Microfinance

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Microfinance and Microinsurance - Technology opportunities

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  • Microfinance

    1. 1. Innovations in ICT By Andrew Goldman
    2. 2. <ul><li>Microfinance – “a means of extending credit, usually in the form of small loans with no collateral, to nontraditional borrowers such as the poor in rural or undeveloped areas” (dictionary.com) </li></ul><ul><li>Micro-insurance – “is a term increasingly used to refer to insurance characterized by low premium and low caps or low coverage limits, sold as part of atypical risk-pooling and marketing arrangements, and designed to service low-income people and businesses not served by typical social or commercial insurance schemes” (wikipedia.org) </li></ul><ul><li>MIX (Microfinance Information Exchange) –> $32B, 64M recipients </li></ul><ul><li>Loans are often under $300 - $1K </li></ul><ul><li>Coverage limits of insurance are small, types of risks covered are unusual compared to those of the developed world </li></ul>
    3. 3. <ul><li>Started 30 years ago </li></ul><ul><li>Professor Muhammad Yunus won peace prize for creating micro-credit and is CEO of one of the largest providers, Grameen Bank </li></ul><ul><li>Professor Yunus started because he saw poverty in his home country of Bangladesh where he found a basket-maker trapped by usury or predatory lending and saw that women were especially underserved by finance industry </li></ul><ul><li>First two decades – hampered by misconceptions about collectability </li></ul>
    4. 4. <ul><li>Asia Pacifi an South Asia lead in volume of MFI activity as measured by MIX </li></ul>
    5. 5. Country Active Borrowers Population Penetration Bangladesh 21,553,598 158,665,000 13.6% Peru 2,459,990 27,903,000 8.8% Vietnam 5,788,229 87,375,000 6.6% Cambodia 788,133 14,444,000 5.5% Morocco 1,333,761 31,224,000 4.3% Colombia 1,568,926 46,156,000 3.4% Mexico 3,322,685 106,535,000 3.1% Mongolia 63,612.00 2,629,000 2.4% Kenya 876,044 37,538,000 2.3% Philippines 1,551,920 87,960,000 1.8%
    6. 6. <ul><li>Large volume required </li></ul><ul><li>Transaction costs </li></ul><ul><li>Distribution in rural areas </li></ul><ul><li>Education and training </li></ul><ul><li>Quality (not just quantity) </li></ul>
    7. 7. <ul><li>Transaction cost by region versus size of average loan </li></ul>
    8. 8. <ul><li>Previously, focus was exclusively on back-office </li></ul><ul><li>Automated payment systems (including Smart Card technology) </li></ul><ul><li>Access to key data (again Smart Cards may help) </li></ul><ul><li>Rural systems for sharing and transmitting data (Sanchalak example) </li></ul><ul><li>Claims automation (microinsurance) </li></ul><ul><li>Billing automation </li></ul><ul><li>User interface (ease of use) </li></ul><ul><li>Biometrics </li></ul><ul><li>Credit Scoring </li></ul><ul><li>Data Mining </li></ul>
    9. 9. Customer Interface Transaction Processing Data Analysis Customer Supplier
    10. 10. <ul><li>Microinsurance and microfinance have some unique challenges which make the effective use of ICT even more relevant (transaction costs and rural distribution for example) </li></ul><ul><li>Data repositories are important – more advanced existing for microfinance than for microinsurance but that may be coming </li></ul><ul><li>Neither industry is mature (either by measuring penetration or because focus has not shifted to quality as opposed to quantity) </li></ul><ul><li>Level of interest is increasing </li></ul><ul><li>Not highly impacted by current crisis in finance and economies but may be impacted by difficulties in obtaining financing </li></ul>
    11. 11. <ul><li>Kiva.org – direct loans to borrowers with individual community feel (no interest earned to lender) </li></ul><ul><li>Microplace.com (investment in MFI with small amount of interest paid to lender) </li></ul><ul><li>Anybody can take part, alleviating the concerns of access of MFIs to funding for loans during current economic and credit crisis </li></ul>

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