Applying technology into Islamic microfinance Nabilah Rozzani, Rashidah Abdul Rahman Intan Salwani Mohamed Sharifah Norzehan Syed Yusuf Paper presented at the International Conference on Islamic Finance, Muamalat & Financial Criminology 2013, Cagayan de Oro.

Presentation Outline Introduction Issues Surrounding Microfinance Operations Solving Issues with Technology Types of Technology Used System Needed to Accomplish Goal Benefits of Technology for Islamic Microfinance Issues Restricting the Implementation of Technology Concluding Remarks

Provide loans and open business opportunities Introduction Small-scale financial services for credit and deposits Tailored to meet the needs of the poor in both urban and rural areas Microfinance Provide loans and open business opportunities

Conventional Microfinance Introduction Conventional Microfinance Secular Interest-bearing loan Enforces group/peer pressure for collection of repayment Islamic Microfinance Shariah compliant Prohibits the utilisation of interest Exercises the spirit of brotherhood, cooperation and mutual help through Kafalah (guarantee)

Introduction At present, the disbursement and repayment of microfinance loans are accelerated through cash and cheque-based economies Slow Prone to human error Require major reconciliation process every year There is a need to move towards a cashless payment system with technology Postbank, Kenya Objective of Study Identify issues surrounding current microfinance operations that could be related to Islamic microfinance Explore the usage of technology that improves the operation of microfinance

Issues Surrounding Microfinance Operations Unable to reduce their dependence towards external funds Held-back from expanding their services Reduce outreach Inability to self-sustain Unable to fully meet the demand of market and different categories of end users Prone to fraud and robbery Reduce clients’ confidence Non-standardisation of data gathering and dissemination Difficult to centralise the monitoring progress of subsectors in microfinance institutions Lowers the speed and ability to collect and deliver client information Limit the effectiveness in keeping track of current records Inadequate database to support decision-making and planning Insufficient diversification of credit delivery and management

Solving Issues with Technology Microfin, Indonesia Information and Technology System Training to Baitulmaal wa Tamwil institutions Expansion of outreach to Semarang, Yogyakarta, Surabaya, Medan and Makasar Tanzania Eco-Volunteerism Enables the community to participate and acquire new technology in their beekeeping activities Enhance participants’ financial, social and environment sustainability Alhuda Humanity Development Assistance Usage of basic web applications to record client data with SMS and email transmission Reduction of labour cost and improvement of efficiency

Types of Technology Used Management Information System (MIS) Automatic data flow Easy access, detailed and up-to-date information Enable staff to keep track on progress Client-facing technology Automatically collect client application data Enables connection to various payment channels (smart cards, mobile banking, etc.) Better control of transactions Process automation technology Automating loan application process Integrate both MIS and client-faced technology

System Needed to Accomplish Goal Core System Loan portfolio management, accounting functions, managerial and financial reporting functions Enables Islamic microfinance institutions to move towards paperless transactions Increase transparency and improve business quality management Additional System Customer relationship management system, mobile solution system Enables staffs to monitor, change and improve the process flow Enables further understanding on client base Enables management to keep track of the population of clients that are currently served Real-time transaction could be done effectively

Benefits of Technology for Islamic Microfinance Cost Reduction Improves Efficiency Increases Outreach Client Satisfaction Promotes Security

Issues Restricting the Implementation of Technology Lack of funding Inability to define adequate requirements Fear of making poor choices Insufficient organisational and human capacity Unavailability of vendors and capacity to implement and support technology solutions

Concluding Remarks Islamic microfinance industry has good prospects, especially in the application of technology advancement. It has been found that Islamic microfinance are having problems, especially in managing credit delivery to clients. The emergence of strategic tool can be a strategic tool for Islamic microfinance with proper and consistent implementation.

Thank you for your attention 