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CGAP Releases Results of Microfinance Technology Survey
May 19, 2009

WASHINGTON DC, May 19, 2009 (CGAP) - A recent CGAP survey of 152 microfinance institutions (MFIs) worldwide tells us that MFIs increasingly make use of computers and software to track transactions and client accounts. But many still lack well functioning information systems (IS) and access to fundamental infrastructure needed to build robust and reliable microfinance operations.

The survey also found the following:

- A vast majority of MFIs use either custom-built or off-the-shelf systems to track their portfolios. Only 18% of survey respondents use manual systems or spreadsheets to manage their portfolio, a sharp decline from the 46% who reported doing so in a 2004 CGAP survey.
- About 53% of respondents use custom built software to manage their loan portfolio, and 29% use commercially available off-the-shelf software products.
- Lack of funding is perceived as a major contributor to weak information systems among small MFIs. Seventy-three percent of small institutions (those with fewer than 50,000 clients) with weak IS also report lack of funding.
- Thirty-five percent of respondents are operating with at least one office without any Internet connectivity. Of the MFIs with a branch not connected to the Internet, 40% are in Sub-Saharan Africa.

Survey Overview
Technology is consistently cited as one of the greatest challenges faced by MFIs around the world. It is widely recognized that technology is invaluable for improving efficiency and accuracy, increasing outreach, and reducing costs. However, many MFIs lack sufficient funds to invest in suitable backend technologies, or they operate in regions where access to critical infrastructure – such as the Internet – remains scarce. Still others sink funds into poor technology investments, or simply choose not to invest, limiting their ability to grow and compete.

From July to September 2008, CGAP conducted a survey of 152 MFIs worldwide to gather information about how they use technology today and how they approach future technology investments. The findings reveal a number of weaknesses in the broad microfinance technology market – as well as opportunities for improvement.

MFIs included in the survey ranged from small regional lenders to large organizations with substantial credit operations. The median respondent served just under 5,000 clients and had about $600,000 in outstanding loans. Larger providers commonly had tens of thousands of clients and millions of dollars in loans.

Key Challenges

Given the increasing availability of computers, the trend toward automation is not entirely surprising. However, despite increasing automation, most MFIs still find a number of shortcomings with their current IS.
n particular, respondents pointed to difficulties with reporting and data analysis and with customizing existing products and adding new ones. They also cited problems in maintaining accurate information with current systems and in processing transactions with sufficient speed. Satisfaction with custom-built solutions was greatest; those using spreadsheets felt the most limited by their IS. About one-fifth of respondents said they could determine payments in arrears in less than one day; nearly half said they can make such determinations within three days. However, there is significant regional variation in both data transfer methods and number of days to determine arrears. Overall, 40% of respondents said their IS constraints prevented them from achieving their operational goals; 57% of MFIs reported that funding is an obstacle to improving their systems. Of the MFIs reporting that their IS constrains operations, there was relatively equal distribution among users of custom built, off the shelf, and spreadsheets. Lack of funding is perceived as a major contributor to weak IS among small MFIs. While a total of 73% of small institutions (fewer than 50,000 clients) with a weak IS also report lack of funding, only 29% of large institutions (>50,000 clients) with a weak IS also report lack of funding.
Beyond funding, other common impediments to the efficient use of information systems are a lack of consistent access to the Internet, poorly developed systems for transferring data between branches, and limited availability of reliable information technology support for software and hardware.

Infrastructure Issues

Reliable access to the Internet and electricity is critical to increasing the use of technology among MFIs, especially those with several branches. The survey showed that 35% of respondents have at least one office without any Internet connectivity (of the MFIs with a branch not connected to the Internet, 40% are in Sub-Saharan Africa). These organizations are experiencing slower transaction processing and reduced data accuracy because they must combine manual and automated processes to track information.
Recognizing the operational importance of computerizing processes in all their branches, many MFI managers are seeking creative solutions to these obstacles. For example, Selfina, an MFI in Tanzania, is tackling infrastructure challenges by exploring ways to improve access to electricity in rural branches. It identified two potential options: use of solar energy or installation of a generator. Use of solar energy was appealing because it's quieter than a generator, environmentally friendly, and might offer an additional revenue stream. On the other hand, installing solar panels on a roof would cost $2000 – a particularly large expense given that Selfina does not own its branch buildings – and would store only 24 hours worth of energy. Despite the excitement around the idea of solar energy, generators were a more practical choice.

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