By Tamsin Harriman at the Common Interest Foundation

The use of technology in microfinance is becoming quite prevalent. Especially widespread is mobile banking, which allows borrowers to make payments, deposits, and other transactions using a mobile phone. Cellphones and cellphone access are now so inexpensive and so widespread that many of the poor already have cellphones, and for those who do not, it is not difficult for MFIs to help provide them.

MFIs can take advantage of this easy access to cellphones to make transactions easier and less time consuming for their borrowers, as well as to keep better records and reduce overheads, among other benefits. One exciting recent innovation in this area comes from a computer scientist at the University of California, Berkeley. Tapan Parikh has come up with a way of embedding barcodes into financial documents. According to Esquire's article about this new technology, "Now, rather than having to keep records by hand, a user can take a cell-phone picture of a bar code and the interface automatically prompts the user -- with voice prompts for the illiterate -- to input the numbers." This makes record keeping much easier, and means that MFI staff have to spend much less of their time checking the accounting - time that they could be spending reaching out to new members.

Technology also makes overhead costs much lower, since staff don't have to spend as much time going to villages to handle transactions, thus freeing up more money for loans. There are many other benefits that MFIs can realize from technology. Indeed, UNCDF reports that technology can provide MFIs with "more informed decisions, increased flexibility, lower operating costs, better reporting, increased deposits, improved customer convenience, [and] more rural customers".

Mobile banking and other branchless banking methods make transactions much more convenient for clients. They no longer have to attend meetings, or wait until specific appointed times, to make withdrawals, deposits, or loan repayments. Having to take time away from work to attend meetings can sometimes mean giving up on profit-making opportunities, and having to wait to withdraw from savings can mean not having the ability to pay for an emergency expense, such as a hospital visit or medicine.

As mentioned above, MFIs can help provide the poor with access to cellphones. An example of this is the "phone lady" microbusiness pioneered by Grameen Bank. An MFI client (usually a woman, as most borrowers are women) uses a microloan to buy a cellphone, and then rents use of that cellphone out to villagers at a per-minute rate. This is profitable for the phone lady, and creates an amazing difference in the lives of her fellow villagers. The poorest villages - such as the Hill Tribe villages in Thailand that the Common Interest Foundation serves - are often remote, and as such, largely cut off from the outside world. To learn the price of vegetables at the market in the city, for example, or to talk to a sick relative in another village, means hours of travel time, during which people could instead be earning income. Farmers or craftspeople often have to accept whatever price middlemen offer them for their wares, without being able to do research on the market price beforehand. Cellphone access changes this situation completely, empowering the poor to get a fair price for their goods, to keep in touch with their families, and so forth, without having to sacrifice hours or days of their lives.

Obviously there are many benefits of using technology for loan repayments, savings deposits, etc. Despite those benefits, however, there is one major drawback. The success of microfinance depends in a large way on the sense of community and close relationships that come from having group meetings and regular interactions with MFI staff.

Gaamaa Hishigsuren, in a paper on technology in microfinance, explains, "It was concluded during the virtual conference facilitated by CGAP and Microsave6 that physical presence and the bigger issue of building trust is essential in serving small depositors. This is even more so in rural areas, where formal financial services have been limited, if not absent."

Therefore it is important, when implementing technology solutions in an MFI, to take care to maintain at least some of the personal, trust-building interactions that make microfinance work so well. By reducing meetings to once per month, for example, and also enabling clients to make transactions remotely at any other time, MFIs can attain a happy medium between convenience and cost-saving measures, and personal interactions and attention.