Client Value Proposition

The clients of microfinance institutions typically rely on many small transactions to manage their daily financial affairs. Inefficiencies arising from the movement of physical currency bear a high cost to these populations. Microfinance customers often:
• Travel long distances to make loan payments
• Incur transportation costs to reach payment locations
• Incur lost productive time due to the service hours at payment locations
• Pay high fees to receive remittances
• Wait in long lines at third-party banks
• Endure long delays at group meetings while payments and disbursements are transacted

Opportunities for MFIs

Since cash transactions are essentially a way of exchanging and tracking information, time consuming cash-based processes can be made more efficient and lower cost by using electronic transactions. The dramatic increase in cell phone penetration globally, particularly among poor populations, has created the opportunity for MFIs to create businesses providing services transacted electronically through cell phones.

Using electronic payments, MFIs can:
• Increase the efficiency of their lending operations. The key drivers of operating cost in MFIs are typically field operations and loan officer time. Reducing or eliminating cash transactions can make loan officer field visits more efficient, freeing up time to work with more and poorer clients, and allowing interest rate costs to clients to go down.

• Provide more value-added services to existing customers, which both improve their quality of life, and provide them with new opportunities for income generation. Services that can be automated through SMS technology include:
• Access to account information
• Deposits and withdrawals from current or savings accounts
• Receipt of remittances
• Receipt of payments for pensions, insurance payouts and entitlements
• Sending of payments for utilities, taxes and phone service

Additional Resources