectivity, it can

be presumed to be an enabler of Financial Inclusion. Since the number of mobile phones

currently is more than the number of borrowers from the banking system, it is envisaged that a

convergent technologies involving Information Technology and Telecom would be the most

efficient vehicle for achieving Financial Inclusion.

Financial exclusion is most acute in Central, Eastern and North Eastern regions having a

concentration of 64% of all financially excluded farmers households in the country. Overall

indebtedness to formal sources of finance alone only sector 19.66 % in these three regions.

(Rangarajan Committee Report, 2008). The topography in hilly terrains is such that banks

cannot open branches in every corner. Mobile banking as a technology is certainly an answer to

the growing demand for banking facility at the village level.

RBI has granted permission to transfer fund across various mobile phone service provider. Three

public sector banks have started mobile banking solution. SBI had partnership with EKO

financial services and Spanco system. Union Bank of India and Bank of India have started their

mobile banking services in Mumbai. The RBIs guidelines call for a two-factor authentication for

validation of a customer. Several MFIs today act as a business correspondent (BC) to reach areas


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where opening a bank branch is not viable. The bank through a BC can enroll clients; the clients

can be served by the bank using mobile banking thus fulfilling the objective and the spirit of

financial inclusion.

Microfinance institutions in India face a number of constraints in trying to serve the majority of

the poor. Many of these constraints can be linked to insufficient availability and use of

technology. There is no reporting mechanism that correctly captures performance data.

Information on the financial and operational performance of microfinance institutions (MFIs) is

paper-centric and not timely, while data are not complete and cannot be independently verified.

This situation is detrimental to MFIs, microfinance clients, and microfinance industry regulatory

bodies. Paper-based operations consume a significant amount of loan officers time. There is not,

in most MFIs, a timely connection between the head office, the branch offices, and the loanofficers in the field due to lack of, or incomplete use of, appropriate technology applications

(www-wds.worldbank.org/.../528630PUB0link101Official0use0Only1.pdf).

Technology can help microfinance institutions to reduce costs, improve efficiency, and increase

outreaches (Lauren Braniff, 2008). Modern technology based solution proves proficient in

enabling micro financing institutions to conceptualize,develop and operate projects for financial

inclusion. It supports sector initiatives, which are aimed at enabling rural and remote un-banked

areas to enjoy the benefits of formal financial products and services. The entry of technology has

opened more options in the field of finance that lead to lower costs, greater efficiency, real time

information and better customer service. Micro finance offers a great, largely untapped market

for modern technology and a chance to make a big difference in outreach, sustainability and its

impact.

In a survey (CGAP, 2008), 62 financial institutions in 32 countries report using technology

channels such as automated teller machines (ATMs), POS terminals, and mobile phones to

handle transactions for poor customers. Some are using new technology to better serve existing

customers. But other institutions are using technology to develop branchless channels that

reach new clients in areas where setting up a bank branch may be too costly. The widespread

use of mobile has offered a gateway for handling financial transactions. After a number of years

where the innovative products in developed markets stalled, there are number of innovations that


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have found in developed markets. It was observed thatthat around 45% of existing microfinance

institutions still track and record their operations and accounting in excel sheets or even

completely manually.

Technology can reduce transaction costs and improve transparency in delivering financial

services, both of which can translate into increased access and lower costs for many lower-

income clients. Streamlined and automated processes allow financial institutions to extend

services to harder-to-reach and more costly clientele by replacing people and branches with

point-of-sale (POS) devices and branchless banking strategies. Technology undergirds the

management information and reporting systems that are essential for efficient financial service

delivery. Despite the appeal of advanced delivery technologies, relatively few financial

institutions have successfully deployed them to reach poor and low-income clients. Developing asolid management information system still remains one of the most important tasks facing

microfinance institutions, particularly those scaling up. Challenges include the high cost and

limited availability of existing technological solutions, lack of widely available local technical

support to support MIS software, consumer adoption rates of technology, lack of basic

communications infrastructure in many countries, and inadequate policy environments.

(www.microfinancegateway.org/p/site/m/template.rc/1.11.48240/)

Adoption of technology is expensive for MFIs, while use of currently available technology does

not always correspond to gains in revenue or increases in productivity in the short term. Due to

non-use of appropriate technology applications, there is a lack of holistic, sector-wise data on

MFI borrowers and outstanding portfolios. MFIs are unable to share useful information about

clients with each other. This contributes to the persistent client overlap seen in the microfinance

sector (RBI, financial inclusion, 2008).

Branchless banking is a distribution channel strategy used for delivering financial serviceswithout relying on bank branches. While the strategy may complement an existing bank branch

network for giving customers a broader range of channels through which they can access

financial services, branchless banking can also be used as a separate channel strategy that

entirely forgoes bank branches. ATM and Internet banking have been around in India for a

while. While both modes have had some success, penetration and use levels have been moderate.


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While ATMs offer convenience, they pose a perceived security threat in India given instances of

mugging around them. Senior citizens and women appear reluctant to use ATMs if they have a

choice to of the to a branch and withdraw money in safety. The security situation in India shows

little sign of improvement and therefore a large-scale proliferation of ATMs will remain a

challenge. Internet banking, on the other hand, relies on P C and Internet penetration. Estimates

suggest that there are approx 40 million Internet users that are expected to rise to 100 million

soondespite this growth; penetration and use levels remain low, especially in non metro area.

Harma and Dubey (2009) stated that mobile banking, a symbiosis of technology and financial

services, is the hottest area of development in the banking sector and is expected to replace the

debit/credit card system in future. Unlike online banking, mobile banking has certain advantages

on its side. It would not attract much investment from the bank and would not need a change inthe existing infrastructure of the bank. Mobile banking has the potential to bring a whole host of

people that have no/little access to land lines/internet connections onto the electronic platform

an innovative way to generate financial inclusion. To do so successfully will require customer

training, technology stabilization and managing carefully the know your customer issues.

(Microfinance Focus, 2009).

