Banks are always talking about how important it is for them to find new markets in order to grow. The unbanked and underbanked have been making headlines for months as financial institutions try to develop strategies to lure this group into using banks for their finance needs. However, another possible avenue to take might be in the microfinancing area.Microfinance, also known as "banking for the poor," helps disadvantaged entrepreneurs start or expand small, self-sustaining businesses. Loans provided by local microfinance institutions (MFIs) are usually unsecured and range between $US100 to $US300 in value. As each loan is repaid, the money is recycled as another loan, multiplying the value of each dollar in the fight to defeat poverty. This type of financial service is primarily seen in developing markets, such as Africa, India and Latin America.
Last month, IBM announced it is planning a partnership with the Grameen Foundation, a nonprofit based in Washington, D.C., whose goal is to help the poor attain financial stability through microfinance, technology and innovation. The companies feel there is a need to bring more technology to the microlenders of the world so that they can broaden the services they offer customers. The companies will expand Grameen's open source microfinance software platform, Mifos, to help lenders manage client data, process loans and track payments more efficiently. The goal is to enable microlenders to handle even more accounts using the souped up software, in a similar manner to software used by commercial banks, claims IBM.
This sounds like a worthy endeavor. The firms claim that there is a need for more robust, flexible microfinance solutions in the market. Most microfinancers still use paper and pencil or simple spreadsheets to manage their accounts. But maybe this is enough for them, given the relatively low value of the loans. Then again, the Microcredit Summit Campaign, a global umbrella organization for MFIs, estimates that as of 2006, more than 3,100 MFIs were providing microfinance services to more than 113 million poor people around the world. In addition, the MFIs listed on the Microfinance Information eXchange (MIX) reported more than $23 billion in gross loan portfolio between 2004 and 2006.
Not too shabby. This is certainly refreshing to hear after all the bad press about how "evil" lenders are for allegedly victimizing people who know they shouldn't be getting loans in the first place!New effort with IBM will expand Grameen' Foundation's open source solution for microfinancers, potentially helpling the poor.