Many of the world’s economies are supported by the efforts of the SME sector, who by their sheer numbers move products and provides services that keep the wheels of the country turning. The biggest challenge to the start, running and growth of enterprise is more often than not access to capital. While there have been age old methods of capital acquisition, most on the players in the SME sector look towards micro-finance as their best bet.
The micro-finance industry is well established with an estimated 5,000 plus MFI’s and Sacco type organizations on the ground in Kenya as given by Central Bank estimates. With the majority of Kenyans still lacking access to any type of formal financial services, we have seen in the recent past a renewed push of services to the rural based communities.
These initiatives however face certain challenges that require innovative thinking and perhaps better use of technology to overcome. First, unlike urban areas where facilities or interaction points are centrally placed and easily accessible by a large number of people, reducing the cost of service deployment, rural consumers exist in low population densities. Second is that rural based initiatives are often agri-based, and therefore susceptible to many risks that may not be directly controlled by those seeking financing. Lastly, the lack of properly evolved transaction platforms that address the unique needs of an MFI ecosystem from a transmission, collection and distribution perspective also serves as a bottleneck to efficient service delivery.
For the first challenge, I am not quite sure how technology can be best put to use, as for any financial system, the KYC – know your customer element is important in addressing the trust factor that is best cemented with a face to face meeting or linkage through a trust network. It may be difficult to have a “faceless” and “contactless” financial ecosystem.
On the agri-based nature of many rural initiatives seeking finance, there is a lot of intelligence gathered by numerous bodies in the sector. The blending of both historical and real-time data collected can provide a “thirdeye” that will help to better forecast and mitigate the risks that would face both the borrower and the financier.
The transaction platform front presents the easiest opportunity for differentiated thinking. Mpesa, started off as a service targeted to the micro finance industry but pivoted along the way driven by the obvious market opportunity presented by peer to peer transfers. This hasn’t prevented many MFI’s from integrating it to their platforms. Two factors that will make a difference on the transaction platform tailored for the sector , will be lower transaction costs especially when looking at a “chama” or co-operative model and seamless integration processes; when looking at the real-time nature that a financial platform should have.
What are other ways that you see, technology having an impact in microfinance?