Role of IT in MFIs in Indian context

Abstract

Poor people need loans in smaller amounts but traditionally that micro credit existed in our society in terms of traders and moneylenders providing credit to the rural poor, usually at exorbitant rates of interest leading to considerable hardship and impoverishment of borrowers, including undesirable and illegal practices like bonded labor. What can be referred, as Microfinance today does not include such exploitative practices but rather lending to the poor at reasonable but sustainable rate. Recent years have generated unprecedented interest in micro credit and Microfinance in the form of group lending without collateral. The Microfinance movement in India has seen mushrooming of many NGOs, SHGs, and is getting increasingly difficult for them to have access to data covering their operation and performance. Technology can help Microfinance providers improve efficiency, track operations with more accuracy, increase transparency and reach new customers. Information Systems are the foundation that produces the reporting and disclosure that meet the international standards for financial transparency, ensure donors follow good investment decisions and allow managers to generate timely, accurate performance data of their operations. Advanced Technologies are supplements to good information systems and allow MFls to expand outreach, deliver services electronically and promote growth to a larger scale. There is tremendous diversity in scale, operations and heterogeneity of MF models in India and that requires corresponding IT applications addressing the diverse needs of the MF sector. As of now the software is customized to individual MFI needs despite the availability of basic generic packages based on MFI models and donor audit requirements. IT applications are devised according to the local needs by drawing learning's from across the world. In light of this information there is a need to study the IT needs of the whole MF sector in Indian context. Apart from coming up with standardized packaged solution there is a scope for an ASP (Application Service Provider) model as the whole infrastructure can be maintained at single location and the service of maintaining the data and accounting can be provided in a pay per use basis. This can also promote the collaboration between various financial institutions in financial as well as operational level. This paper attempts to unearth the technological needs and solutions for the MF sector in Indian context. The study was done by analyzing data in public domain like website, journals, whitepapers, interviews and visiting MFls.