Management information system has become an essential part of microfinance institutions. The

MIS involves all aspects of gathering, storing, tracking, retrieving and using information within a

business or organization. The information system helps loan officers track their clients

repayment schedules and balances. It helps management assess the quality of the loan portfolio

and to monitor progress toward operational objectives. Management Information System

software can improve transparency and efficiency, lower costs, improve reporting, and allow

management to make more informed decisions. The right technology is invaluable in helping

microfinance institutions become better managed and more transparent institutions. Strong

information systems are the foundation of any financial institution. Yet many microfinance

institutions struggle with their systems resulting in inefficiencies which limit their ability to grow

and eventually take advantage of other technologies, such as branchless banking. A good back

office system lies at the core of every successful financial institution. In many cases, however,

MFIs struggle to generate accurate information and reports for themselves, funders, and

supervisors. This limits the soundness and efficiency of MFIs, reduces the governments ability
http://portal.acm.org/author_page.cfm?id=81440620092&coll=DL&dl=ACM&trk=0&cfid=34931340&cftoken=16394973http://portal.acm.org/author_page.cfm?id=81440620092&coll=DL&dl=ACM&trk=0&cfid=34931340&cftoken=16394973


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to supervise the market, and in turn, negatively impacts the expansion of access to financial

services (Lauren Braniff, 2009). A study by the Consultative Group to Assist the Poor (CGAP)

in 2004 showed that just half of all MFIs around the world have automated information systems,

and those that do invest in technology spend duplicative resources on custom-built systems that

are extremely costly and difficult to maintain.

Jim Rosenberg (2007) stated that IBM, had been touting its foray into open source solutions,

will partner with Grameen Foundation to help expand its MIFOS solution for information

systems. Grameen and IBM noted that microfinance institutions were inhibited from extending

their reach because they lack a flexible, cost-effective technology infrastructure that enables

them to expand their operations to provide loans to more people and to develop new products

and services. Many MFIs are still using pen and paper or simple spreadsheets to process loans.

Outsourced core banking systems could increase the efficiency and capacity of microfinance

institutions (MFIs). MFIs, however, have been slow in adopting the use of outsourced core

banking systems. They are concerned about finding a system that works for their unique

situation, fear losing control over sensitive client data, and worry about security risks. Moreover,

they are not convinced outsourcing will lead to reduced costs (Jim Rosenberg, 2008).

Although there is plenty of literature on adoption of new technology, only a handful of studies

look specifically at the financial services industry. There is a general recognition of the particular

importance of financial innovation (e.g. Silber, 1975; Van Horne, 1985; Miller, 1986, 1992;

Faulhaber and Baumol 1988; Campbell, 1988; Siegel, 1990; Finnerty, 1992; Merton, 1992).

Empirical studies on the technology adoption in financial services have focused on the

introduction of automated teller machines (Hannan and McDowell, 1984, 1987; Sinha and

Chandrashekran, 1992; Sharma, 1993; Ingham and Thompson, 1993; Saloner and Shepard, 1995;

Gourlay and Pentecost, 2000, 2002; Hester et al., 2001), small business credit scoring (Akhavein

et al., 2001), video banking (Pennings and Harianto, 1992), teleprocess terminals (Escuer et al.,

1991) and cash dispensers (CD), Point of Sale (POS) and remote banking (Buzzacchi et al.,1995).

Mark Pickens and Claudia McKay (2010) studied the data about 8 branchless banking services

M-PESA in Kenya and Tanzania, Banco Postal in Brazil, FINO in India, G-Cash and Smart

Money in the Philippines, WIZZIT in South Africa, and WING in Cambodia. They found 37%


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of active clients were previously unbanked. They also found that 5 of the 7 countries, branchless

banking serves more previously unbanked people than the largest MFI. Branchless banking is

scaling faster than MFIs. The branchless banking services needed 3 years to surpass the outreach

of the largest MFI in the same market, which on average operated for 15 years. (Branchless

Banking, CGAP, 2010).

It is quite significant that most of the studies are related to developed markets, e.g. US or

European banking markets. Arguably, this paucity in the literature needs to be addressed. Thus

there are only few studies explaining impact of technology adoption in microfinance institutions

in India. The need remains, however, to examine the use of various technology products and

channels in the delivery of micro finance in India. In Bihar there is hardly any study to

understand local technological and socioeconomic environment to understand the adoption

processes of modern technology. The current study Impact Assessment of Technology

Adoption in Microfinance in India is an attempt in this direction.

Objectives of the study:

The objectives of the project are stated as follows:

To review presently available technology for microfinance (for delivery channels andMIS) in India. Extent of usage of modern technology in Indian Microfinance. Compare

the same with other countries based on secondary data. To analyze the factors influencing the use of technology in microfinance in India.

Compare the same with other countries based on secondary data.

To analyse awareness about modern technology among MFIs and bankers, compare theimpact of use of technology on cost structure, outreach and delivery efficiency,

adaptability etc. Separately for banks and MFIs.

To study Management information system on microfinance by banks and awareness ofthis among bankers.

To formulate the strategies for penetration of technology based microfinance productsand processes.


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CHAPTER 2

METHODOLOGY

Both primary and secondary data were collected. The primary data were collected from various

stakeholders e.g. banks, mFIs, clients of banks and mFIs, technology providers.

For the first objective to review presently available technology for microfinance (for delivery

channels and MIS) in India, extent of usage of modern technology in Indian Microfinance and

compare the same with other countries based on secondary data, data were collected both from

primary and secondary sources. Secondary data were collected through various reports, news

papers, websites of microfinance and technology providers organisations.

To analyze the factors influencing the use of technology in microfinance in India and compare

the same with other countries data were collected from above secondary sources.

For primary data collection two different sets of questionnaires were developed each for

Banks/MFI officials and clients. Pre testing of questionnaires / schedules was done. Based on

the pre-testing, questionnaires / schedules were modified. SPSS software was used to ensure

authentic data analysis. Cross-tabulation, comparison and processing were done to get detailed

insights.

For technology provider interviews were conducted to understand the operations.

Pretesting of questionnaire was done by taking 40 samples of different stakeholders.

