Today, a lot of attention is being paid to front-end technologies for microfinance, but it’s important to remember that back-end systems – the technologies that process the billions of small financial transactions – are still at the heart of the delivery of financial services to the poor. Core management information systems (MIS), while not the headline grabber, are the engine for innovation and scale in microfinance.
If we want to add significant numbers of poor people to the ranks of microfinance (and we must do so), MFIs must have a robust core technology infrastructure that enables them to grow quickly and efficiently. While many MFIs today do have MIS systems in place, a significant proportion of those systems are not supporting the growth and increased impact of the institutions running them.
Without significant transformation in back-end technology throughout the microfinance community, the reach and effectiveness of microfinance will continue to be hindered.
Here are four reasons why back-end technologies are still important:
1. Operations and insight: providing financial services for the poor is an information-intensive business. Strong core MIS systems enable MFIs to process large numbers of relatively small transactions efficiently, and can provide insight into an MFI’s business that enables MFI leadership to tune their products and operations to more effectively serve more poor clients.
2. Measurement and results: while achieving greater numbers – reaching more of the poor with financial services – is important, equally important is measuring the results. A core MIS system can provide MFIs and their stakeholders with the tools to more effectively measure both financial and social performance and, in turn, enable the MFIs to tap new sources of capital and tune their business for greater impact.
3. Scalable innovation: microfinance is a fertile ground for innovation in both business process and technology. Innovations – mobile banking, ATM integration, new products and business models, etc. – need to be tied together in order to achieve network effects and scale. Those innovations must plug into and be supported by strong back-end technology to transform the innovations into a new baseline of operations for MFIs.
4. The problem isn’t solved yet: while many MFIs are using technology today, industry surveys (CGAP, Banana Skins) indicate that MFIs still see core back-end technology as a major constraint. The systems MFIs use are often inflexible, expensive, hard to support, and incapable of enabling innovation in microfinance practice.
This is, to be sure, a complex domain. Many of the ideas in this entry – and many more not touched on here – deserve a deeper treatment, and I’ll be writing a series of posts in the coming months to address some of the key issues we all face. I encourage everyone to use the comments to suggest topics or issues that need to be addressed; no guarantees I’ll get to them all, but the more we can make this a discussion, the more likely we’ll be to find breakthrough, transformative solutions.
Unlocking the next wave of potential for microfinance will require a lot of technologies – back-end, front-end, shared platforms, integration to global financial systems, CRM, and more – and the back-end is the engine that powers innovation and scale to unlock that wave. Without stronger, more effective back-end systems, our work with other technologies and models will never achieve the impact that it could have.
