Tuesday, December 16, 2008
Monday, December 1, 2008
A hosted solution: FINO for MFIs
Indian startup Financial Information, Network, and Operations Ltd (FINO) has recently become the first company in the world to offer a complete end to end technology solution to microfinance institutions. While back end data management software designed for microfinance operations has been available on the market for years, FINO is the first to link a back end software system with a front end based on biometric smartcards for customers, and field devices for credit officers, to offer a complete, integrated solution.
The basics of the FINO product are simple. FINO is targeted at Business Correspondents, governments, MFIs and in fact, at any organization that intends to reach the unbanked sector. Customers of the organization are given biometric enabled smartcards which store the customers' fingerprints, account details, a unique identification number, and photo. Transactions are recorded using a field device equipped with a smartcard reader, fingerprint reader, and small printer and then automatically uploaded from the field device to the back end FINO software via a phone line. At the back end, all data is stored and maintained by FINO itself and accessed by the organization via web browsers. In addition to the full solution described above, FINO also allows organizations to purchase just the front or back end portions of the system. (So far, several MFIs have opted to adopt the back end only.)
A key application of FINO would be to enable the Business Correspondent model. The BC model can work only if there is quick and accurate flow of information between the BC and the bank. The bank needs to be able to monitor and control the services offered by the BC to the end customer. FINO provides offline-mode capability and detailed report-generation systems, thus making it feasible and safe to adopt the BC model.
Another obvious application of the FINO product is to streamline the existing operations of MFIs. By replacing rote paperwork with automatic data transfer, FINO allows MFIs to reduce labour costs, lessen the chance of fraud, create reports more quickly, and gain better overall insight into the performance of their portfolio. In addition to cutting costs, FINO also benefits MFIs and their customers by allowing MFIs to offer new products such as remittances and flexible savings accounts to their customers. Without the enhanced security, data management capacity, and connection to the existing financial system which FINO allows, these products would be nearly impossible for an MFI to offer.
The FINO product holds potential for increasing financial inclusion in India and elsewhere in other ways as well. In addition to MFIs, banks may also use the FINO platform to directly engage in microfinance activities. Similarly, governments may use the FINO platform to deliver wages and other benefits to the public more efficiently and with less leakage. Finally, FINO may benefit the microfinance sector as a whole by serving as a platform for the development of a credit bureau for the sector. Because FINO collects the fingerprints of all customers it gives smartcards to, and stores this information in a central location, FINO could easily be
used to track and share the credit histories of customers as they move from MFI to MFI. FINO has already begun work on a credit model to predict customer credit profile. A credit bureau would allow MFIs to cut down on the cost of screening clients, reduce overall defaults, and allow customers to more easily move from MFI to MFI, or to graduate from microfinance lending to bank lending. It can also enable the MFI to offer individual loan products instead of group-based products.
Whether these potential benefits are realized depends greatly on how much FINO is able to bring down the costs of the system for the MFI as well as the amount of support commercial banks give FINO. Up until now, many MFIs have been reluctant to adopt the FINO system due to the high initial investment and yearly fees. For more MFIs to be convinced that adopting FINO is a smart move, these costs will have to be brought down. FINO could see easier acceptance in the Business Correspondent sector, since the initial investments would be borne/subsidized by banks.
Despite a slow start, FINO is gaining steam. The company has signed up about 15 MFIs for its solution and a few of them have already gone live. It has carried out about 3 lakh enrolments, and has issued 1.5 lakh cards. The AP government is already using the FINO platform to deliver government benefits to recipients as a pilot, and it intends to replicate it in the entire state. In addition, Corporation Bank, ICICI, Indian Bank, and Union Bank of India have all made major investments in the company. Having these banks on board will do much to help ensure the success of the company. But FINO will need to sign up far more MFIs and gain the support of several more players, including governments. For FINO to be truly successful, it will also have to reduce costs by delivering multiple services through the same cards.
The basics of the FINO product are simple. FINO is targeted at Business Correspondents, governments, MFIs and in fact, at any organization that intends to reach the unbanked sector. Customers of the organization are given biometric enabled smartcards which store the customers' fingerprints, account details, a unique identification number, and photo. Transactions are recorded using a field device equipped with a smartcard reader, fingerprint reader, and small printer and then automatically uploaded from the field device to the back end FINO software via a phone line. At the back end, all data is stored and maintained by FINO itself and accessed by the organization via web browsers. In addition to the full solution described above, FINO also allows organizations to purchase just the front or back end portions of the system. (So far, several MFIs have opted to adopt the back end only.)
A key application of FINO would be to enable the Business Correspondent model. The BC model can work only if there is quick and accurate flow of information between the BC and the bank. The bank needs to be able to monitor and control the services offered by the BC to the end customer. FINO provides offline-mode capability and detailed report-generation systems, thus making it feasible and safe to adopt the BC model.
Another obvious application of the FINO product is to streamline the existing operations of MFIs. By replacing rote paperwork with automatic data transfer, FINO allows MFIs to reduce labour costs, lessen the chance of fraud, create reports more quickly, and gain better overall insight into the performance of their portfolio. In addition to cutting costs, FINO also benefits MFIs and their customers by allowing MFIs to offer new products such as remittances and flexible savings accounts to their customers. Without the enhanced security, data management capacity, and connection to the existing financial system which FINO allows, these products would be nearly impossible for an MFI to offer.
The FINO product holds potential for increasing financial inclusion in India and elsewhere in other ways as well. In addition to MFIs, banks may also use the FINO platform to directly engage in microfinance activities. Similarly, governments may use the FINO platform to deliver wages and other benefits to the public more efficiently and with less leakage. Finally, FINO may benefit the microfinance sector as a whole by serving as a platform for the development of a credit bureau for the sector. Because FINO collects the fingerprints of all customers it gives smartcards to, and stores this information in a central location, FINO could easily be
used to track and share the credit histories of customers as they move from MFI to MFI. FINO has already begun work on a credit model to predict customer credit profile. A credit bureau would allow MFIs to cut down on the cost of screening clients, reduce overall defaults, and allow customers to more easily move from MFI to MFI, or to graduate from microfinance lending to bank lending. It can also enable the MFI to offer individual loan products instead of group-based products.
Whether these potential benefits are realized depends greatly on how much FINO is able to bring down the costs of the system for the MFI as well as the amount of support commercial banks give FINO. Up until now, many MFIs have been reluctant to adopt the FINO system due to the high initial investment and yearly fees. For more MFIs to be convinced that adopting FINO is a smart move, these costs will have to be brought down. FINO could see easier acceptance in the Business Correspondent sector, since the initial investments would be borne/subsidized by banks.
Despite a slow start, FINO is gaining steam. The company has signed up about 15 MFIs for its solution and a few of them have already gone live. It has carried out about 3 lakh enrolments, and has issued 1.5 lakh cards. The AP government is already using the FINO platform to deliver government benefits to recipients as a pilot, and it intends to replicate it in the entire state. In addition, Corporation Bank, ICICI, Indian Bank, and Union Bank of India have all made major investments in the company. Having these banks on board will do much to help ensure the success of the company. But FINO will need to sign up far more MFIs and gain the support of several more players, including governments. For FINO to be truly successful, it will also have to reduce costs by delivering multiple services through the same cards.
Subscribe to:
Posts (Atom)