Questionnaires were revised with the help of opinions and suggestions made by different

stakeholders.

Sampling:

The sampling method followed was purposive sampling. The primary data were collected from

10 banks situated in Bihar and 20 mFIs from Bihar, Andhra Pradesh, Orissa, Karnataka, West

Bengal and Uttar Pradesh. 20 clients each were selected randomly from 10 banks and 10 mFIs.


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The purpose of the selection was to analyse awareness about modern technology among MFIs

and bankers, compare the impact of use of technology on cost structure, outreach and delivery

efficiency, adaptability etc for banks and MFIs. The samples were taken from various region.

More representation was from South India because of availably of technology adopter

microfinance institutions.

The following microfinance institutions were selected.

1. Bihar Development Trust, Bihar2. Trust Microfinance Services, Muzaffarpur3. Disha Microfinance Pvt. Ltd. Gujrat4. Nav Achetana Microfin Services Private Limited,5. Mahashakti Foundation, M. Rampur Kalahandi, Orissa6. Star Microfin Service Society (SMSS), Andhra Pradesh7. Ushodaya Integrated Urban and Rural Development, Andhra Pradesh8. Share Microfinance, Hyderabad, Andhra Pradesh9. Agricultural Science Foundation, Hyderabad, Andhra Pradesh10. Sambandh Finserve Pvt. Ltd, Hyderabad, Andhra Pradesh11.SKS, Hyderabad, Andhra Pradesh12.BASIX , Hyderabad, Andhra Pradesh13.Spandan Sphoorty Finance ltd, Hyderabad.14.Nano Financial Services India Private Limited Chennai, Tamil Nadu15.Janlaxmi, Tamil Nadu16.Gramin Koota, Karnatka17. IDF financial service Pvt. Ltd, Karnatka18. Ujjivan Finance Service Pvt. Ltd19.Sanghamithra Rural Financial Services,20. Bandhan Financial Services, West Bengal

Various banks were also selected to analysis the type of technology available with these

banks which help in financial inclusion.


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1. RIG, HDFC Ranchi2. State Bank of India3. Canara Bank4. Uttar Bihar Gramin, Bank5. UBI, Patna, Bihar6. Syndicate Bank, Patna Bihar7. UCO Bank, Zonal Patna8. PNB, Patna, Bihar9. ICICI Bank, Patna, Bihar10.Samastipur Kshetriya Gramin Bank

Technology providers were selected to understand the various kind of technology available in

microfinance and their uses by various microfinance institutions.

The purpose of the selection these technology providers were to understand description of the

various technology, its uses and different microfinance institutions adopting their technologies.

They were interviewed to understand technology solution in microfinance.

1. RM IT solution, Hyderabad2. Jayam Solution, Hyderabad3. BASIX /Sathguru4. Elitser IT Solutions, Hyderabad5. Force ten Technology, Kolkata6. Graditum IT Banglore7. Craft Silikan, Bangaluru8. Surya Software Solution, Bangaluru9. EKO financial services10.Zero Mass foundation


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Analysis of data:

The data collected were tabulated to facilitate easier sharing, referencing and analysis. Review of

available technology was done by analysing secondary information available on literature from

World Bank, Consultative Group to Assists the Poor (CGAP), Asian Development Bank,

Reserve Bank of India, NABARD, Microfinance focus journal, websites of different

microfinance and other financial institutions.

Use of various technologies by selected banks and mFIs were collected from primary and

secondary sources. Factors responsible for adoption of technology was collected and analysed.

Awareness about modern technology among MFIs and bankers were collected from

microfinance institutions and banks and analysed.

To study impact of technology, the use of technology was collected and their impact on cost

structure, outreach and delivery efficiency, adaptability were analysed separately for banks and

MFIs.

To analyse factors that affect the adoption of technologies the data were collected from 10 banks

and 20 microfinance institutions and analysed. The variables were identified and weighted

averages of response were calculated.

Data regarding Management Information System of banks and microfinance institutions were

collected and analysed. The secondary information regarding information was collected from

various sources and classified by various regions of the world.

Strategies for penetration of technology based microfinance products and processes were

prepared with feed back provided from different stakeholders.


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Chapterisation of report

Report is divided into following eight chapters.

Chapter I: IntroductionChapter II: Methodology

Chapter III: Adoption of modern technology in Banks and microfinance Institutions

Chapter IV: Factors affecting Technology Adoption in Microfinance

Chapter V: Awareness and impact of modern technology in microfinance

Chapter VIII- Suggestions and Recommendations

Chapter VIManagement information system in Microfinance

Chapter VII- Strategy for penetration of technology based products and services


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CHAPTER III

ADOPTION OF MODERN TECHNOLOGY INMICROFINANCE

Technological advances have contributed to major improvements in the quality of financial

service delivery and have lowered transaction costs. Use of computers has reduced the time and

cost of dealing with transactions, clearing of cheques and screening of loan applicants. The

benefits are beginning to reach developing countries, but many rural communities remain

excluded. Buchenau (2003) reported that some MFIs are experimenting with technical

innovations to reduce operating costs and improve the quality of service in rural areas. A good

information system equips managers to make informed decisions and produce reliable reports

that follow recognized international and national standards. This transparency can also attract

funders and provide clients with immediate information about their accounts, thereby attracting

more customers.

The most important contribution of technology is lower operating costs. Researchers have tested

the relative costs of tellers and ATMs in several emerging market countries (including Brazil,

India, Kenya, Malaysia, Mexico, Nigeria, and South Africa). The comparison shows the potential

of cost reduction through technology, which is particularly important today as financial

institutions face increasingly competitive markets (CGAP).

The purpose of this chapter is to review presently available technology for microfinance and

banks in India and other countries.


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Rural cash handling options for M F I s.

Major technologies used by microfinance institutions and banks are ATM, Biometric ATM,

solar powered ATM, automated teller machines (ATMs) linked to smart cards and palm-top

computers for rural loan officers, IVR, mobile banking, POS, hand held devices, GRPS system,

mobile banking etc.

