Meeting the Challenge: The Impact Of Changing Technology On MicroFinance Institutions (MFIs)

Traditionally, commercial banks have not provided banking services and products designed for the poor due to prohibitively high transaction costs associated with running large networks of branches, staff and paperwork. The paper argues that changing technologies drastically reduce the transaction costs, and therefore have the potential to make providing financial services to the poor more profitable and therefore attractive to commercial banks.

This paper briefly outlines the impact that ATMs and plastic debit cards have already had on banking in Africa. It examines the potential role of mobile phone banking, whereby transactions are executed on the screen of the mobile phone, to bring about financial services to the poor in Africa. Finally it concludes that as changing technologies are making the poor a more viable market for conventional banks, MFIs must respond to this challenge or risk becoming irrelevant. The paper recommends that MFIs should develop an appropriate technology integration strategy that involves:

• Understanding the implications of changing technologies and recognize the opportunity for mobile payments;
• Exploring the possibility of developing alliances with the formal banking sector;
• Ensuring that technological solutions remain simple, non-alienating and aligned with the needs of customers.