• Commercialisation of microfinance

Commercialisation of microfinance

This paper asks what role technology can play in increasing the outreach of microfinance services for poor people. It reports on the Remote Transaction System (RTS), a system desgined to link microfinance clients to their financial institutions and beyond. Some of the challenges they set out to meet were:

• fragmentation within the microfinance sector, and a lack of strong relationships with organisations outside the sector
• technical challenges and high transaction costs that make it too expensive to reach, in a sustainable manner, poor people in urban, peri-urban or rural areas who are not yet served by microfinance
• the need for flexibility to offer diverse financial services that meet local needs and priorities.

The RTS aimed to provide a secure, low-cost, and reliable means of capturing transaction data and then transfer that data in a consistent, standardised manner to MFIs. It was hoped that the result would be improved operational efficiencies, decreased transaction costs, and increased sustainable outreach to underserved populations.

Some of the conclusions of the project were:

• technology combined with business process change brings the greatest return
• emerging markets require innovative, appropriate technologies that are designed for scale
• the cost associated with building the infrastructure to support this enabling technology is too high for MFIs to go it alone
• the possibility and opportunity for integrating technologies that will help microfinance achieve scale will only be sustainable when there is a large enough volume of participants in the system
• through the vehicle of the RTS, scaleable infrastructures can be built that link microentrepreneurs to internal and external agents, agents to microfinance providers, and microfinance providers to formal finance institutions.

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