The data were collected from primary and secondary sources to analyse the various kind of

technology adopted by microfinance institutions in India and other countries.

3.1: Adoption of modern technology in microfinance institutions and banking

in India and other countries

Both primary and secondary data were collected from various sources to understated the various

technology adopted by banks and microfinance institutions in India and other countries and

presented in table 3.1.


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Table 3.1: Adoption of modern technology in microfinance institutions and banking for

financial inclusion in India and other countries.

Technology Banks/mFIs Partnership Uses

Smart card

Smart card ICICI Bank Partnership with FINO Client identificationwith biometricsClient and agentauthentication withPINsOffline transactions,includingwithdrawals

Government of Biharfinancial inclusion, EShakti project

Glodyne Technoserve

SBI Zero Mass

PNB, BOI TCS

PRODEM,BOLIVIA

Smart card and

POS devices in

GSM Network

Remote Transaction

System (RTS) at

Uganda Microfinance

Limited

Electronic passbook

Interest calculation

Mobile banking

ITZ Cash Tata DOCOMO Remittancetransactions andLoan servicingCashpor Microcredit

VaranasiAtom technology

Reliancecommunication

Atom Technology

SBI Eko financial Services

ICICI, SBI andCenturion Bank of

Punjab

Eko financial Services Remittancetransactions and

Loan servicing

SmartCommunications,Philippines

Faulu/Vodafone

Remittancetransactions andLoan servicing


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(Tanzania,Kenya)

Brand Banking,

Korea

Remittancetransactions andLoan servicing

K-REP BANKS

KENYA

Remittancetransactions

VISA Apple i Phone Remittance

transaction

Duch Bangla Bank Banal link and Citycell Remittancetransactions Loanservicing

endaTunisia Mifos platform MIS

Safaricoms M-Pesa,

Pakistan

Tamer and Telenor Remittancetransactions

Mobile Branches SBI Madhya Pradesh,India

AISECT Remittancetransactions andLoan servicing

Equity BuildingSociety (Kenya)

Money transactionLoan processing

Hand held Device

Hand held deviceusing GRPStechnology

Sanghmitra RuralFinancial Services

- Loan processing

Hand held device Putiskar, Udaipur Albertson Loan processing

Common servicecentre - point ofsale (POS)terminals andinformationtechnology enabledkiosks,

HDFC bank -Jharkhand government Remittancetransactions andLoan servicing

POS Teba Bank (SA)

FOCCAS

Loan servicing


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FINCA

Uganda Microfinance

Union.

Combination of

POS terminal and

magnetic strips

Correspondent

banking Model in

BANCOLAMBIA

CONAVI in

Colambia and

Interbank in Peru.

Teba Bank (SA)

Loan servicing

Palm Pilot (a brand

of PDA)

Equity Building

Society, Kenya

Loan servicing

ATM Prodem(Bolivia)

Innova (Bolivia)

PSHM (Alania)

Paynet (Kenya)

Banko Ademi

MEB Kosovo

Remiitance

transaction

Loan servicing

KIOSK Banking

Kiosk basedoxygen webRetailers

SBI -Oxygen supported bySahyog foundation

Customer acquisitionProduct servicing,disbursements,andcollections

Kiosk banking - I InfoTech as BC Customer acquisition

Transfer to homeserviceremittancefacilities

Standard Chartered -Times of money Product servicing,disbursements,

Bankingcorrespondencewith IGSHub

KBS bank IGS Customer acquisitionProduct servicing,disbursements,


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and spoke model andcollections

e- based remittance services

Green money

transfer

Tata Indicom - Remittance

transaction

SMS basedpayment system

Iway media - Remittance

transaction

E- Remittanceservice

ICICI bank I- express Remittance

transaction

Other technology

No frill account Axis bank SunTec's TBMS-F Remittance

transaction

IVR Edyficar (Peru) / Voxiva (Peru,worldwide)

Client informationaccess, and product,account, or branchinformationAccount transaction

E pass book &authenticationdevice

ICICI bank Partnership with VikasSahyogis

Client identificationSystem security

Solar PoweredRural ATM

Vortex Engineering -

Mifos Software ASOMI Grammen foundation MIS

Mifos software Grameen Koota,Banglore

Grammen foundation MISD

STEMTechnology,Technologyassisted financialinclusion

BASIX - Financial inclusion,accounts opening

Person to personfinancing platform

Dhann - X - Person to personloaning

e-docs, Equitas -


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IT system Bank

2000

Equity Building

Society, Kenya

USSD in SMS like

format

G-CASH I-

Philippines

Globe telecom

Scoring BancoSol (Bolivia),Mibanco (Peru)Banco Solidario(Ecuador)CMM Medelln,CMM Bogot(Colombia)Unibanka (Lativa)LAPO (Nigeria)

Loan originationloan applicationprocessing andapprovalProduct servicingcollectionsCustomerretentionloyaltyprogramsand incentives

Source: Primary and secondary data


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Smart Card

Smart Cards are emerging as a solution for microfinance institutions (MFIs) to easily keep

accounts and record loan transactions. Wallet-sized plastic cards with embedded computer chips

that can process information or simply store data. It uses in Client identification with biometrics

and helps in client and agent authentication with PINs. It also helps in office transaction and

withdrawals. It helps clients in repayments of their microloans. The smart card allows for

withdrawals, deposits, currency exchanges, money orders and other services. As a security

precaution, fingerprint images are stored on the microchip and are compared with those taken by

biometric scanners at the time of transaction. Since Smart Cards hold their information on thecards (in the microchip), transactions do not require a transfer of information from a central

source; transactions can be entirely off-line, rendering telephone lines and fibre-optic cable

unnecessary. In addition, since smart card transactions can reduce some of the paperwork,

transaction times are much shorter, enabling loan officers to service more clients. Information

reconciliation/consolidation from the vendor/loan officers to head office can occur through

information transfers at regular intervals.

