106Chapter 8 - New Technologies: A Path to Lower Costs and New Productsone-third of the financial cooperatives in the country). The services currently offered by the Red Coonecta to itsmembers include a network of shared branch offices, a POS network, debit cards, remittance distribution, andpayment of public utility services. The network was recently integrated into the national ATM network as well,with more than 2,000 machines across the country. As a result, a member of a cooperative can use any ATMin the country to obtain funds, make deposits, and check transactions. Red Coonecta has recently expandedto include service links with national and international networks—with neighboring countries and the CreditUnion Service Corporation of the United States. This U.S. connection facilitates sending remittances fromimmigrants in the United States to family members in Ecuador.Remote Data ProcessingFrom Mexico to India, MFIs use mobile devices—personal digital assistants (PDAs), smart phones, andlaptops—to analyze a client’s <strong>risk</strong> and to determine creditworthiness in the field. Those improvements can resultin important reductions in paperwork and the time to deliver the loans and can improve client selection. Setupand operating costs are low, with software development ranging from US$20,000 to US$80,000. Hardwarecosts are around US$100 per unit, and annual software maintenance contracts are less than US$10,000.The use of mobile applications represents a savings to clients, because they may not have to leave their placeof business to apply for or receive a loan. It also means that loans officers are more productive in terms ofthe number of clients they can serve and the quality of their loans. The evaluation and approval of a creditapplication, for example, requires detailed information on the client, the business, the family members, andother relevant aspects of the operation. Using a mobile device, the loan officer can enter information directlyinto the system and can reduce the number of errors or incomplete applications. Optimally, loan officers canalso access all prior information on a client and can run credit scoring programs on existing clients with newloans and on new clients, oftentimes generating a credit decision on the spot.PDAsPDAs can help MFIs to standardize lending methodologies, to lower transaction times, to improve loanofficer efficiency, and to increase data accuracy. PDAs have been used by ADOPEM (Dominican Republic),SKS Microfinance (India), BanGente (República Bolivariana de Venezuela), Banco Solidario (Ecuador), andCompartamos and Fincomun (both in Mexico).One of the early adopters of PDA technology for microfinance applications was Compartamos, a specializedmicrofinance provider using village banking for female clients in Mexico. Compartamos found that PDAsraised loan officer efficiency and data access in the field (Waterfield 2004). The example of Compartamos,however, reveals a potential problem with early adoption of new technology. That is, the efficiency of usingPDAs can be sustained only if the overall management information system (MIS) is stable, if it permits highspeeddata transfer between branches for consolidation, and if it has ongoing technical support. As a resultof software development issues and MIS-PDA interface problems, Compartamos later suspended the use ofPDAs. The Compartamos example also suggests that PDAs require mature loan products to avoid constantadjustments because loan specifications and data requirements change over time.However, for Banco Solidario in Ecuador, using PDAs has resulted in significant improvements in productivityand efficiency. During the first 10 months that loan officers used PDAs, the loan portfolio grew from less thanUS$2 million to almost US$10 million, as figure 8.2 demonstrates. There was a direct correlation between the
Managing Risk and Creating Value with Microfinance107use of PDAs and the drop in problematic loans. PDAs may also help to reduce the level of <strong>risk</strong> in the loanportfolio and, as a result, may improve the institution’s <strong>risk</strong> management (see figure 8.3).Figure 8.2 Porolio Expansion and PDA Use12portfolio US$ millions108642Source: Liu 2007.01 2 3 4 5 6 7 8 9 10monthPDA useFigure 8.3 PDA Use and Porolios at RiskSource: Liu 2007.percent10090807060504030201001 2 3 4 5 6 7 8 9month% usage portfolio at <strong>risk</strong>9080706050403020100US$POS TerminalsThe mobile phone is one interface to the banking system. It requires high penetration rates and reliable, wellconnectednetworks to be effective. POS terminals are another potentially very efficient means to effect lowvaluetransactions in a highly distributed manner. POS terminals generally use card swipe technology, bar code
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