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Rural Microfinance Service Delivery: Gaps, Inefficiencies and Emerging Solutions

Microfinance, the provision of financial services to poor and under-served communities, has emerged as one of the most promising avenues for stimulating rural economic development through local enterprise. In this paper the author discusses some of the major technology gaps faced by rural microfinance institutions, focusing on areas that are most important for the future growth of the industry. The report builds upon six months of field research, including field studies with eight different microfinance organizations located across Latin America and Asia, as well as discussions with many other organizations worldwide.

Historically it has proved difficult to provide sustainable micro-financial services to remote rural clients. There are three major challenges faced by rural microfinance service providers:

  1. the exchange of information with remote clients,
  2. management and processing of data at the institutional level and
  3. the collection and delivery of money to remote rural areas.

Each of these has proved to be a difficult problem for microfinance institutions to solve. The author looked at current best practices and examined the role information technology has (or has not) played in overcoming these obstacles. He reviews the use of hand-held technologies for rural information collection, experiences in the implementation of MIS systems at the institutional level and current strategies for introducing electronic banking to remote rural areas. Based on his observations he assesses the potential ramifications for the long-term growth and sustainability of the sector.

He notes that the integration of mobile hand-held computing for collecting field information is an expensive and time-consuming process, and considers it not surprising to find that most of these experiments have been discontinued due to inconclusive results. This has led some to concentrate on the design of accessible paper interfaces for self help groups and small financial service providers. With regard to MIS systems, the researcher comments: ” Microfinance institutions are continually re-developing custom MIS applications with little potential for scaling or future adaptation. Largely driven by programmers without significant technical experience, these systems have had difficulty when it comes to adapting for new purposes, or scaling for multiple users. In fact, only those MFIs that have a full and capable in-house IT team have had any success in these situations.” Apparently internationally produced software is not reaching the majority.

The third problem area of safe management of cash during transactions has yet to be solved. The author reviews traditional methods involving loan officers with all the potential hazards of theft and fraud and notes the attempts, particularly in India to rely on branches of local banks to overcome the problems. Experiments are underway to create low cost ATMs in both India and Bolivia and Hewlett Packard are piloting a rural transaction system using point of sale devices and smart cards.

This paper provides a very interesting assessment of the prospects of technology driven solutions to more effective rural micro finance. The author thinks that the recent interest that some large international and national banks have shown in microfinance will raise the stakes and ask many questions of microfinance institutions and their ability to manage administrative and IT related tasks. He thinks that the door is open for third-part service providers to enter the market and perform the tasks that neither banks nor MFIs want to do.

  • Resource type
  • Author Parikh, T.
  • Year of Publication2005
  • Region
  • LanguageEnglish
  • Number of pages26 pp.

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