What is Microfinance?

1. What is Microfinance? NABARD definition “Provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi urban or urban areas for enabling them to raise income levels and improve living standards”

2. Microfinance Approaches • Individual lending • Grameen Bank solidarity lending • 5 member groups incorporated to form centers upto 18 groups • Loans disbursed to individuals on group credibility • Latin America Solidarity lending group • 4-7 members cross guarantee each others loan • Loan disbursed to group leader • Village Banking • 30-50 people are members • MFIs fund and internal mobilization of memberfunds

3. Microfinance Approaches • Self-reliant village banks • Cater to the whole village • Sponsor does not provide credit, bank relies on savings mobilization • Self Help Groups – Banks Linkage • 20 member groups facilitate savings and loan disbursements • After a display of financial maturity banks lend to SHGs in multiples of group savings • Loan disbursed to the group with on lends to its members • Mixed Model • SHG and Grameen Model is adopted catering to individual market segments

4. Current Scenario Population=6000 million Population below poverty line=2000 million $21.6billion demand for microfinance Equal to 400 million households for microfinance 10000 MFIs reach 4% of potential market Access to microfinance=30 million $2.5billion supplied by microfinance growth in no. of clients reached in last 5 years = 350% *http://www.uncdf.org/english/microfinance/facts.php

5. Statistics Whats good about Micro-banks? excellent track-record over past 10 years for leading MFI • solid profitability (ROE in the 20s is usual) • fast growth • low portfolio at risk (average default rates of 3%), excellent diversification • products and services range adapted to client needs • high solvency • good MIS systems and reporting capabilities • solid governance and high professionalism of boards and management • access to many commercial sources, no subsidies at all

6. Leading MFI stats *MBB the scope of funding mechanisms May 2005

7. Leading MFI stats ICICI bank outstanding MF portfolio increased from $4.5 m to $227m in 4 years

8. Does Technology fit in here? Benefits • Reduction of transaction costs • Improves data integrity • Increases transparency • Improves organizational efficiency • Greater outreach • Greater impact

9. Does Technology fit in here? • Challenges • High costs of technology entry and technology failure • Discreet geographical and operational diversity • Bottlenecks like lack of awareness of technology and vendors, education • High gestation periods • Customized solutions are most viable for MFIs , however customization increases costs for the technology provider • Limited sharing of knowledge and resources within the sector Out of the box thinking, Pushing Limits and coming up with Innovations

10. Technology forays in Microfinance • Automatic teller machines • Benefits • Flexible account access • Eliminates need for MFI personnel presence • Increased hours of operations fit client profile • Increased client outreach, beyond branch network • Easier deposit process Specifics Cost of 1 machine=$20,000-$35000 Magnetic cards== $0.25 – $0.5 Smart cards=$ 6- $ 10 Finger print readers Examples PRODEM FFP , Bolivia –20 ATMs serving 43,000 clients MEB, Kosovo –17 ATMs serving 110,000 clients Banco Ademi,Dominican Republic- with and EFT provider serves 28000 clients

11. Technology forays in Microfinance • Interactive Voice response • Benefits • serve large number of clients simultaneously • Anytime access to account information • Frees staff time for other uses Specifics Cost of 1 machine=$10,000-$50000 Analog and digital telephone sys. Call flow application Text to speech application Examples EDYPME Edyficar, Peru-used to explore client demographics and profile Received 1500 calls per month, but not to access client information, and areas outside MFI outreach Only 15% of clients successful in following instruction

12. Technology forays in Microfinance • Smart Cards • Benefits • automated transactions • Secure client information • Built in limit on credit and other accounts • With stored data on cards no need to access central server • Quicker and improved transaction accuracy • Reduce human error Specifics Cost of card= $6-$10 Card reader= $100-$300 Card with finger print templates Examples PRODEM FFP, Bolvia-competitive advantage attracted greater number of clients SKS, India-used PDA combination. Loan officers found manual transactions faster

13. Technology forays in Microfinance • Biometrics • Benefits • greater security and client convenience • Local verification • Staffless and swift verification • User id is tamper free Specifics Fingerprint readers-$60-$240 smart card= $6-$10 MIS-reader interface software= $1000-$1900 Card with finger print templates Examples PRODEM FFP, Bolvia-implemented in all of 54 offices, greater client satisfaction

14. Technology forays in Microfinance • Equity Mobile Banks, Kenya • Benefits • Increased outreach where commercial banks refused to venture inspite of volumes • hilly tea growing zones on the slopes of Mt Kenya • effectively provided an appropriate institutional framework and setting for the provision of demand-oriented deposit facilities • Average transaction time reduced by 70% to 3 mins • computerized financial services closer to rural households • Specifics • Laptop, cash • mobile van with mobile antenna • 146-174 MHz VHF radios • Branch acts a hub for 5-6 mobile units • Future plans to link mobile units to branch office with VSATs

15. Technology forays in Microfinance • Rickshaw Bank, CRD, Assam • Benefits • 75000 rickshaw pullers in Guwahit and none owns a rickshaw. Collaborated with IIT guwahati to develop superior rickshaws • Aerodynamic and safer • Rickshaw puller own the rickshaw by paying Rs 25/day instead of a lease of Rs 30 a day • Comprehensive insurance for puller, passenger and the rickshaw • Earning per day increase from Rs 60 to Rs 250 • Peer pressure established to ensure repayments • Specifics • Cost of rickshaw= Rs. 8200 • 40% lighter than normal ricks • Higher comfort for passenger and rickshaw puller • Rickshaw garages couple up as daily savings and installment collection centers

16. Technology forays in Microfinance • Computer Munsi, Pradhan • Benefits • Community based and financed computer entrepreneur provides accounting services to SHGs • Self sustenance of SHGs • Accurate and timely information • MFI personnel free to concentrate on core activities • Increases outreach • Creates a computerized base for future IT interventions • Specifics • Munshi covers 100 to 200 SHGs • Computer placed in developed locality with power supply • Munshis earn remuneration for their services

17. Why are intervention needed? • Technology providers understanding of the microfinance landscape is limited • MFIs face challenges in accessing the “right” technology providers • Intellecap’s competency in the sector places it at the forefront of the sector evolution and the emerging needs/challenges • Intellecap’s vision is to increase technological outreach to encompass all tiers of MFIs and hence contributing to the development of the sector

18. Way forward Tier III Tier I Tier II Entry barrier Focused interventions MFI TECHNOLOGY

19. Phillips NFC Technology

20. Intellecap Venture

21. Intellecap venture

22. Intellecap Venture • Work with the MFI to identify infrastructure and bandwidth to absorb technology pilot • Assist Philips in the needs analysis of the MFI to prepare the Technology Design • Develop an optimal operations plan • Develop Control and Pilot project parameters • Assist in capacity building sessions for the MFI • Monitor and steer the pilot • Organizing interactive sessions between MFI and technology provider for brainstorming and trouble shooting during the course of the pilot • Develop an operations plan for Stage II • Execute stage II following the stage I operational framework • Develop a financial model for impact measurement and return on investment