Technology for Microfinance Managers Issues and Solutions RMEP 2008 BASIX August 2008

Micro-Finance reach in India Microfinance in India through its two major channels – SHG Linkage and MFIs – served over 33 million Indians, up by 9 million over FY out of 5 microfinance clients in India are women. Micro-credit portfolio of India Microfinance was Rs. 22,000 crore 75% are accounted for by SHG Linkage, 20% by large MFIs and 5% by medium and small MFIs SHG Linkage reports over Rs. 3,500 crore savings, only MFI Bank, KBS Bank reports about Rs. 40 crore savings portfolio MFIs operate in 209 out of 331 districts of the country, 28% of the new clients are from Urban areas. Source : Sa-dhan, Bharat Micro-finance Report,2008

Demand of Micro-Finance services in India Through all channels, reach is only 30 million 250 million people live below poverty line Rupee One lakh per individual needed for livelihood promotion, hence trillion of Rs needed Penetration of life insurance services in rural India is <10%. Asset, health, weather and other general insurance services are still nascent Micro savings and remittance products have huge potential under BC model

Challenges in Micro Finance High Volume of Financial Transaction but value wise very low Majority of the financial transactions are off-site in nature Geographic spread of operations and density of customers Lack of infrastructure facilities like power, broadband etc Unsecured lending and no documented financial history is available Combination of above, lead to high operating cost

Growing interest in Microfinance Private Investors and equity funds are now financing fast growing and nascent MFIs Some state governments are funding SHG- programmes Govt. of India has appointed NABARD to manage the Microfinance Development & Equity Fund (MFDEF) Microfinance Bill pending in Parliament

Role of Technology in MFI Transaction automation enables data capturing of business operations Single set of data, multiple information to different stake holders Standardization of product offering Increases efficiency, reduces transaction cost Reliability of information from branches Technology is an enabler for scaling up

Role of Technology in MFI Micro-Finance involves large scale micro transactions, technology enables - Reconciliation of customer, banker and other funders balances - Tracking of fund movements from/to branches - Detection of frauds and misappropriations - Audit trail of financial transactions Technology is a tool for risk monitoring

WHY MIS? Good information system aids in better management of resources Analyze target Vs achievements, critical operational parameters Motivate field staff and to create healthy competition, increase the efficiency of Human Resources To strengthen financial performance Plays vital role in strategic decisions, enabling course correction Right information at right time is key to success

What MIS do we need? Loan Tracking  Ability to define loan products  Suitable for different model of lending  Loan Disbursement and Repayments  Portfolio monitoring  Write Off & Re-scheduling  Social Performance Indicator Tracking  Automatic calculation of incentives loan officers

 Critical Information requirements of various stake holders Field staff operations information Management Reporting Statutory requirements Funding agencies reporting Customer MIS Information requirements of MFIs

Field staff requirements  Loans appraised/sanctioned Vs disbursement particulars  Day wise collection statements  Loans overdue reports  Portfolio Performance Reports

Management Reporting  Operating Summaries Weekly (Inflows & Outflows at branch level) Monthly (Demand, Collection and Balances)  Employee Performance Reports  Key Portfolio Indicators (Financial Health) Loan Outstanding & No. of A/C’s Repayment % Principal At Risk (PAR) Non Performing Assets (NPA) Aging Analysis of Overdue Financial Ratios First Time Overdue (FTOD) Drop out customer reports

Statutory Requirements  RBI (Central Bank) Compliance Reports Delinquent loan provisioning/Bad debts Written- off details Savings/Cash Security Particulars  Financial Accounting Statements Borrower/Member Sub-ledgers and balances Secured/Unsecured loan portfolio details Income (Interest earned on loans) particulars

Funding Agencies Reporting  MIS reports as agreed at the time of Grant/Debt/Equity appraisal, as per the MOU  Key Indicators of the operating period Portfolio Indicators Growth Indicators Outreach Indicators  Stock Statements  Any other information that they may ask from time to time..

Portfolio Diversification  Loan Products  Loan Activities Lending Methodologies  Joint Liability Groups  Self Help Groups  On-lending  Direct Lending

Key elements of MIS  Geographic Distribution  Responsibility Center Concept  Portfolio diversification  Lending Methodologies  Efficient portfolio monitoring Reports  FTOD, Drop out customer reports

Benefits of Technology 100% Automation of all Business/ functional areas Integrity between operations modules to Financial accounting High Data security and inter-operable Flexible Loan/Savings/Insurance product definitions and its revisions Automated Loan Documentations Tools for controlling and effective monitoring Various MIS reports for analysis from field level to top Management.

How BASIX used Technology for MF services

Adopted IT as a strategy and set up a IT division (BASIX Information Technology Solutions for Livelihoods) Appointed a IT partner for development support Recruited IT and Domain specialists Conducted detailed system study and followed SDLC process systematically System audit conducted at different levels of development and implementation. Ensured constant year to year operations productivity improvements Revised business strategies are aligned with MIS Harnessing IT for MF services

Samruddhi Collection card BASIXPM BASIXiStation BASIXCollect Devices Used for Automation of Field Transactions

Proposed Blue Print of BC Model & MEGHALAYA Central server SBI* BC MODELCSC (Customer Service Centre) Powered by : The data entered in both the systems will be uploaded to respective remote servers and customer can access all services under one roof

HHT Desktop PC or Laptop Central Server Decentralized Server V SAT / Internet GSM / CDMA BASIX IT Architecture Mobile Integrated with biometric device

Key Learning's  Recruitment of cross domain (IT and Functional) specialists for managing software is always useful  Content with having the MIS meet 80-90% of information needs  More complex MIS less likely to work  Be practical in your thinking  An MIS will not meet all the flexibility hoped for  Run parallel manual accounting/MIS for the first six months

 Assess your MIS needs  Initiate the process  Acquire good MIS  Adopt IT in your business Make your work simple.. Our suggestions

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