Mis in Microfinance

MANAGEMENT INFORMATION SYSTEM FOR MICROFINANCE ABSTRACT ICT scum bag be a strategic prick in making Microfinance Institutions (MFIs) more efficient and effective. MFIs screw reach more people in a more economic way by implementing the right trouble Information System (MIS). While a few MFIs be making good use of technology, the majority are facing difficulties in guideting the right consequence. Reasons for this include * Insufficient brass instrumental and military personnel readiness * Unavailability of suitable MIS applications for microfinance * Diversity in problem processes and frequent changes in procedures * Risk of failure of the MIS Diversity of geography and language * Unavailability of vendors and their capacity to implement and support IT solutions * High cost of IT solutions for MFIs * Lack of commitment of management and key decision-makers within an MFI * Lack of awareness about the importance of IT The approve- constituent MIS is the backbone of all Inf ormation System solution and yet it has not received much attention. MFIs, whether large or small, need to seduce a strong back-office MIS before attempting to deploy any advanced front-end applications or delivery channels.These would be worth slight without having a strong and flexible back-office MIS in place. INTRODUCTION Management data remainss (MIS)have play a key role in the traditional banking sector for years, but microfinance institutions have been much slower to utilize this technology, primarily due to budgeting shortfalls. A2009 CGAP inspect found that many microfinance institutions lack well-functioning tuition systems that would enable them to grow into vigorous institutions. Technology was consistently cited as one of the greatest challenges facing MFIs.Over the last some(prenominal) years, however, more and more MFIs have begun implementing information systems, which has the potential to provide several benefits to the constancy as a whole and to MFIs in par ticular ranging from loan tracking to greater transparency and risk management. Management information systems are essentially applications which enable an institution to better organize its data for the purposes of decision-making, competency, and external notifying. Rather than orphic within a pile of manila folders, the data is crisp, up to date, and presented in a compelling and practical form.Benefits include easier cash-flow management and forecasting, timely information regarding portfolio risk, truly time performance updates, more efficient accounting procedures, and simplified external reporting. In sum, a good MIS can increase an organizations competency and decrease its operating costs. The biggest hurdle to the utilization of such technologies among MFIs has been the prohibitively high cost of purchase and implementation. The CGAP survey found that a majority of MFIs use either custom-built or off-the-shelf systems to track their portfolios.But a spic-and-span inn ovation,SaaS(Software as a Service), has been changing that. Typically the SaaS software vendor hosts the application on its tissue servers, which the customer can download on his mobile device or computer terminal on an on-demand basis. This system provides MFIs 24/7 plan of attack from anywhere in the world, real time information, data security and automatic backup. With an SaaS system an organization pays monthly rent, or in some cases a variant fee based on usage levels, for access to the software providers application.Instead of buying the software and using it in isolation, the purchaser gains access to the providers online cloud, and utilize the internet to deposit, organize, and access their information. With this changed cost mental synthesis, more and more MFIs have been able to combine MIS into their organizational structure. SaaS technology is designed to serve outside(a) microfinance networks, such as Opportunity International, as well as national MFI branches, s uch asCresa Financial Services in India. Accordingly, SaaS services are uphill as the MIS model of choice for microfinance institutions.Difficulties in Adopting MIS A number of MIS solutions are emerging. Currently, there are 56 MIS applications listed on the CGAP website, although more are being utilize by various organizations that are not publicized. Despite the advances in MIS, practical experience shows that the acquisition of a suitable MIS is not simple. Many MFIs are assay with their MIS. Some of the reasons for these difficulties are * Microfinance operations are unique and complex, compared to commercial, retail banking. The Microfinance sector is still evolving and lacks standardization in its procedures, methodologies, customer characteristics, type of transactions and reporting. * There is no of-the-shelf software available that can address the requirements of every MFI. * Those MIS that are available are complex and costly for comeion by MFIs. * MFIs lack human and organizational capacity to develop or select an appropriate MIS. * MFIs operate in remote and difficult areas where communication and power radix do not inhabit and are therefore constrained from using IT