Jason Polen works as Social Media Intern for Grameen Foundation based out of our Seattle office.
Investing in Technology– Is it worth it for MFIs?
From “Speed-Geeking” to “ROTI”; when microfinance and technology leaders come together in India to explore the power of technology, innovation is inevitable. This year’s Microfinance Leadership Summit in India was called, “Fueling Growth: Strategic Technology for Microfinance”. One of the key goals of the conference was to engage microfinance and technology leaders in a dialogue about the immense potential of technology in helping microfinance institutions (MFIs) grow.
Starting a dialogue around investing in technology is vital for leaders of small and medium sized MFIs. As MFIs scale, they begin asking themselves a number of critical questions about the use of technology. How can technology help us grow? Which kind of technology is right for us? How much will it cost? How difficult will it be to integrate it into our existing system? When is the right time to invest? All these unknown factors can be summarized into one term a speaker at the conference, PC Narayan, introduced: ROTI – Return on Technology Investments.
Most MFIs are not adverse to adopting technology. In fact, they are usually ahead of the curve, especially in India; however, when operating at the grassroots level, adopting technology incongruent with their clients’ can mean failure. In other words, MFIs are very conscious about the importance of using technology appropriately. A key theme throughout the conference was answering this question: “Is it worth it?” Fully understanding the risks and benefits is essential. Picking the correct technology at the right time ensures they will fully capture the benefits.
Grameen Foundation’s Matt Duncan proposed a seven-step process for MFIs to use to measure their ROTI.
- Get a strategic Plan
- Maximize your Processes
- Do an IT organization Plan
- Know Efficiency Factors
- Intelligence is Great
- Test Innovation
- Measure, Measure, Measure
In regards to evaluating the monetary cost of investing in technology, Matt said, “Test your innovations, don’t just jump in and say we are all going to do mobile payments. Like for a large institution, I realize about 6-12% of cost is spent on technology every year. Smaller MFIs have a smaller bucket of funds to work with, but you need to shift your mindset. Think about the percentage of your cost that you are going to spend on technology.”
PC Narayan, a faculty member in the Finance & Control Area of the Indian Institute of Management, Bangalore (IIMB) offered a helpful analogy for MFIs to think about when considering their technology options, “Now I am going to shift the discussion from ROTI to PIZZA. No one at the dinner talks about the base of the pizza, people always like to talk about the toppings, the salami, pepperoni, cheese…everybody talks about the top packaging and takes for granted the base. The base is actually very important. Pizza base comes only in 3 selections – in small, medium, large and similarly, technology should be scalable.”
Suresh Krishna, Managing Director of Grameen Koota, discussed the benefits his organization encountered by adopting Mifos, an open-sourced banking software developed by Grameen Foundation, “In Grameen Koota, technology has helped us to reduce cost in terms of time and manpower. The ability to give timely, accurate and live data has indirect benefits as well; it gives confidence to our stakeholders and indirectly reduces cost spent on PR, marketing with our stakeholders.”
It is important for MFIs to consider all the benefits of investing in technology. Besides the cost analysis, MFIs also consider the social benefits and long-term impacts. Part two of this blog will cover some of the specific technology options for MFIs by discussing the “Speed-Geeking” sessions that occurred at this year’s conference. It will also cover technology’s role in providing intelligence and transparency.