microfinance: a new model for emerging economies
(S&P) Ratings Service intends to launch a pilot ratings The innovative use of mobile technology is also facilitating
programme for MFIs in Latin America and the Caribbean. data gathering on repayments at source. Handheld
The main criteria in selecting which organizations S&P devices are already used for data gathering and
will rate are institutional transparency and potential to performance management in the microfinance industry
benefit from a widened source of capital. in India and in Kenya. Moreover, advances are being
made in mobile payments both for distributing loans and
TECHNOLOGY INNOvATION IS DRIvING making repayments in these economies.
MICROFINANCE
The internet provides a direct line of sight between TRANSPARENCY REDUCES RISK
lenders and borrowers via sites such as Kiva.org (see Kiva A major contributor to the recent credit crisis has
Case Study on page 25) and eBay’s recently-launched been a lack of transparency as to where the risk from
MicroPlace. Blogs provide human interest by telling how sub-prime loans resided. This was because the loans
a loan is changing the borrower’s life and give lenders were packaged and sold a number of times without
the local insight of an old-fashioned bank manager with visibility of the link between the borrower and lender.
knowledge of their community and its needs. The transparency associated with microfinance,
although not directly comparable to the recent credit
In many places the Kiva website is serving as the first ever crisis, makes risk easy to see and can also significantly
public record of a person’s existence. The reputations that reduce default rates.
entrepreneurs gain on the site enhance their individual
reputations in the form of ad hoc credit ratings.
Matthew Flannery, co-founder of Kiva, believes that the CITI FOUNDATION LAUNCHES $11.2 MILLION
use of data is fundamental to creating the transparency MICROFINANCE PROGRAM
needed for a successful microfinance business. He The Citi Foundation has announced a three-year
states “a data-rich system is inherently more transparent. US$11.2 million international grant program to
Transparency allows more accurate risk assessments on advance the integration of microfinance into the
the Kiva web site. Lenders can use the information to mainstream economies of developing countries. The
make decisions about where to place their money. The Citi Network Strengthening Program will increase the
database also serves as a free and open information ability of 12 major microfinance networks and their
resource for the public.” members to develop products and services that meet
the needs of their clients. In addition, the program aims
The technology used to gather and handle data also to enhance the industry’s infrastructure, introduce
leads to standardisation and consistency allowing the higher standards of management and governance,
information that is being made available by MFIs and their and promote the vital role of microfinance in providing
borrowers to be used in other areas of financial services. the poor with access to financial services.
Perspectives on technology | 
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