One way a microfinance institution can improve its effectiveness is to optimise Loan Officers’ work, given that they are at the heart of the institution’s activity. Furthermore, providing them with technical tools improves the institution’s geographical coverage, information collection by managers at a customer level, and even the rate at which high-risk customers repay their loan.
Nao is waking up early this morning because he has a big day ahead of him: today he has to go to a remote region in order to help people who require financing to launch their project. His role is to raise awareness about the use of micro financing among these remote populations, some of which who are illiterate or not have identity cards. When he gets back, he still has to input all the operations he carried out during the day, which often gives rise to data entry errors. Moreover, now and again he realises that a document necessary for the loan is missing which slows down the procedure because this requires another round-trip to finalise the loan. For new loans, management decides if the person fulfils eligibility criteria for the loan and the type of credit that the institution can grant, bearing in mind that products are limited and that it is difficult to offer the right product to the right profile. Thanks to technology, there are several ways to facilitate Loan Officers’ work and increase effectiveness, while improving the service offered to the customer.
In terms of front office, several solutions facilitate data collection; this improves access to loans, but also compensates for the lack of existing infrastructure as well as the lack of ID papers in certain populations. For example, the processing system at the points of service, tested in Ethiopia, in particular. This system means that Loan Officers can save time because they don’t need to copy information afterwards, which significantly reduces the number of errors. An Advisor enters the transactions into the system, and provides the user with a electronically generated supporting document. From a customer’s point of view, this printed proof makes the transaction more professional and reliable compared with handwritten papers. This inspires trusts and therefore increases the number of deposits made at the institution.
“For me, technology is useful because it reduces costs; it makes data more reliable and all these sorts of things. However, it’s the first time that, when faced with customers, I have heard that technology improves trust, even in the absence of physical branches…”
Renée Chao-Beroff, General Manager of PAMIGA, Participatory Microfinance Group for Africa
Another more comprehensive solution tackles the same issues: the use of mobile devices, such as a tablets or laptops, by Loan Officers. The device alerts the Officer if a document is missing, it shows them directly the amount that a customer must payback, re-schedules loan repayments if necessary, and uses risk assessment tools to calculate interest rates for a given loan. All data is synchronised by connecting the devise to the central system.
Biometrics can also be used to simplify and secure transaction methods. This technology solves the issue of illiteracy and lack of ID papers in populations in remote regions. For example, finger prints can be used as an identification method. Surprisingly, microfinance institutions seem to find that when biometrics is used repayment rates are higher among high-risk borrowers.
The mobile phone is now also considered to be a transactional tool which enables greater financial inclusion in emerging markets. This solution is even more useful for markets with poor banking infrastructure because it allows customers to carryout transactions in local shops rather than in banks in the city. In Sub-Saharan Africa, 27% of people who do not hold a bank account blame the distance to financial institutions as an important reason which prevents them from opening a bank account. Approximately half of Africans have already got access to a telephone which should help to develop monetary transactions via the mobile phone. The mobile microfinance service makes it possible to send reminders regularly via SMS. Thanks to this service, customers can check their loan accounts to know how much to pay, payment dates, unpaid balance and the number of outstanding payments – all of which on a 24/7 basis which makes up for the lack of branches.
With regards to back office systems, an IT administering system with a loan origination section including data mining and scoring tools is essential. Data mining, which is also useful as an anti-fraud tool, collects information on customers and regroups it to create loans suitable for specific profiles, for example. The micro finance institution crisis in Morocco in 2008 – 2009 was partly attributed to the single-product strategy – which was often not suitable for the customer’s needs. Scoring determines if a customer can access the loan, it directly calculates the loan monthly repayments, the applicable rate depending on the customer’s profile, and can it adapt the product according to the customer.
In conclusion, a more technology-orientated approach helps Loan Officers like Nao with their work. Tools such as mobile devices, processing systems at the point of service, biometrics, mobile payments and loan origination, taken separately or even better together, can help the institution to improve efficiency. In addition to improving geographical coverage, technology makes daily operations more flexible and effective but it also enhances customer loyalty and their repayment rates.