As banks sense the potential of the market, they are adopting specially designed technological tools for their customers. Citibank India's biometric ATMs are an example

As Indian Microfinance Institutions (MFIs) begin scaling up their reach and complying with new reporting and disclosure norms, they are beginning to realise that they will need to become far more information technology-friendly. "Microfinance entities may be NGOs and their loan sizes may be small, but what they are essentially doing is banking, which requires very robust systems," says Manish Khera, CEO, FINO (Financial Information Network & Operations), an ICICI Bank-promoted technology provider to MFIs. "You can't do banking without backend engine and security of data and audit systems, even though most MFIs require less complex products."

Instead of developing its own solutions, FINO has been sourcing products from established vendors. It has picked i-Flex's Flexcube as its backend engine (channel interface, product engines and data repository) and roped in IBM as its service provider. At the customer end, FINO employs chip-based biometric cards that are specially designed for rural micro-borrowers. The cards enable capturing of data and identification of a customer through fingerprint, which help MFIs meet the know-your-customer (KYC) requirements. "You don't require an online system because you can go to rural woman's home and validate her identity by swiping the card on a mobile device," says Khera. fino has sold about 1,000 such cards to KAS Foundation, an Orissa-based MFI, and is in the process of selling 130,000 cards to other MFIs.

Not everyone thinks a monopoly like FINO is a good idea, but everyone agrees that it can play a crucial role in ensuring transparency and cutting transaction costs, given that consumers are geographically widely spread. Says Vijay Mahajan, Founder-chairman of BASIX, an MFI that describes itself as a livelihood promotion institution: "The hard part is not product innovation, but distribution and it is here that MFIs can offer the real innovation." Adds Vishnu R. Dusad, Managing Director, Nucleus Software, a New Delhi-based software vendor: "In fact, technology's potential to cut costs goes beyond microfinance in rural areas. In the years to come, better it systems will allow cost effective universal banking, adding three billion borrowers to the worldwide retail credit market."

As banks sense the potential of the market, they are adopting specially designed technological tools for their microfinance customers. Citibank India recently launched a biometric ATM for its microfinance customers. "Biometric ATMs have multiple language capabilities as also a voice-enabled navigation facility, simple screens and colour-coded buttons. Using these ATMs, customers can conveniently access their account and carry out routine banking transactions like balance enquiry, deposits and withdrawals with ease," says P.S. Jayakumar, Country Business Manager, Global Consumer Group, Citibank India.

The biometric ATMs, designed for 'Citibank Pragati' savings account holders, can be conveniently located at offices of Citibank's partner MFIs and in areas that are located close to where the customers live and work. Citibank Pragati is a no-frills savings account facility for microfinance customers that Citibank offers directly and in partnership with MFIs. However, ICICI Bank was the first to launch such ATMs.

Technology apart, the industry will need pooled resources. ICICI Bank's Nachiket Mor, for example, says that to serve a market of more than 400 million unserved Indians, the industry will need shared technology platforms, which could also act as a data repository for a credit bureau. The challenge, however, would be in creating back offices that various MFIs could share without duplicating resources. SKS's Vikram Akula feels much would depend on the ability to do "a Coke-like standardisation, factory-style training, as with McDonald's, and lean processes of a Toyota".

SKS has developed its own it systems and uses smart cards at its centres (called Sangam) that can be used by less educated employees, since workers at its rural centres tend to be school graduates-a staple for most MFIs.

Pradan's 'Computer Munshi'

NGO Pradan employs computer-literate munshis. The industry, however, needs to pool resources to serve such a huge market

Unique situations demand unique solutions. Or, at least, that's what Mahajan-founded Delhi-based NGO, Pradan, believes in. The NGO, whose stated objective is to help rural poor and marginal farmers develop sustainable livelihoods, assists self-help groups (SHGs) in seven states. Since Pradan likes its SHGs to stand on their own feet within two years, it employs an innovative system of bookkeeping called the Computer Munshi System. The workings of the system have been described in detail by Ajit Kanitkar and Jan Meissner in their research paper "The Computer Munshi System of Pradan"; the latter works for Germany's development agency GTZ and the former is with the Ford Foundation. The system, the researchers say, is built around two key personnel: A group accountant (GA) and a computer-literate munshi or an accounting clerk, both of whom are paid a nominal fee by the group members for their services. Apparently, it is possible for a computer munshi to serve up to 300 groups. There are some problems with the system (like the munshi not being able to understand the GA's handwritten notes) but those are not significant enough to derail the system.

As MFIs and SHGs come up with more such innovations, the microfinance landscape will sport more of technology. Nucleus' Dusad, for instance, says that his company's vision is to take cost cutting to the next level. "We want to make software that will slash the transaction costs of the banks and make it possible for them to lend as small amounts as Rs 100," he says. If that happens, micro loans could become vastly cheaper.