equipment required to run MIS applications.Outlook of MFIs It is evident that the MFIs around the world are diverse in their structure and practices. Following are some of the factors that differentiate MFIs from each early(a) 1. fictitious character of organization * NGO * MFI (non-regulate) * Regulated MF Institution * Microfinance banks 2. Type of Products and Services * Minimalists (those who offer only credit services) * Loans as well as savings services * Full range of products (including loans, deposits, remittance, insurance, leasing and social services) 3. Organizational Structure * wooden leg setup (small, medium and large) Staff structure * Departments (cost centre and profit centre) 4. Geography * Area specific (operations are limited to a small area) * Country spe cific (operations are spread over an spotless country) * Global operations (operating in multiple countries) 5. Operational Environment * Rural areas * Urban areas * Other 6. Processes and procedures * Models (associations, cooperatives, credit unions, Grameen, etc. ) 7. Regulatory environment 8. Reporting * Management reporting * Stakeholder reporting * Microfinance networks and peer group reporting Information Systems used by MFIsThe microfinance sector is also quite diverse in its use of information systems. Generally there are the following three types 1. Manual System Some MFIs still rely on manual systems, which involve maintenance of records in forms and ledgers. Organizations having manual systems are either small micro-credit programs or NGOs. 2. Semi-automated System More than 50% of MFIs are operating in a semi-automated mode. Within this course of study, the spreadsheet is the common tool being used either in conjunction with a manual system or with an MIS application that does not fulfill the information requirements of the MFI.The majority of non-regulated MFIs have semi-automated systems. 3. Fully Automated System Few MFIs are fortunate enough to have a fully automated and integrated MIS, fulfilling the whole information requirements of the organization. such(prenominal) systems are existent with banks or regulated MFIs. Disadvantage of manual systems Some of the disadvantages of manual Information Systems are * Too laborious and time consuming. * Prone to Errors. * info manipulation and analysis is very difficult. * Maintenance of large amount of data is almost impossible. * Data and information is not secured. Loosely controlled. * Highly inflexible (addition of new products and change in course processes). Benefits of computerized MIS to Microfinance There is no doubt that the right information at the right time at the right place, is all important(p) in decision making. Therefore, information and data is considered among the most valuab le assets fundamental to the success of an organization. The primary roles of the MIS are to capture information, create new information, store information, and pass along information to the user. The two major objectives of MFIs are Outreach and Sustainability.MIS can add substantial value in achieving both the objectives * A major advantage of MIS is that it provides roaring access to accurate and up-to-date information. For example, loan officers get information on loans that need follow-up, branch managers can monitor daily progress of the branch, and senior management can get a full picture of the portfolio performance and quality. Customers also get quick information on their accounts, payments and balances. * Detailed information is captured on customers and their activities that can and so be used to assess client business to assess impact.It is also useful in tracking historical information of clients. * Activities, such as disbursements, repayments, deposits, withdrawal s and cash transfers are completed faster, better controlled and with minimum opportunity for errors. * Information is produced in user-required formats, which facilitates better understanding, setting priorities, objectives and strategy. * Key performance indicators provide an overview of the organizations performance, efficiency and effectiveness of business procedures so that timely adjustments can be made. * Use of ICT helps make MFI services more interactive, accessible and transparent. In terms of innovation, ICT provides full tractability to structure products and services to the needs of its target group. * Efficiency and productivity of staff is increased, as they are able to manage more products, customers, and transactions in less time. consolidation and Consolidation With the growth and advancement of the microfinance industry, new innovations are being witnessed. Among these innovations, technology-based delivery channels and mechanisms are creating opportunities as well as intensifying the competitory environment for MFIs.These channels are not only targeted at lowering transaction costs and extending the reach of MFIs to large populations, but are also think around customer convenience. These technology-based mechanisms enhance efficiency of the MFIs, while posing substantial challenges in managing such technologies. One of the main challenges is that of integration