March 27, 2008

IN MARKETS OUTSIDE the United States, many financial institutions are looking at another way to serve the world's unbanked and underbanked populations: microfinance. Microfinance provides sustainable access to credit and savings for the poor.

"Ten years ago people started promoting microfinance as a way for small businesses to create jobs in communities," says Murray Gardiner, manager, microfinance and community banking strategy, at banking software provider Temenos (Geneva, Switzerland).

According to Gardiner, the world's poor and unbanked can provide a profitable market for banks. "Users are paying costs and providing ROI for banks equivalent or better than prime account holders," he asserts, noting that Temenos created its eMerge on T24 core banking system specifically for the microfinance and community banking sector. "It's really all about volume to serve this market," Gardiner says, explaining that banks in the microfinance space need to be able to handle a lot of transactions with straight-through processing.

Gardiner adds that many banks in the space have experienced exponential growth in a relatively short period of time. "What we see now is billions of dollars of funds available for investment in this sector," he says.

In the near future, Gardiner continues, large commercial banks will begin to pursue opportunities for microfinance in their markets. "It's going to be done on scale," he says.

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