Increasing the Outreach and Sustainability of Microfinance through ICT Innovation

This paper argues that only innovation in information and communication technology (ICT) can help microfinance reach its goal of reaching out to the low-income population.The paper states that:

• Making financial services available to the poorest people is an important part of poverty reduction strategies;
• While microfinance has attempted to increase outreach, the present delivery models do not quite meet the challenge, especially when it comes to serving communities in remote locations;
• Information and communication technology (ICT) innovation is the great hope, although it brings with it fundamental changes to the microfinance delivery mechanisms.

The paper discuses:

• Recent developments in microfinance;
• The microfinance themes of “"outreach”" and “"sustainability”";
• Examples of ICT innovation in microfinance, such as back-office management information systems, mobile computing, the branch office franchise model, card services, automated teller machines (ATMs) and internet banking;
• The role of ICT in remittances.

The paper offers the following conclusions:

• The microfinance sector stands at a junction point, where ICT innovations are challenging its business models and processes;
• There are many constraints to the roll-out of ICT-enabled banking systems;
• Some ICT-enabled services tend to depersonalize and individualize the banking process;
• This contrasts with the group-based methodologies that characterize the high repayment rates of microfinance;
• However, if microfinance does not embrace electronic banking, it will find it difficult to operate in economies that have done so.