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Microfinance Institutions Reporting Programs the Key to Changing Business Models

data, customer, regulation

The expansion of financial access via savings has been a major focus area for the microfinance sector over the past several years. The deposit gathering MFIs are actively exploring various strategies available in the market.

Obviously, the choices available are influenced by the external environment, including degree of economic development, regulatory and market context, and the country in which the institution happens to be located.

Even though creation of a channel offering relatively cheap, local currency funding sounds great on paper but managing such deposits can be quite expensive. As the management would require the need to update its operations, hire staff that can manage needs other than lending or train the existing staff to do so. Furthermore, the new deposit operations would be under greater regulatory scrutiny with the institution having to comply with new and often complicated regulatory framework.

Plus, this new foray will also bring along a whole new set of risks such as liquidity and asset-liability matching. But as Daniel Rozas argues in the paper looking at the new business models for Microfinance Institutions, that MFIs can shift course provided that they have appropriate reporting programs in place that can help to make this transition a reality. Often the stumbling block is a lack of clear reporting structure in place to account for the change. The Development and incorporation of a suitable reporting program would go a long way in diversifying MFIs funding sources.

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