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finance and IT
Efficiency. Micro banks and other micro finance institutions (generically referred to here as MFIs) are businesses which service high volumes of "low value" accounts. As important niche players in the banking world their business is based on an intimate knowledge of their customer's requirements, behavior and needs. Successful micro banks tailor their product and service delivery mix to meet customer needs and still remain profitable.
To maintain profitability, however, it is becoming increasingly apparent they must computerise. A successful computerisation strategy provides the micro bank with a system that removes the burden of administration without compromising delivery of the many unique products and services that set these institutions apart from conventional banks. The IT solution must allow the MFI to focus on customer and not on system administration or software development.
What do you need?
However, as MFIs grow in size, they grow in complexity. A Micro bank or established MFI needs a fully integrated savings and loan solution that offers security and flexibility. The technology must not be an onerous overhead in time or skills and set up, and configuration needs to be straightforward. Reme- mber, a MFI and a full-scale commercial bank are only as viable as their information systems. Without a stable and mature system the MFI is exposed to risk that jeopardises the viability of the institution.
Develop or buy a Package
While developing a custom-made IT system is often tempting, there are a host of pitfalls. There are also certain caveats when a ready-made software package is being considered. The purpose of this article is to provide assistance in finding the right IT solution.
What are the risks in developing a custom-made IT solution:
n The skills factor: can you develop and retain the skills maintain and grow your own product over time? There is a global IT skills shortage of more than 2m people. Can you be sure that your company will not become a victim of this skills shortage?
n life cycle of the development project. With a sufficient investment of financial and human resources it is possible to customise a system or develop for specific present day requirements, if you get it right. But, say the experts, such investment often detracts from the core business, to its detriment.
n Project costs: it is very difficult to know and contain project costs and to assess the cost of ownership over time. The containment of cost in development depends on how well the detailed specification is defined; and assumes that the user will not revise the expectation, as is almost always the case. Development can become a perpetual spending exercise and can up in a dispute over deliverables, leaving nothing to show for the cost and effort. In assessing costs, the opportunity cost of MFI management and staff time must be factored in ; this demand on the MFI for specification, testing and implementation time usually exceeds the actual development time and effort.
n Support and maintenance: customised software places the burden of support and maintenance on the MFI. The risk is becoming dependent upon one or two individuals who "know the system". Documentation, source code management, quality assurance testing and industry disciplines must be maintained. The loss of one or two people, or a catastrophic technical failure could bankrupt an unprepared MFI overnight.
n New system instability: expect problems. No matter how carefully tested, a new development will be inherently unstable and require close attention for months. Core changes in new systems will also introduce new instability; a developer that does not have a solid track record and an established technology will introduce significant risk to the MFI.
n Isolation from mainstream development: in any development the customer is isolated from a wider installed base and does not benefit from upgrades. All innovations and changes are customer defined and funded. The product will be an orphan from the rest of the industry and its life will depend on the MFI's ability to continue to develop and enhance.
n Detracting from core business: developing a solution implies starting and managing a small IT company. This will defocus the organisation and command the attention of staff and management on IT problems, and away from customer service. MFI's are not IT companies and should not attempt to be. MFIs should focus on being good at what they do and not attempt to go into the IT business; which is effectively what a development project implies.
Needless to say a MFI that gambles its future on IT development will find it very easy to end up in a blind alley and have to start over again, and face the very costly exercise of writing off the investment and purchasing a package later.
The ready-made IT solution
Questions to ask when purchasing a package
What happens to you if the supplier becomes insolvent? Many small companies end up in liquidation in their first few years of operation. Your support and development dies with the supplier. Even access to source code will probably not save you if you do not have the skills, and if the vendor has not done a professional job of version control, source code management and documentation.
The functional fit
It should not be difficult with a reputable supplier to establish in advance the costs and benefits of the package. The MFI needs to know the costs of the user license and the method of calculating costs. Concurrent user pricing per module is the most common method.
Add to this factors such as implementation and conversion The project should be priced and limited to a very clearly defined scope of work. Maintenance and on-site support costs should also be laid out clearly in the contract. Transparency in agreements and definite quantity contracts are possible with package solution providers and be sure that this is what you get.
How much support will
How stable is the system?
What is the supplier's
planned upgrade path?
How much time will it take for us to administer the system?
A package should require minimal administration and management. The purpose of the IT strategy is to free the intellectual and management capacity of the organisation to innovate in customer service. The banking software package should liberate people from administration and create an environment focused 100% on the core business.
Who else has bought this
Social investment in IT systems for micro finance institutions will provide the framework for greater economic prosperity...
Investing in IT infrastructure is one area where social investors, donors, the World Bank and other such champions of micro finance can make a meaningful capital contribution to a MFI. The IT is the core infrastructure of a financial institution. If the business can sustain the commercial maintenance of the partnership with the supplier, the investment is secure. As a dam or a bridge is considered to be core infrastructure in the physical "real" sector, the IT investment in a MFI is its core, and provides the essential framework to sustain and grow the business.
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