In many countries Smart card was used by several microfinance institutions. Prodem, a BolivianmFI, has conducted a pilot project using Smart Cards to replace much of the paperwork

previously needed for transactions. A savings account with a smart card uses microchip

technology. A card with an embedded microchip allows microfinance institutions to have saving

deposits without being on-line. The balance and account transactions are kept in the

microchip.One large advantage Smart Cards have over traditional ATM and credit cards (which

are also being used by MFIs) is their ability to store and track purchasing and transactional

histories. The fingerprint as a control method for the savings account was developed because

twenty-seven percent of our clients do not read or write. Most clients are women who live in

rural areas. In the past, many of their clients instead of signing credit contracts used their

fingerprint because they did not know how to write. This fact led to use this tool as a means of

identification and given the fact that no two fingerprints are alike, company could be assured of a

secure identification.


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Remote Transaction System (RTS) in Uganda Microfinance, supports both group and individual

lending, online and batch offline processing, and back office synchronization. The RTS is based

on the use of sturdy hand-held devices that can communicate over GSM cellular networks. This

solution was intended to become an industry standard, helped MFI reach isolated clients cost

effectively, and enable microfinance to reach a new stage of development. Combined with the

use of smart cards given out to clients and microfinance agents, the system allows MFI agents to

collect crucial financial data in the field and subsequently to transfer the data directly into the

MFIs computerised financial management systems. The RTS eliminates the need to prepare,

transport, and enter hand-written reports, reducing costs for rural operations. In addition,

electronic collection of data raises client confidence in MFIs, as well as reducing fraud. Finally,

the system, if used by the industry as a whole, might allow MFIs to take full advantage of latent

synergies that exist among geographically and financially diverse institutions.

With prototype technology, the MFT implemented a pilot of the system in Uganda in partnership

with three MFIs active in this country. The three MFIs were Uganda Microfinance Union

(UMU), a cooperating partner of ACCION; the Foundation for International Community

Assistance (FINCA), and the Foundation for Credit Community Assistance (FOCCAS), a

collaborating partner of Freedom from Hunger. The difference in size and modus operandi for

each MFI has allowed the MFT to assess the value of RTS against a range of practices currently

in use in the microfinance industry, including group, branch, and individual clients. This

assessment showed that the most commercially-oriented of the three MFIs gained the most value

from the technology, in large part because they were most willing to re-engineer their business

model to take advantage of the RTS. The advantages of the system as implemented included

automation of transactions, reduced client time and travel, more frequent payments, reduced cash

management risk, and avoidance of costs for brick and mortar branches.

Modular Corporation, a wholly owned subsidiary of Modular Techcorp Holdings of Malaysia,

announced the launch of its first Microfinance Smart Card for the Mahasemam Trust, a

microfinance institution based in Madurai, India. Field officers of the Mahasemam Trust will use

the Smart Card in combination with a small hand held device to record data such as payments

and transactions. This information would then be downloaded daily to a central server. The

Smart Card should help in better managing the collection and distribution of microloans, as well


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as reduce fraud and increase information security such as user identity and account information.

This Smart Card will hopefully prove to be a more efficient management system than previous

manual processes.

In India ICICI Bank has partnership with FINO to provide technology solutions to the micro

finance sector. The technology solution comprises of core banking and smart card systems. In

light of the technology solutions available through FINO, the Bank has designed a new process

for delivering loans under the partnership model. Some of the key aspects where a strong

technology platform will add value to the micro finance operations include reduction in

transaction cost; better data management and reporting capacities and capability to interface with

multiple peripherals, etc. This would also enable enhanced disclosure and transparency in the

operations of MFIs, setting a platform for robust securitization / buyout opportunities to meet the

priority sector lending objectives of the regulator.

www.cab.org.in/ICTPortal/Lists/.../icicibank_strategy_promoting.pdf)

ICICI Bank also employed delivery channels backed by technological innovations to achieve

scale and outreach in a sustainable manner. The Banks channel architecture includes branch and

non-branch channels. Branches act as a business hub providing banking services on the one

hand, while facilitating the fulfillment of products that have been sourced by the business

facilitators and business correspondents. Non-branch channels are of two types, business

facilitators and business correspondents. Business facilitators, referred to as Vikas Sahyogis, are

outsourced channels that generate business opportunities for the Bank. Network of Vikas

Sahyogis has been set to act as referral or sourcing agents for loans, insurance and investment

products such as mutual funds. These centers are operated by local people with existing

relationship with the Banks customer segments. Vikas Sahyogis include agri input dealers,

tractor dealers, automobile dealers and diesel dealers.

In India ZERO Microfinance and Savings Support Foundation (ZERO MASS Foundation/ZMF)

also uses Smart cards not needed for biometric authentication in local service area.

Union Bank is serving the underprivileged and disadvantaged 68000 beneficiaries serving

through biometric smart card and forging ahead to service 2.5 million customers through smart

cards in coming year.
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Tata Consultancy Services (TCS), also launched its smart card solution that would enable banks

to reach the remote areas and address their need for micro financing. To begin with, the Punjab

National Bank (PNB) and Bank of India (BoI) have come forward to implement the solution on a

pilot basis. While PNB intends to apply it in three locations spread across Punjab, Gujarat and

Delhi, BoI is planning to enforce it in Maharashtra.The smart card technology enabled banks to

provide a multi-application smart card to the account holders. The card stores the necessary

customer information including demographic details and financial applications such as loans,

deposits and insurance. It also contains secure identification and authentication, and can be

integrated with the core banking system for automatic account update and fraud control. Both

fingerprint and PIN are provided for user authentication.

BASIX in Andhra Pradesh has worked as banking correspondence using smart card for their

account holders. BASIX also launched Technology assisted Financial Inclusion (TAFI)

operations in some slums of East Delhi, A tripartite agreement was signed between Axis Bank, A

Little World (our technology partner) and Indian Grameen Services. (Source: Annual Report

BASIX, 2009)

Mann Deshi Mahila Bank is undertaking an initiative to become one of the first rural banks in

India to utilize cutting-edge SMART card technology for its banking operations. These plastic

'credit cards' will display women's names and photographs, utilizing micro-chip technology to

store financial information. The cards instantly allow the bank's field agents and clients to view

savings account balance, loan account status, and repayment history. The use of SMART cards

will increase the efficiency and business capacity of the bank and provide clients with enhanced

security and service. The card benefits the client by discreetly keeping her account information

free from unwanted inquiries and alterations. However, it has been challenging to find an

appropriate vendor to supply the technology and the hardware for this innovative new idea.