and consolidation. It is essential that the back office MIS has the flexibility to integrate with such systems. The back-office MIS has received little attention within the sector.The general perception is that new technology based delivery systems would easily integrate with the core MIS, whereas in reality it is not that simple. Examples show that MFIs that have adopted such systems without assessment of their core MIS are struggling to integrate these. Because of non-integration, MFIs fall back on electronic spreadsheets or manual procedures to prepare consolidated informatio n. Integration and consolidation are very important for MFIs and inability to integrate new technological innovations holds them back, making them less rather than more efficient.Back-office MIS Starting Point for MFIs The backbone of any Information System (IS) is the core MIS as it holds the critical data, and manages the information. All former(a) systems are add-ons. A simple core MIS comprises of two parts I. Database data structure an organized set of tables designed to the needs of the business. All data of the organization resides in these tables. ii. Application Software comprises of the user interface, business processes, procedures, reports and queries. Fig 1 shopping center MISAdopting an MIS is strategically important for MFIs. They need to undertake a careful and elaborate assessment of current and future needs before committing to a particular solution. Much of the systems flexibility, expandability, and robustness depend on the strength of the backend components. healthy core MIS can deliver cost-effective integration of data, channels and processes, facilitating a single consolidated view of the whole portfolio. Core MIS can provide easy data entry for the backend database, making consolidation easy to achieve.Various studies reveal that a large number of MFIs operate manual systems despite having some kind of MIS in place. One of the reasons the MIS does not cope with the changing needs of the organization is that the backend does not have the right structure. It is important for both the MFIs and microfinance software vendors to concentrate and strengthen the Core MIS. Figure 2 shows a basic structure for the Core MIS for microfinance Fig2 Core MIS for Microfinance Other Key Deciding Factors for IT SystemsWhile the MIS needs to fulfill the business requirements of the organization, but other factors including appropriate infrastructure and hardware are also important in the success and optimal utilization of information systems. We can categorize the components of an information system solution into five areas 1. Physical Architecture (Electricity/Power & communication infrastructure) Physical architecture consists of basic wires or cables to gateways and powerhouses.Together with buildings, offices, and computers, the architecture provides services of voice, data, image and video transmittal while the consistent power supply keeps everything live and running. Every system needs electric power, and if systems are required to communicate, then there must be an appropriate communication infrastructure. Usually MFIs operate in remote and underdeveloped areas where this is lacking. 2. Network Three types of environment setups could be made. i. Standalone Environment MIS is run on soulfulness PCs and data is stored locally. ii.Local Area Network (LAN) PCs are connected together to create a LAN. The network can be either peer-to-peer or client/server. desired is the Client/server network where data is stored and shar ed through a server in a secure way. iii. Wide Area Network (WAN) Branch offices and operation units can be connected through a WAN. It requires proper communication infrastructure and involves high cost to establishing a WAN. For online systems WAN is critical. 3. Hardware Type of hardware depends on the network environment. A client-server environment requires server and switch for connecting the workstations / PCs. . Database Generally databases can be categorized as local and client-server. Each category has its own strengths and weaknesses. These details can help MFIs in selecting the appropriate database i. Local databases there are a number of local databases but the most astray used databases are Microsoft Access, FoxPro, Paradox, and file maker. ii. Client/Server databases iii. Most popular client/server databases also called enterprise databases include Oracle, DB2, SQL Server, Myself, Sybase, and Informix are some of the commonly used client/server databases 5. Applicat ionA combination of business processes and procedures, user interface, reports and controls operate on top of the backend system. A large variety of software development and report generation tools are available and used to write software applications. Getting the Right Fit MFIs face great challenges in choosing the right system solution that can best fit their business needs. An MIS for microfinance must have the following characteristics 1. Cost effectiveness Total ownership and lifetime system operations costs, including hardware, software, network, infrastructure and human resource. . Functionality & flexibility Fulfill maximum of the current business requirement and flexible enough to incorporate future changes. Capture and generate relevant information on an individual, group, and at a consolidated level. 