Technology changes microfinance in Africa
by: Benedikt Kramer and Philipp Neub
Awamo is a credit bureau for microfinance institutions (MFIs) in sub-Saharan Africa (SSA).It opens up the market for low-income borrowers by providing MFIs with affordable, comprehensive digital solutions to capture borrower data (using fingerprints for identification), monitor MFI operations in real-time, and generate credit reports — all of which decrease transaction costs and default risk and consequently interest rates thus fueling local economies and increasing financial inclusion.
In Uganda over 20 million people live on less than USD 2.00 per day (World Bank). Many live in rural areas with little or no access to formal financial services, and only 20% of adults are served by formal banks (FinScope, 2013). MFIs (incl. Savings and Credit Co-operatives) could offer vital financial services to the remaining 80%. However, due to above mentioned costs and risk MFIs charge annual interest rates of over 60%. Micro, small and medium-sized enterprises (MSMEs) cannot afford that. As a result local economies and job creation stagnate.
By equipping field and front office staff of MFIs with a Mobile Office which consists of a tablet PC, fingerprint scanner, and a tailor-made software MFI staff is enabled to digitally document any client interaction (account creation, deposits, withdrawals, loan inquiries, etc.) in field. The data entered into the Mobile Office is sent via the well-established mobile network to cloud-based servers. A web-based MIS/CRM system puts office staff and management in a position to monitor and manage their loan portfolio in real-time and comes with reporting functionalities. This increases efficiencies within an MFI and reduces transaction costs. Over time, credit reports will be created. These comprise of a borrower’s credit history and a score reflecting the likelihood of default in order to reduce default rates.
Editors Notes: This entry has been submitted to the FINTECH Book, the world’s 1st globally crowd-sourced book on FINTECH. Readers that enjoyed this initial abstract are invited to share and like it so that it may be featured in a longer version.
The FINTECH Book is due to be released in April 2016 and is available for Pre-Order on Amazon.
