Microfinance Institutions must consider as part of their technology choice: will they implement a proprietary solution, or will they create a shared solution in some way?
A proprietary solution is a hardware or software product or combination of products and services that is tied to a specific vendor, to the exclusion of all other vendors. While proprietary solutions may be quite effective, the lack of competition from other vendors in the industry can make the solution costly to acquire and maintain, and it may not be fully interoperable with other products in the client’s organization. For example, a client’s busy order entry system may be built on expensive custom-developed software, but the resulting database built by the order entry system may not export data to Excel or another open database for business analytics — usually compelling the client to rely on that vendor’s own tools or add-ons.
As discussed in previous blogs proprietary solutions do have their advantages and historically they have been considered to be simpler and more strategic in-terms of gaining competitive advantage. Yet there are some compelling reasons to advocate shared solutions, such as:
- Reduced Hardware Maintenance – The need to buy, maintain, and upgrade in-house hardware that is needed to run modern systems can be reduced.
- Upgrades – The latest versions of software can be accessed any time without the need for costly site-by-site in-house upgrades, changes and system administration.
- Reduced Implementation Time – New users or workgroups can be signed up on short notice without the need for complex implementations. New products and services can be launched faster and more users brought on from remote offices quickly.
- Core Banking Solutions – Enterprise level banking solutions can be used with more capacity and function than distributed PC based applications. There are some excellent solutions available in the marketplace, but access to those solutions is difficult because they’re so expensive. If there are ways of sharing infrastructure around those types of solutions, an institution can gain some advantages.
- Information Management – Loan portfolio can be aggregated and risk across large networks of small branches assessed. The institution can do peer group analysis, look down into a data repository and understand how microfinance is working, understand behavior of entrepreneurs, segment markets, etc. This takes a large repository of information; it cannot be done on a few hundred accounts; but if the institution pools its information, it can.
- Regulation and Supervision – If institutions have a shared network and a large environment where they start to consolidate information, providing some assurance to regulators that they have the ability to regulate themselves.
Not only are the shared solutions cost effective and less risky for an individual Microfinance Institution to proceed forward in bringing IT into their operations. But they also take into account the cost of IT, how to go about managing IT skills, plus constant need to go back to your back end operations to see whether they can sustain the new financial services that you plan to bring on.
So why not get rid of your back end operations? Why bother with it anyway? If your business is really about making loans, and providing financial services to clients, why do you want hassle with an entire technological infrastructure that you have trouble figuring out, that you don’t know how to keep it running, etc.? It might be time to seriously start thinking about how you can all work together as collaborators in your particular countries and come up with solutions and systems that are shared by all of you and that fit into the kinds of central switches and backend switches that can address all the concerns of Microfinance Institutions.
Many would be asking are shared solutions a realistic option for Microfinance institutions going forward? Most of the main banks are sharing their ATMs by using the switch and networks of other banks. The SWIFT system ensures that money transfers are possible, helping customers’ access money from a variety of places. So Microfinance Institutions can create a lot of value by partnering with similar institutions to purchase their IT needs. But for that they have to identify the right technology partner who would be able to address the technological needs of the Microfinance Institutions.