The meek might just inherit the earth!

The concluding remarks of Jacques Attali, President of PlaNet Finance summarized the two-day Microfinance and New Technologies Summit '08 very succinctly. "People working in the Microfinance industry need to ask themselves at the end of each day – what have I done today to alleviate poverty?" This should probably be the first tenet that should rule the direction and objective of all microfinance institutions. He then proceeded to caution about the risks – the first is the risk of regulation (or the lack of it). Microfinance is not about just credit – it is about providing financial services towards income generating activities. Only such services can promote transformation among this segment of the market. We have already witnessed the effects of poor regulation in the developed economies (The sub-prime crisis), and to avoid this we need to ensure that appropriate regulation is in place. While, we acknowledge the fact that this is a growing industry and should not be fettered by over-regulation to the point of it becoming unviable to operate the business, we definitely need to have sufficient checks and balances in place, to ensure that the trust reposed by this segment of the people is safe-guarded.

The second aspect of risk is the lack of credit bureaus. We will need to establish credit bureaus in order to be able to identify the good borrowers from the not-so-good ones. Decisioning and disbursement of loans can happen speedily and effectively only when credit bureaus are in place. If we ignore this, then we are likely to witness a phenomenon similar to the sub-prime crisis, where poor quality loans, unchecked, were disbursed. While the volumes or ticket size may not be so high, it is certainly bound to push progress of this sector several steps backwards.

Echoing the sentiments of several Microfinance Institutions, he also cautioned against the indiscriminate and blind faith reposed in technology as a panacea for all the challenges faced by MFIs. Technology is an enabler and an integral part of the overall business strategy…and only so much. No technology is going to compensate for deficiencies of either sub-optimal processes or under-skilled people; any technology implemented in such an environment can likely cause more harm than benefit to the organization. It is very important to understand what technology can do…and what it cannot. Do not implement technology you do not understand. Perhaps the recent crisis triggered by the derivative markets, which was understood only by the nerds who wrote the algorithms for them are an example of the devastating effects of technology being applied blindly.

My own take on this: It certainly has been an eventful two days – not the least because of the networking opportunities it generated. It was interesting to see the kind of work that is happening in the field; and even more heartening to see technology failures being shared so openly – something that very few For-profit companies might venture to do. It was also interesting to see innovation in action in the midst of poverty and resource scarcity….perhaps an indication of why we require skunk-works for innovation and not plush offices!

I also got to see a lot of people with passion – the zeal and commitment for a cause clearly showing in their attitude and actions. There is still hope that the millennium goals might turn out to be a reality.

For those who missed the event, Microfinance Insights – the media sponsor of the event had a very interesting and useful blog going, which captured the day's events in great detail.