MICROFINANCE MATTERS - voices of microfinance

Microfinance Newsletter

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2005: Year of Microcredit

UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance

Issue /

Update on the International Year of Microcredit 2005

Q & A with Fazle Hasan Abed, Founder and Chair of BRAC and Advisor to the Year

Microfinance in focus

Voices of Microfinance

Responses to a question posed to experts and practitioners.

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Thank you to all those who contributed their expertise to provide valuable insight into the following question:

**What do you consider the most innovative advancements in microfinance in the last five years and how have they changed the industry?

I consider the implementation of on-line/web based Microfinance Credit Bureaus in unregulated microfinance markets, such as in the Nicaraguan MFI industry, as a big innovation. For most regulated MFIs, checking the credit rate of potential clients at their National Credit Bureaus is rather a mandatory, zero-value-added task, due to the nature of the target segment –most of their clients do not (or should not) have any record to show. The fact that unregulated MFIs are taking the initiative of building-up such databases, will surely help maintain safer portfolios at the industry level –regulated MFIs also benefit from Microfinance Credit Bureaus- by reducing credit risk and over-indebtedness from clients, and avoiding experiences such as the one occurred in the Bolivian MFI industry in 1999.

The other big innovation, from my point of view, has been the use of electronic devices to perform the credit analysis in-situ. When organizational processes are set appropriately, and without unnecessary authorization steps, the use of PDAs actually boosts credit officers’ productivity and enhances the whole credit circuit by giving them specific tools and generating useful statistics for credit follow-up, business continuity, and portfolio at risk follow-up. Higher productivity may have a significant impact on reducing operational expenses, one of the Achilles’ heels of MFIs pursuing regulation.

— Francisco Olivares-Polanco
Consultant (Venezuela)

One major innovation is the growing realization, on the part of the donor community in particular, of the commercial sector’s role in microfinance and the need to strengthen the links between local providers and national and international financial markets. Donors have had to rethink their role, and develop new instruments that allow for greater, not less, involvement from commercial actors (as direct providers of microfinance services or investors of resources in local providers). In the future, the bulk of public resources will be used to address market failures, specifically in places where access is extremely limited, and to enable the transition to a commercially oriented industry.

— Marc Jacquand
Programme Manager, UNCDF (USA)

The group dynamics, thrift and credit, supplemented by credit from a large number of State owned banks has linked ELEVEN million Self help Groups in INDIA with the Formal Financial Institutes (FFI) benefiting 176 million families or 680 million individuals which did not have access to the FFIs earlier. This is the largest microfinance program in the world.

— Sukhbir Singh
Chief General Manager, Microcredit Innovations, NABARD (India)

The most innovative advancement in the last five years is the introduction of palmtop and smart cards, which improved the:

data maintenance;
easy monitoring;
way for getting information on clients ; and
increased number of subscribers for local post offices and increase in their income.

— Siddiga Ahmedova
Programme Manager, UNDP (Azerbaijan)

During the last five years there has been an emergence of appropriate technology to help manage in the microfinance environment. The pace of innovation in database systems to keep track of transactions now makes it possible to scale up without running into the diseconomies of scale (which are very real and not often talked about). Because of ICT it is now possible to have small loans, small interest, and be able to cover costs. What is interesting is that the technology continues to move forward (Moore's Law is still at work) and it will soon be possible to have high security financial information flowing over mobile wireless telephone infrastructure with advanced identification authentication. What this technology enables is small loans that are appropriate in scale, and very large numbers of clients, and a management process that does not lose control. The economic model that becomes possible is one where value is not consumed in the administration of the loan, but goes into real economic value progress ... and the institution can puts its efforts into helping make its clients successful, rather than putting resources into the bookkeeping back-office. Hopefully this technology will out an end to the idea that little loans should be grants because we cannot afford to do the accounting for them as loans, with all that that implies.

— Peter Burgess
Afrifund (USA)

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