Swadhaar Finance, an ACCION microfinance partner, offers savings accounts to its poorer

clientele by becoming a banking correspondent of ICICI Bank. Through the partnership,

Swadhaar sets up small kiosks where clients can make basic transactions (e.g., balance inquiries,

deposits, withdrawals). Clients needed to pay INR 200 (US $4) for smart cards to use these

kiosks.


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Thus it can be seen from the above that smart card is widely used by banks in India and other

countries. The use of smart card was less prevalent in microfinance institutions in India except

few like BASIX. The reasons of less adoption are high cost to manage and maintain and

illiteracy among the clients.

Point of Sales (POS) devices

Small machine located at a third party merchant that can be used to authenticate the transfer of

funds from the customer to the retailer or the reverse depending on the transaction type.

Similarly, POS and cell phone systems offer an opportunity to MFIs to increase their outreach in

remote and rural areas. When the country infrastructure allows, POS-based systems are a less

expensive solution for providing financial services to remote and rural clients when compared

with the expenses associated with opening a new branch.

Benefits to POS/ PAD

Microfinance can increase the security of financial transactions Reduce transaction cost to service clients Reach new areas without branch infrastructure Staff can focus on customer acquisition and service Additional services and revenue streams

Benefits for Clients

Reduced transaction cost educed risk of cash handling Prestige of access to international payment networks (VISA)


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In Colombia the correspondent agent model (CA) allows financial institutions to reach remote

areas by using a combination of POS terminals and magnetic strip cards. This model is currently

implemented in several Latin American institutions, including BANCOLOMBIA-CONAVI in

Colombia and Interbank in Peru. In this model, the financial institution works closely with an

external technology provider to identify potential locations for the remote branches. The ideal

locations include retail stores, supermarkets, convenience stores, and gas stations. The hardware

requirements for these locations are minimal, mostly consisting of the POS device. From the

Colombian and Peruvian experiences, the main benefit the CA model offers to financial

institutions is the fact that this solution is a cost-effective way to increase outreach in remote

areas. CA model provides great savings for financial institutions to increase their local coverage:

a branch is 40 times more expensive than using a CA agent and similarly, an ATM is seven times

as expensive as a CA agent.

(Source: Client-Focused Technologies in Microfinance, microNOTE # 31, USDA)

Another example of an organization experimenting with Palm Pilot technology to optimize field

operations can be found in the Grameen Banks own backyard in Bangladesh. Remote transaction

Model system at UGANDA MICROFINANCE LIMITED currently allows clients to make savings

deposits and payments of microfinance loans through a network of agents. This system is at the final

stages of its pilot phase at Uganda Microfinance Limited (UML). Once the pilot of the solution is over,

this technology should be able to support a full range of financial transactions, including withdrawals and

account- to-account transfers. The RTS technology currently works through a combination of smart cards

and POS devices in a GSM network. The system uses wireless POS devices running the RTS client

software. These POS terminals wirelessly communicate with a central server, which then connects to the

MFIs main MIS.

In Malawi, OPPORTUNITY INTERNATIONAL BANK OF MALAWI (OIBM) has combined

biometric-enabled POS devices and smart cards to provide banking services to Malawis low - income

population. OIBMs biometrics and smart card model overcomes the identification problem by using

fingerprints. This eliminates the need for clients to have PINs and makes the transaction process easier for

illiterate customers because they do not have to select and memorize any numbers to access their

accounts. As part of this model and through partnerships with small retail outlets, the bank has set up a

network of POS agents in rural areas. OIBM is using the POS solution at one of its branches located in a

high-transit area, allowing the institution to bring its POS services to more peri-urban and rural clients.


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The institution currently has more than 60,000 clients using the service on a regular basis. Use of POS in

OIBM has the Increased in outreach, Productivity and customer satisfaction gains, Efficiency of

operations and Lowered operating costs.

(Source:www.opportunity.net/.../opportunity_international_bank_malawi)

In Uganda Microfinance Union in Uganda, FINCA, Teba Bank, FOCCAS using POS devices.

Banco Solidario, with support from ACCION International, implemented a PDA-based

application for microfinance purposes. This first generation of ACCIONs Porta Credit

application was called Credi Palm. The Palm-OS-based application was implemented in all of

the bank branches to create an easy way to capture and store credit evaluation information in the

field, A solution that allowed credit officers to become more familiar with the use of technology

for their daily field activities, and an effective interface between the main MIS of the institution

and the PDA application.

(Source:www.mixmarket.org/mfi/banco-solidario)

In India, HDFC bank using branches as hubs for other inclusion initiatives such as direct

linkages to self help groups and joint liability groups, bank on wheels, point of sale (POS)

terminals and information technology enabled kiosks, and other information & communication

technology (ICT) backed initiatives in these locations. Under the Project Jharkhand program

the Bank has launched its services at a Common Service Centre (CSC) in Kanke (Ranchi)comprising over 1.5 lakh households spread across 100 villages in 30 Panchayats. The Bank

also adopted Chakala village near Ranchi as part of the programme. The programme

envisages covering over 45 lakh households in the State through both the CSC and village

adoption models, subject to regulatory provision. CSC is an integral component of the Central

Governments National e-Governance Plan that seeks to set up over 5,000 CSCs in Jharkhand

and about 100,000 in the country (HDFC Bank Annual Report 2011). POS device was also

used on trail by ICICI bank in Karnataka and Wrana Sugar cooperative in Maharashtra.

