MICROCAPITAL STORY: Microsoft & IBM Target Microfinance for Social and Capital Returns

Increasingly, some of the world’s largest technology companies are looking toward the developing world for both clients and innovation opportunities. Intellecap, a social business advisory firm, recently published interviews with IBM and Microsoft in its bi-monthly magazine Microfinance Insights; the interviews discuss the companies’ involvement in the microfinance sector. C.K. Prahalad, Professor of Corporate Strategy at the University of Michigan Ross School of Business said “I believe that the companies that are clued in [to this market] will have enormous benefits, and will take that knowledge back to the rest of the world. To me, the base of the pyramid is not just an opportunity for market expansion…it is an opportunity for innovation.”

In the first interview with Microsoft, Insights talked with Aishwarya Ratan who is the Associate Researcher of technology for emerging markets. Mrs. Ratan described several projects focused on mobile banking saying “right now, we are working on a collaboration with CGAP [Consultative Group to Assist the Poor] in eight countries, and we have a mandate to study these mobile banking roll-outs from an impact and social context perspective, and most importantly, from a usability standpoint. The question is, for low-income users, how do you design optimal user interfaces so that their interactions are perfectly smooth?”

Microsoft’s research has shown that the effectiveness of the mobile phone based solutions vary based on the type of application and program that the microfinance institution is implementing. “Where we have seen actual benefits from technology for front-end microfinance data management, it has simply been because there was less information to process per form…so, it’s less complicated” said Mrs. Ratan. In some of the more rural areas the individuals may not have much experience at all with technology and that can prove to be an obstacle. “People react very differently to these technologies. These devices have small displays, it’s hard for everyone to see.” One of the projects Microsoft is doing to overcome these obstacles has to do with less text and more video instruction. Mrs. Ratan says the project includes “heavy usage of graphics, very heavy use of voice-over functionality, as well as ‘full-context video’-like you’d see on an airplane before a flight.”

The IBM interview is with Alexander Bloch, Associate Partner, and Saket Sinha in the SME Strategy & Change Global Banking group. Like Microsoft, IBM also is doing research on mobile banking implementations and both Bloch and Sinha talk about the challenges of working with microfinance institutions (MFIs) that all operate differently. Bloch noted that “every institution is different-they have evolved from different perspectives, they operate in unique and specific markets, they have different work flows, different customer bases and preferences,” and that “the biggest challenge for us is to create a critical mass of capabilities and functionality that will accommodate enough MFIs so that they will derive benefit from participating in this solution.” Sinha explains that IBM’s interest in microfinance is partially driven by the attention that banks are giving it. He says “big banks are interested in the innovations around credit monitoring and distribution outreach because of the possibility of adapting them to their mainstream business.”

Bloch and Sinha also discuss a collaborative project with CARE International where IBM is expanding its South Africa based management information system Grid to attract MFIs in countries like Tanzania, Kenya, Ghana, Botswana, and South Africa and allow those customers to migrate data onto the Grid and for it to be the transaction processor. Sinha explains that they hope “to bring the economies of each small country, which cannot be sustained on an individual basis, into the bigger ecosystem.” Money flow between countries in Africa is an issue because the population is so mobile and there isn’t an effective mechanism to track the flow between countries. But with the Grid including banks from each country, money flow could happen more freely through back-end systems.

To learn more about the Microsoft Technology for Emerging Markets research projects and team visit their website here.

To read the full interview with Microsoft click here.

To read the full interview with IBM click here.

By Scott Everett, Research Assistant

Additional Resources:

MicroCapital article, December 11, 2007, “IBM and CARE to Streamline Microfinance in Africa through Grid Technology”