Today I spoke at U Penn’s annual microfinance panel, along with David del Ser, (founder of Frogtek) and Saket Sinha from IBM. Here, I want to share some things that I learned that day. For example, how Frogtek and IBM’s technologies have the potential to take microfinance to a whole new level.
Frogtek is creating a mobile application that will enable microvendors to track of all of their transactions on their own personal smart phone.
It works by letting microvendors enter all of their purchases, sales, receivables, and even microloans on their cellphone. They can then see a record of all of their expenses, as well as debts owed to them by customers. The application also produces financial reports, which is also recorded in the phone. Frogtek then uploads and stores all of the data onto its servers, which is open for review to major producers, like Pepsi and Proctor & Gamble. Needless to say, this market data is incredibly valuable on the producers’ end. On the microvendors’ end, Frogtek’s technology is important because it provides those who previously had no way of using smart technology to track their financial activities (e.g., tracking their cash flows and receivables, projecting inventory needs). Application of this technology also allows them to increase efficiency in two ways: 1) having access to business information and 2) managing their entire business from the convenience of their cell phone. To give you some perspective, imagine a restaurant that records all of their sales and expenses by pen or paper, or maybe just putting them in a big shoebox. The use of Frogtek technology by microvendors is like this restaurant upgrading to a combination of a computer cash register and Quickbooks. This way, our hypothetical restaurant (and our real-life microvendors) can track all of their business transactions and project what they’ll need to stock on for the next day.
All of this brings immense hope to the microfinance world, but my only question about Frogtek is whether its technology is a few years ahead of its time. Frogtek’s technology requires clients to have a smartphone and a dataplan. Well the issue is that though the majority of the world’s population has cellphones, only a small percent have smartphones. In China, for example, other than a few of my expat friends, I don’t know anyone who has a smartphone or data plan. Moreover, dataplans are costly, over $50/month, which is far out of the range of the average person in the countryside earning $1.5/day. On the brighter side, technology changes quickly, so it’s not to far-fetched to anticipate that in two years time, everyone will have internet access on their cellphones for a few dollars a month. Until then, however, the prospects for this type of technology to go mainstream seem bleak.
Let’s all turn to IBM now. IBM is in the process of revolutionizing MIS (management information system) technology. Instead of the current status quo where each microfinance institution (MFI) has its own MIS system hosted on its own server, IBM is moving microfinance to “The Cloud”, maintaining all of the MFI transaction data in a single massive database. In India, quite a number of MFIs have committed to using their system and, with MFIs sharing the costs of a single system rather than each maintaining their own MIS, IBM has been able to lower information system transaction costs to around $0.13 cents per loan. If this trend becomes the new norm, MFIs will no longer need their own IT team, MIS customization and maintenance team, not to mention increase efficiency. This could enable fourth tier MFIs that often don’t have MIS systems to have a new means to track transaction and control risk, giving them the foundation necessary to scale and attract investment.
Though the actual implementation of these technologies, let alone their feasibility, is yet to be seen, it is certainly welcoming news that microfinance, along with other industries, can reap the benefits of modern technology.