The Unanswered Question: Infrastructure in Financial Inclusion
When reduced to their core, financial systems are nothing more than information concerning the value (relative or absolute) of something or somebody. As such, data is the very basis for finance. If this statement is even just partially true, then an infrastructure for financial inclusion must first and foremost be all the ways and methods for handling data and turning it into useful information. Without this infrastructure the entire industry operates at a distinct disadvantage due to inappropriate and inaccurate data.
Therefore, as an industry we must concentrate on this infrastructure before worrying about transparency or ratings or even financial returns. We must properly address the question of data — the collection, transformation, and transmission of accurate data.
I entered this sector more than 16 years ago, astounded at how badly information technology was used throughout the sector. A decade and half later, little has changed. Sure there are pockets, here and there of light, but for the most part this industry operates in the dark when it comes to information — even just basic data collection.
With the exception of a few lackadaisical and/or misguided investments into information technology, the donors, apex organizations, affiliations, and MIVs have ignored this problem. It’s not sexy, it’s not academic and unless your investments are under some competitive pressure, there’s really no need to worry about it. Worse, until very recently there weren’t many people with any real expertise in information technology working in the field. So talent was hard to find.
But these are excuses and not solutions.
If we want to improve financial services to emerging markets globally, we need to collect and monitor information in a coherent and sensible way. But just having collectors of data and then analyzers of data (transforming data into potential information) is not enough. The old saying in software engineering is “Garbage in, Garbage out.” And right now, at this moment in 2014, most of the data being collected is garbage.
Sometimes the data is garbage for nefarious reasons. Sometimes for competitive reasons. But mostly, it’s garbage because the systems being used are garbage.
In this industry, the much-touted MIX (something I was involved with early on, I should note) is perhaps the best sort of data provider around. Yet we’ve stopped using the MIX because the data is more often wrong than right. Which isn’t surprising since it is self-report with huge time lags by institutions using information solutions producing mediocre data at best.
At the moment, the only technology innovations that seem to be gaining investment from the industry are those related to mobile payments. Like everyone, I believe mobile technology is the future for delivering the most cost-effective financial products and services worldwide. However, these are consumer facing, essentially front-end services that rely heavily on an information technology backbone.
That backbone is currently rotten. That backbone is the first layer of infrastructure that this sector should’ve and needs to invest in immediately.
Oradian, and our competitors, have all heard the same mantra from the different social/impact investors in this sector: “You’re not sexy. Mobile is more interesting.” When we’ve approached the donors and the MIVs, we’ve all heard, “We don’t like to force a particular IT solution on our investees. That would distort the market.” (Yet in every other way, these same donors and investors distort markets like crazy. They avoid IT because it’s not in their wheelhouse. Worse, it’s not in their best interest to know what is actually going on under the hood of all the microfinance darlings.)
There is no sexy, high-touch solution. There is no real rating or transparency mechanism. There is no market without appropriate, modern, cost-effective information technology solutions.
Until this industry realizes that the infrastructure that must be addressed before all others is the most basic understanding of how to manage, manipulate, and transmit data, microfinance will continue to suffer from unreasonably high-cost lending, poor customer service, high-cost investment, and low-transparency.