|
Grameen Connections
The Newsletter of Grameen Foundation USA
Spring
2001 Online Edition
April 21, 2001
Reducing Micro-Credit Costs Through Information Technology:
The Case of SKS
Swayam Krishi Sangam (SKS) is a Grameen Bank
replication program in the drought-prone Medak District of
Andhra Pradesh, one of the poorest parts of India. It was
founded in 1997 with a vision of providing micro-credit to
India's poorest women. SKS also challenged itself to use technology
to provide micro-loans more cost-effectively, thereby allowing
each branch to serve more borrowers and to reach profitability
faster. The technology it is developing now, with funding
from GF-USA and others, is based on using Smart Cards and
hand-held computers to automate the loan collection process.
The article below describes the Smart Card technology.
An Indian woman dressed in a brilliantly colored
sari approaches a small meeting area. She surveys the women
clustered into groups of five and locates her group. Clutching
a handful of money in one hand and a "Smart Card" that resembles
a credit card in the other, she moves through the groups to
her own borrowing group. Shortly after she is seated, the
center manager arrives and the meeting begins. One by one
the leaders of each borrowing group approach the center manager,
loan repayments and Smart Cards in hand. Their loan repayments
are counted, collected and entered into the center manager's
small hand-held computer. The transaction is recorded on both
the center manager's computer and on each borrower's Smart
Card. The group leader completes her transactions and returns
to her group with a paper receipt and updated cards.
This could be the way most center meetings held
by Grameen replication programs are conducted in a few years
thanks to the pioneering efforts of SKS, an Indian replicator
of the Grameen Bank.
What is a Smart Card? It is a small piece of
plastic on which both borrowers and lenders can track loan
activity, replacing the current system based on passbooks,
collection sheets and loan ledgers. It will allow micro-credit
programs to reach additional clients with little or no increase
in costs.
In the year 2000, SKS developed-with support
from the Consultative Group to Assist the Poorest (CGAP)-the
Smart Card concept in order to provide increasing numbers
of India's poor with access to credit more efficiently.
Currently the field staff of SKS, and virtually
all micro-credit programs worldwide, manually record the loan
repayments as well as new loan disbursements in a borrower's
passbook. Bank officers also manually record repayments on
their collection sheets and again in another ledger at the
branch office. The Smart Cards would serve as an electronic
"passbook" and reduce the manual paperwork. At weekly center
meetings, bank workers would use a palm-sized Hand-Held Terminal
(HHT) that will download the loan collection and disbursement
information from the branch office computer, so no manually
generated collection sheet is required. During the weekly
center meetings, the Smart Cards will be inserted sequentially
into the HHT and transactions will be updated simultaneously
on both the Smart Card and the HHT. (In the initial stages
when borrowers may lack confidence in the Smart Card, the
HHT will print a receipt so the borrower will have a record
of the transaction.) Upon returning to the branch office,
the staff member can upload the information from the HHT to
the branch computer, at which time all accounts are updated
immediately-saving the field staff the drudgery of re-entering
center meeting data and giving management "real time" information
about activities. Center leaders will also be given a read-only
HHT to allow borrowers to check the status of their accounts
in between meeting times.
The SKS technology has the potential to significantly
reduce administrative costs by eliminating the manual paperwork
of both borrowers and staff members. Additionally, it will
reduce the length of center meetings. Borrowers will be able
to spend more time with their businesses and less time at
meetings. Staff members will be able to conduct more meetings
in a day than was previously possible. SKS estimates that
staff members who previously conducted two center meetings
per day will be able to conduct three to four center meetings
(depending on the population density of the village and the
distance between the villages). Currently, field staff can
only conduct center meetings in the morning as they spend
their afternoons manually processing paperwork. This increased
efficiency and reduced administrative expenses could allow
micro-credit programs to reach operational sustainability
in as little as two-thirds of the time it typically takes.
These savings will help organizations become financially self-sufficient,
which will enable them to attract capital from commercial
sources. This private capital will enable them to scale up
operations to reach larger numbers of impoverished families.
In addition to increasing the efficiency of
micro-credit programs while reducing administrative costs,
this new loan tracking system also reduces the possibility
of error and fraud. This is especially important because a
typical center manager manually records more than 200,000
transactions per year at the village-level. In Grameen Bank,
for example, there are more than 1.2 billion transactions
recorded at the village level each year, leaving a large scope
for error and fraud. Smart Cards will reduce that scope because
they create a single data entry point that simultaneously
records the transaction in the HHT and the Smart Card. The
scope for error and fraud is reduced, and the enhanced financial
control fosters credibility and trust with their customers
as well as commercial investors.
Another benefit of the Smart Cards is that they
will make it more feasible for micro-credit programs to offer
a wider range of flexible financial services to meet the diverse
financial needs of the poor. Currently, most Grameen-style
programs can only offer a handful of savings and loan products
that are fairly rigid. Smart Cards would allow programs to
meet the financial needs of the poor that extend beyond savings
and loans. A micro-credit program could establish relationships
with local hospitals and health care providers so that borrowers
who face medical emergencies are able to receive the care
that they need by paying with their Smart Card, for example.
A program could also establish ATM machines in branch offices
to allow borrowers to access cash for health and other emergencies
anytime-day or night. Clients with excellent credit histories
can have pre-approved lines of credit for use at local markets
or take advantage of unexpected price drops in food and other
basic necessities. The possibilities are endless.
SKS received CGAP's 2000 Pro-Poor Innovation
Challenge Award with a $50,000 grant to explore these possibilities.
The Smart Card will be tested in the field in April 2001.
Once the system has gone through a sufficient trial period,
SKS's management information system (MIS) division will develop
a marketing strategy, assemble a sales/technical support team
and market SKS Smart Cards as part of the SKS Grameen MIS
package to other micro-credit organizations. Grameen Foundation
USA's new Technology Center is providing an additional $50,000
in funding to support the development of the Smart Card as
a technology that could improve the effectiveness of Grameen
micro-credit programs in serving the poorest of the poor.
This is the first project of the Grameen Technology Center,
a division of GF-USA that will continue to explore and support
technology that will benefit the poor and the micro-credit
programs that serve them.
More Information...
For more information about the Grameen Technology
Center, please contact Alex Counts.
For more information on SKS, please contact
Vikram Akula.
- SKS
3-4-4, Opp: Badruka College Lane
Kachiguda Stn., Hyderabad
Andhra Pradesh 500 027 India
- US Phone: 312-575-9950
- US Fax: 312-575-0668
- India Phone: 91-40-650-9074
- E-mail: [email protected]
- Web: www.sksindia.com
|