ICICI bank has supported several of its mFIs partners in Madurai, India. ICICI supported

community internet and tele centre projects in the region.
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Manvish MiFAUN-Micro finance device developed in Bangalore is

an internet enabled hand held device that is stand alone, (IP

addressable) and can communicate to any remote server located

anywhere on the net via TCP/IP/Wifi, GSM/GPRS or a PSTN

Modem. This makes it completely PC independent. Data files can be

encrypted and can communicate with Oracle (tested already) or any

other database (DB2, SQL etc) and vice-versa with a high level of

data integrity.

KBS Bank Chincholiis able to provide banking services in Chincholi town (hub) and door-step

services in about 25 villages (spokes). Together with IGS, KBS Bank has established such

Business Correspondent outlets in 18 Hub locations and 45 spoke locations in the three districts

of its operation. In the next three to five years, the bank seeks its presence in all the 147

blocks/hoblis through hub outlets and over 1500 villages through spokes. (Source: Annual report

BASIX, 2009-10).

SKS Microfinanceintroduced a prototype data collection system using the popular Palm Pilot

PDA devices and smart cards in May of 2001. Loan officers used the PDAs to record client

transactions in the field, which were simultaneously recorded on the smart cards that were

provided to clients as a form of backup. During the year-long pilot program, SKS tested the new

system in two client centers, marking improvements in accuracy, loan officer productivity and

operational efficiency. This initial pilot was supported through $125,000 in grants and soft loans

received from CGAP (the World Bank's apex body on microfinance), Digital Partners and

Grameen Foundation USA (two US-based non-profits working on technology based solutions for

international development challenges). (http://www.sksindia.com/Milestones.htm).

Sanghmitra Rural Financial Services, Bangluruhas used 45 hand held device for online real

time reporting of transactions particularly in regard of repayment of loan installment by using

GPRS technology. It has purchased another 35 instruments from Quantam System, software,

Bangluru. Total cost of up gradation and 35 new machines costs 10 lakhs funded by SIDBI.

They dispensed with issuance of manual acknowledgement receipt to SHG since January, 2010.

This ensured prompt reporting by field staff and eliminated opportunities to misuse of money

recovered from groups, besides it facilitated proper monitoring of recovery at regional office and

head office.
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(Annual report, 2010, Sanghmitra Rural Financial Services, Bangluru)

Pushtikar,a Jodhpur-based cooperative MFI, has introduced handheld devices to cover clients

at their doorsteps especially for collecting periodic payments. This is an MFI, registered under

the Multi-State Cooperatives Act, engaged in thrift and credit. It provides individual loans and

also forms and finances women self-help groups (SHGs), through four branches. Handheld

devices (similar to credit card transaction machines, but without any reading capability such as

magnetic strip or biometric) with a printer and inbuilt memory are used by their field staff. As

indicated by the MFI, the device costs Rs 12,500 per machine (supplied by Albertsons).

Thus it may be concluded here that Hand held devices are used in India as well as other part of

the world. Prevalence was more in African countries. India adoption was less as compared to

African and Latin American countries.

PERSONAL DIGITAL ASSISTANTS

PDAs are small, handheld digital computers that can run specialized programs to manage MFI

and client data and perform financial calculations. Using PDAs, loan officers can consult an

electronic list of borrowers in arrears to plan collections visits, review clients ready to apply for

their next loans, and refer to historical client information, while working in the field. Loan

officers can even fill out that that loan applications forms on the PDA and calculate the

indicators used for loan review and approval. Virtually all client data and client visit records are

stored electronically and are immediately available in a device small enough to fit in a shirt

pocket. Since PDAs are a platform that can run various software programs, MFIs can use the tool

to improve performance in a range of tasks. MFIs may want to employ PDAs to standardize their

credit methodology and operating policies, improve loan officer efficiency, and increase data

accuracy and access in the field.

In Latin America, where increasing competition is forcing MFIs to lower costs and improve

service, several MFIs are using PDAs to save on relatively high labor costs (CGAP). It helps in

Customer acquisitions, Certification to origin, tracking produce for payments. PDA technology

does not replace an MIS. Rather, it requires a well-functioning MIS for effective results. Any

changes to an MIS after implementation of PDAs may necessitate changes to the PDA software

to maintain compatibility.SKS Microfinance (India) implemented PDAs to record transaction

data during group meetings, not for detailed loan analysis. PSHM (Albania) and ACCION Latin


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America are using Personal Digital Assistants. BanGente and Banco Solidario have improved

workflow efficiency, reduced operational costs, and made better information available to loan

officers. Fin Comuns used PDA technology which has increased the consistency of work among

loan officers and saved staff time in the field.

in Mexico Asociacin Programa Compartamosan MFI targeting very low-income women

is experimenting with Palm Pilot (a brand of PDA) usage in cases where greater productivity is

predicted and integration with MIS is justified. PDAs are small portable handheld computers that

can allow loan officers access to his/her Institutions MIS from the field. Depending on location,

information can be updated by the loan officer to the head office instantaneously or every day,

which decreases the need for data entry clerks.

In India Dharani Mahila Macs,a microfinance institution in Andhra Pradesh, has decided to introduce

first Personal Digital Assistant (PDA)-based Management Information and Credit Monitoring System

with technology back up by Hyderabad-based Elitser IT Solutions. The PDA, a hand-held device, will

help to carry information, make collections and issue receipts instantly to the clients. The collected data is

stored and updated to the computer at the headquarters. Based in Bachannapet, Warangal District,

Dharani Mahila Macs has 3 branches and around 7,000 members. Using a tailor-made solution for

member-lending methodology, the technology can integrate PDAs, biometric solutions and smart cards

for enabling ease in managing field operations typical to microfinance organisations, said a statement.

The software solution also supports mobile phone based technologies and is available with multilingual

facility.

Figure: Dharani Mahila Macs


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Based in Bachannapet, Warangal District, Dharani Mahila Macs has 3 branches and around

7,000 members. Using a tailor-made solution for member-lending methodology, the technology

can integrate PDAs, biometric solutions and smart cards for enabling ease in managing field

operations typical to microfinance organisations, said a statement. The software solution also

supports mobile phone based technologies and is available with multilingual facility.

