How MFIs can develop cost effective IT systems

Core banking management information systems (MIS) are the foundation on which financial institutions worldwide run their business, serve their clients, and provide differentiated products and services to gain competitive advantage. Micro-finance institutions (MFIs) in developing countries require the same foundation for the same reasons, but have fewer vendor choices, limited budgets and, sometimes unique requirements, leaving MFIs to build their own systems or make do with spread sheets or even manual systems. However, a shared platform model can provide timely delivery of various financial services at an affordable price to financially excluded households and micro, small and medium size entrepreneurs in Rwanda. Through increased access to saving accounts and other financial services, the poor can build financial security, manage risks against adverse shocks such as illness or natural disaster, and even invest in new business opportunities. More importantly, recent research shows that improving access to finance plays a crucial role in promoting economic growth and poverty reduction.Therefore, MFIs in Rwanda and elsewhere can look into sharing a common information technology platform to reduce costs associated with the acquisition, operation and maintenance of information systems. Such a platform would comprise core banking software applications, hardware and infrastructure. It would be designed to help MFIs reduce operating costs, streamline and standardise lending processes, scale rapidly and integrate with other resources such as credit bureaus, financial institutions and other international payment networks. Further, such an operating model would eventually allow the flexibility of linking mobile payment providers to the MFI clients, thus enabling their customers to repay loans or carry out money transfers via mobile phones.In such a setup, an MFI would need only an inexpensive PC and access through the existing national fibre optic network to connect to the processing hub centrally located in Kigali. Therefore, no large upfront investment for hardware servers or software licences and ICT human resources would be necessary. The biggest hurdle among MFIs has been the prohibitively high cost of purchase, implementation and maintenance of relevant technology. It is also a known fact that one of the critical challenges of MFIs is the relatively huge cost incurred to serve their remote, dispersed and small-measured transaction clients. Sharing a common platform would provide cost effective access to real time information and management reports. An MFI would simply pay on a per account, per client or per transaction basis, essentially renting access as opposed to buying a software package or building a system from scratch. The MFI, therefore, would in principle outsource most of its IT software development, management and operation, and pay to use on an on-demand basis. An affordable flat monthly fee or in some cases a variable fee based on usage levels would avail the MFIs the critical mass and scalability of their MIS infrastructure to effectively and transparently provide excellent services to their clients.This approach should help address the financial inclusion challenges currently facing Rwanda. The highly successful Financial Sector Development Programme (FSDP I) adopted in 2008 helped catalyse a dramatic increase from 47 per cent to 72 per cent of the population with access to financial services, placing Rwanda well on track to reach 80 per cent by 2017. The programme has helped position the financial sector to contribute to meeting the economic cluster targets of Vision 2020, intended to transform Rwanda into a middle-income country. While relatively few of the targets are specific to the financial services sector, a vibrant financial sector is crucial to achieving almost all economic and social objectives. It is, therefore, imperative that bold solutions are pursued vigorously and adopted. That way, the overarching aims of the FSDP will be met, such as developing a stable and sound financial sector that is sufficiently deep and broad and capable of efficiently mobilising and allocating resources to address the development needs of the economy and reduce poverty.The writer is a director in technology advisory services at PwC Rwanda