PAPER WRAP-UP: 2008 Microfinance Technology Survey, by the Consultative Group to Assist the Poor (CGAP)

A joint initiative of the Consultative Group to Assist the Poor (CGAP) and the EU/ACP Microfinance Program, published by Consultative Group to Assist the Poor (CGAP), March 2009, CGAP Technology Survey, 15 pages, available at: 

http://www.cgap.org/gm/document-1.9.34552/2008%20Microfinance%20Technology%20Survey.pdf

According to the recent CGAP Microfinance technology survey, many microfinance institutions (MFIs) commit resources to fund inadequate technology projects or simply do not invest in technology.  This limits an MFIs ability to compete.  It is known that current technology can improve efficiency, accuracy and potentially increase outreach for many MFIs .  Most importantly, current technology has the potential to reduce costs for many MFIs.  In the CGAP survey, technology is citied as one of the greatest challenges faced by MFIs globally.

The survey was conducted from July to September 2008 and involved 152 MFIs.  The purpose was to gather information on how MFIs use technology, identify strengths, weaknesses, and opportunities for management information systems while determining how MFIs approach technology investments.  The respondents represented the following:

  • 152 MFIs surveyed
  • 48 countries represented
  • Median assets USD 612,000 (average USD 6.18 million)
  • Median loans outstanding USD 579,000 (average USD 5.36 million)
  • Median number of clients 4,569 (average 70,038)
  • 60 percent of the MFIs surveyed has less than 10,000 clients
  • 44 percent of the MFIs surveyed were non-governmental organizations (NGOs) credit union/cooperatives: 18 percent, rural banks: 7 percent, non-banking financial intermediary: 23 percent, banks: 6 percent, other: 2 percent

In regards to loan portfolio management and what types of systems are used to manage their portfolio, 18 percent reported to use manual systems or spreadsheet to manage loan portfolio, 53 percent use custom built software, and 29 percent use commercially available off-the-shelf products.  Interestingly enough, a similar CGAP survey in 2004 found that 46 percent of respondent were using spreadsheets or manual systems to manage their portfolio.  Note: the 2004 survey was based on a sample size of 270 MFIs.

The CGAP survey continues its finding by providing a geographical breakdown of portfolio management systems by region and type of institution.  The breakdown by region is as follows: Eastern Europe and Central Asia (ECA), East Asia and Pacific (EAP), Latin America and Caribbean (LAC), Middle East & North Africa (MENA), SA (South Asia), and Sub-Saharan Africa (SSA).  The findings from the survey indicated that the SSA, SA and EAP have the greatest number of MFIs using manual systems and spreadsheets with NGOs as a majority of MFIs reporting the usage of spreadsheets (roughly 20 percent).  Banks and Rural Banks reported (roughly 10 percent) to mostly use manual systems.  The remaining systems are off-the-shelf or custom built.  This lack of industry standardization can potentially increase costs for MFIs.  

CGAP provides further analysis by illustrating a breakdown of MFI information systems by modules.  According to the survey, spreadsheets and manual systems are most common among MFIs with less than 50,000 clients.  While many functions remain largely manual such as insurance, social performance, cost accounting and human resources, automated systems are widely used to manage loans, deposits, remittances and client information.   

CGAP reports that 57 percent of MFIs acknowledge that funding is key obstacle to improving their information systems.  Note: 60 percent of the MFIs reporting have less than 10,000 clients.  In addition, 41 percent feel that their current information system prevents MFIs from achieving their goals. 

Finally, infrastructure issues pose challenges for many MFIs.  According to CGAP, reliable access to the internet and electricity is critical to increasing the use of technology among MFIs.  It is estimated that 40 percent of MFIs with a branch not connected to the internet are in Sub-Saharan Africa.  In addition, 65 percent have a branch with a slow internet connection or without connection, while 36 percent report have at last one branch without internet connectivity.   Only 21 percent of respondents can determine payments in arrears in less than 1 day, while 48 percent can determine payments in arrears in 1 to 3 days.

On a positive note, CGAP reports that MFI managers are currently seeking alternative solutions to overcome the issue of infrastructure challenges by exploring ways to improve access to electricity in rural branches through the use of solar energy or installation of a generator.

By Zoran Stanisljevic

 

 

 

 

 

 

 

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