Equipped with features like automated SMS alerts, e-mails to clients, mail-merge facility for

sending letters to clients, facility to track, scan and store documents, the product also features

Financial Accounting and Management Information systems to serve any microfinance

institution irrespective of its lending model, said the statement, highlighting further that the

savings module covers all types of thrift activities pertaining to microfinance.

The software enables financial accounting reports, comparative financial statements, member-

related reports, operating reports, management reports, funder reports, field officer-wise reports

and other miscellaneous data that is required by all stakeholders in microfinance operations.

Thus it may be concluded here that PDAs are used in India as well as other part of the world.

Prevalence was more in African countries, Maxico, Latin America. India adoption was less as

compared to African and Latin American countries.

BIOMETRICS TECHNOLOGY

It Measures an individuals unique physical or behavioural characteristics to recognize and

confirm identity. It helps in clients identification and system security. In Malawi it helps in

client identification and system security. In Malawi Opportunity international also uses this

technology.

In India Punjab national Bank has started using biometric ATM for their rural and uneducated

customers. Vortexs solar-powered Gramateller with built-in Biometric capabilities, Gramateller

ATMs have been used by the Government to disburse wages under the MGNREGA (Mahatma

Gandhi National Rural Employment Guarantee Act) programme.


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Thus it may be concluded here that biometric devices are used in India as well as other part of

the world. Prevalence was more in Malawi. In India adoption was less as only restricted to

banks.

MOBILE PHONES/BANKING

Mobile phones can be used for financial services in three different ways: for micropayments (m-

commerce), as electronic money (e-money), and as banking channel Consumersof Tata. The

key potential benefits of using mobile phones to deliver banking services are lower cost of

deployment for MFIs and greater choice and control over financial services by the client. The

potential benefits of mobile banking should be related to an MFIs own strategicdrivers. The

four core strategies that MFI may follow to promote and protect growth are: 1) increase market

penetration; 2) sell more services to existing clients; 3) retention of most valuable clients; and 4)

reduce cost of service provision. In a year of 2010, mobile banking users soared over 100 percent

in Kenya, China, Brazil and USA with 200 percent, 150 percent, 110 percent and 100 percent

respectively.

In South Africa WIZZIT Bank was established as a commercial, mobile phone-based bank,

operating off of the banking license of the South African Bank of Athens. With a combination of

ATMs, POS devices, and Maestro cards, WIZZIT clients have access to cash across the country,

allowing them to perform more than just mobile banking transactions. WIZZIT uses USSD

technology that allows for a continuous session with instantaneous responses. The transactions

are done in a single session and the system notifies the client when the transaction is completed.

The WIZZIT service works with any type and generation of cell phone. Customers of WIZZIT or

MTN Banking in South Africa use their phone as the primary way of accessing their bank

account. MTN, a mobile network operator, is partnered with Standard Bank, and WIZZIT is

partnered with the South African Bank of Athens. Customers load cash into their bank accounts

at branches or automatic teller machines (ATMs), or through a direct deposit of salary, and can

use their mobile phone to purchase airtime and make payments, transfers, and balance inquiries.

With the help of international agencies like International Finance Corporation these

technologies were tired in least developed countries like Africa, Latin America, and Asian

countries. In June 2010, the Financial Services for the Poor initiative at the Bill & Melinda Gates


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Foundation partnered with USAID on the Haiti Mobile Money Initiative (HMMI), featuring a

$10 million fund to provide incentives to mobile service providers to quickly launch and expand

m-money services. Notably, Digicel, Haitis leading mobile provider, won the first-to-market

prize of $2.5 million in January 2011 after launching its Tcho Tcho Mobile service. Soon

thereafter, Voila, Haitis second largest mobile provider, released its T-Cash m-money service

and received a $1.5 million USD second-to-market award. To help monitor the impact of the

HMMI as well as m-money service use and financial access in general, the Gates Foundation

commissioned InterMedia to design and conduct a series of household surveys of Haitian adults

(aged 18+). The first Haiti Mobile Money Tracker (HMMT) survey was conducted in March

2011, in the early days of m-money usage, and sampled all ten Haitian administrative

departments based on figures from the latest census in 2003. Follow-up surveys will be

conducted to establish usage trendshopefully based on a more up-to-date 2011 census.

InterMedias HMMT Online Data Analysis Tool allows financial access practitioners and

stakeholders to dive into the survey data themselves in a user-friendly way. The combinations of

financial, mobile and demographic data are easily cross-referenced to support project planning

and analysis.

In the Philippines, Globe Telecom lets customers load cash (or G-Cash) onto their mobile phones

at partner merchants or Globe outlets. For one million customers, G-cash is real value that can be

stored and withdrawn as hard cash, transferred to a friend across town or across the world, or

used to pay for products at restaurants and stores. In addition, customers of Globe, and of

Safaricom in Kenya (which has a similar product called M-Pesa), can use their virtual money to

repay loans to, or make deposits in, microfinance institutions.

HIFIVE was established in June 2010 as part of a longer term response to the disaster in an effort

to establish long term financial services for all Haitians; HMMI was created by the Bill &

Melinda Gates Foundation in partnership with USAID. HMMI, implemented by the USAID

project HIFIVE, provides incentives to encourage mobile operators and financial institutions to

launch mobile money services. It has tied up with Haiti Mobile Money Initiative (HMMI).


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Visa, is actively working with leaders in the mobile and financial services industry to deliver the

next generation of payments and financial services. VISA believed that mobile technology can

democratize financial services for billions of people worldwide by helping the industry overcome

historical challenges to deliver mobile financial services to more than 1 billion consumers

worldwide who own mobile devices but do not have a formal banking relationship.

Safaricoms M-Pesa is in the mobile banking world that it has come to be accepted by some as a

blueprint for mobile financial services. The service relies on the phone in the hands of the

customer (now more than 12 million) to perform transactions and the phone in the hands of the

agent (all 20,000 of them) to credit and debit accounts. But in markets that have either lower

penetration of mobiles or higher fragmentation among operators, offering over-the-counter

(OTC) payment services.

G-Cash in Philippines is a mo

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