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Making Microfinance Viable With IT

Making Microfinance Viable With IT

Problems solved using Mifos, an Open Source management information system designed specifically for the microfinance industry.

"For example, [the system] could not maintain transaction data," says Krishna. It overwrote "each transaction on top of the last one, maintaining only balances." This meant that a loan officer in a remote village could not tell when the last repayment was made -- only how much more needed to be paid. Since transaction records were maintained off the system, "you had to do a lot of work to generate proper transaction data," Krishna says.

And the system's simplicity, once a measure of its success, began to be a drag on efficiency because it did not allow modifications to existing accounts. For example, if the term of a loan's repayment was to be changed from 60 weeks to 48 weeks, a loan officer had to create a new account. These tedious workarounds left Grameen Koota unable to handle the volumes it needed to meet its growth targets.

Worse, the software was unable to support new product innovations. It could handle only three products: a general loan, a consumption loan and a supplementary loan. This locked Grameen Koota out of a world of other loan and insurance possibilities and hampered its growth.

Growth, however, was exactly what the institution wanted. After its initial success, the institution, which will soon get the status of a non-banking financial institution, wanted to spread the goodness. So it set itself some difficult targets. It's strategic goals for 2007-08, for instance, aims to increase both its client base and its portfolio by a 100 per cent.

To do this, it needed to be able to open new offices quickly, be more efficient in the areas it already serviced, and create management reports much faster than it already did, so that decision makers could take calls like opening new branches.

It also needed a system that was flexible; since every branch might want to tweak its system. For example, how interest is calculated differs by region.

"The flexibility and scalability of the [new] product means that we'll be able to simultaneously standardize common processes, accommodate regional variations, and scale for new innovations in the future," says Krishna.

Spread the Goodness

In a bid to get a system that would meet all its current requirements and handle expansion, Krishna and his team walked through all the available products but failed to find a generic product that met their needs. They also realized that an off-the-shelf product would leave them more 'vendor dependent' than they were comfortable with -- especially since the expansion would require local customizations.

The option of developing a system inhouse was considered, but was quickly scratched out because it would require too much specialization.

It was around this time that the Grameen Koota team figured out that an Open Source solution would fix all their problems: it was scalable, it would free them from vendor-dependency and it could be customized at the branch level. And it would be less expensive than a bought solution -- an important criteria.

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