MFIs tap technology as the bridge to reach unbanked millions

Kenyan microfinance institutions have for a long time served the unbanked segments of the population despite several obstacles in their quest to access this niche.

It is estimated that micro-enterprises contribute about 18 per cent of Kenya’s gross domestic product and 25 per cent of non-agricultural GDP.

It is thus not surprising that many MFI’s have taken to using technology, especially mobile phone platforms, to cut on high operational costs and reliance on commercial banks while increasing focus on core functions.

Early this year, during the opening of the Africa-Middle East Regional Micro-Credit Summit in Nairobi, President Mwai Kibaki affirmed the central role micro-finance plays in national development by striving to address the challenge of providing financial services.

“The sources of funds and the cost of providing financial services as well as the technology and infrastructure available to this sector remain real challenges,” the president said.

Worldwide, it is estimated that $20-30 billion is currently on loan to more than 50 million microfinance borrowers.

Here in Kenya, a massive 62 per cent of the population has no access to conventional banking services, leading to the enthusiastic market response to the nascent mobile banking and money transfer services.

“Mobile banking has fast become an important part of financial services in Kenya and microfinance institutions are not lagging behind on this,” said PesaPot CEO Michael Asola, whose firm provides mobile loan technology to MFIs and the Sacco industry in Kenya.

PesaPot recently joined forces with RedCloud Technologies, an international developer of cloud computing financial services platform, to help it come up with mobile solutions that will enable its clients gain real-time insight into their loan portfolios as well as dramatically reduce their costs.

Some of the MFI and Sacco’s that have partnered with PesaPot include RiverBank Credit, Wasili Sacco and Umande Trust.

Other applications include end-to-end transaction features that connect the borrower directly to his bank account over the phone, using any mobile service provider that has a money transfer service, and a feature for loan officers to vet and get loanees directly into the organization’s system while in the field, cutting on unnecessary paper work.

Microfinance’ institutions that have taken advantage of these technological advancements have been able to reach the mass market after vetting borrowers, which enables them to reduce their portfolio-at-risk levels.

Other services that are being provided using these latest technological advancements include micro-insurance, characterized by low premium and low coverage limits, designed to service low-income people and businesses in developing countries.

Insurers such as Cooperative Insurance Company (CIC) have partnered with microfinancers such as K-Rep Bank, Faulu Kenya and others, to offer composite insurance products in rural areas by utilizing mobile money transfer systems to collect monthly premiums of as little as Sh10 per day.

Others include Kenya Orient with their ‘Bima Safari’ insurance, that charges Sh30 a day for travel insurance bought through the mobile phone; and Apollo Life assurance with a life and credit policy for micro-finance borrowers that will cost between Sh200 to 400 per year or Sh7 per week.