3. Reliability Incomplete and unreliable systems are dangerously risky and can hamper the business. Such systems do not produce the right results and are unable to complete p rocesses to the desired level. Users could be misguided by such systems. 4. Simple to use Should be user brotherly and easy to setup and operate.Activities can be performed in a systematic way and flow. 5. Scalability System should accommodate changes to products, services and delivery channels. It should grow as the business grows. For example, if the system design is scalable, it can be run on an individual PC, Local Area Network (LAN) or Wide Area Network (WAN). 6. Integration Combining data from multiple sources is of great importance to microfinance. Integration of branches to get single consolidated picture should be a priority. Challenges faced by MFIs * Microfinance is a rapidly changing industry. Due to the ongoing volution of the industry, MFIs face difficulty in defining business objectives, needs, priorities and limitations for acquisition of an MIS solution. There is lack of standardization within the microfinance sector, and business practices of MFIs differ from each other. Consequently, software developers face problems in coming-up with an MIS that can be used by most of the MFIs. Common failures are due to ill delimitate business process and procedures. * There is a shortage of skilled professionals who can understand technology as well as the microfinance industry, and be able to suggest the right solution.Such professionals can act as a bridge in filling the gap between use of ICT and microfinance operations * Majority of the MFIs do not have the technical capacity and required resources to understand, adopt and implement MIS solutions. * Most MIS solutions are not affordable to the majority of MFIs. * In some cases there is a lack of vision and commitment from the management towards use of technology * Integration is becoming one of the big challenges, as most of the MIS solutions for microfinance are built on weak platforms, thus not being flexible and scalable enough to integrate with emerging technologies and delivery channels.Recomme ndations * FMFBs experience of adopting technology suggests that MFIs should invest in relevant technologies after thorough and careful assessment of their requirements. The requirement should be addressed in perspective of current needs and future plans. * So uttermost the core MIS of MFIs has been neglected. MFIs should get their core MIS right before opting for any kind of delivery system. * The software industry needs to do more in development quality software for microfinance sector. * Capacity within institutions to manage technology is key to successful implementation and operation of its MIS.MFIs should employ skilled IT professionals on their staff. * MFIs must adopt MIS solutions that not only meet their needs but are also manageable by the MFI from all aspects. In some cases small and medium size MFIs go beyond their needs in adopting an MIS that ultimately becomes a drain on their resources. Such systems reduce the organizations overall efficiency and ultimately their sustainability. * MFIs can get maximum benefit by investing in technology, and putting in a better MIS solution that works for them. MIS is a strategic investment for MFIs. * advancing policies that make ICT accessible and affordable to the majority of the population are important for encouraging the use of ICT within microfinance and for the development of the microfinance sector. Conclusion The use of ICT can truly be to the strategic advantage of MFIs. Innovations in ICT have transformed traditional approaches to microfinance, facilitating growth and reducing cost. Some of the players have already started getting the benefit by using MIS and similar IT solutions, while the majority of the MFIs have yet to realize the importance of its use to achieve outreach and sustainability.The implementation of the right MIS still remains a big challenge faced by MFIs. Efforts are also made from various corners of the world in overcoming these challenges. CGAPs Information System Support is a prudent initiative to assist MFIs in getting access to ICT, aligning their MIS and using the appropriate IT solution. One of the realizations is maiden things first i. e. having an appropriate core MIS first before other systems keeping in mind the strategic importance of ICT to the microfinance industry, renewed efforts are required from all the stakeholders to overcome the challenges faced by the microfinance industry in taking on IT.References Cheryl Frankiewicz and published by CALMEADOW (2003). IT as a Strategic Tool for Microfinance in Africa ADB Releases (2005). Pakistan Economic Update Rao, M (2004), Microfinance & ICTs Exploring Mutual Benefits and Synergy, Orbicom Firpo, J. (2005), Championing measure in Microfinance Technologys Role in Delivering Accessible Financial Services to the Poor