Here is a summary of our most recent SVMN meeting (pictures here), written by Premal Shah:
Peter Bladin, founder of the Grameen Technology Center, spoke at the March 6, 2006 Silicon Valley Microfinance Network (SVMN) event. He discussed the main cost drivers of Microfinance Institutions and dove deeper into the largest expense: loan administrative costs.
Peter explained that a typical MFI cost structure, represented as a % of loan volume, is as follows:
8% cost of funds + 20% admin cost + 3% loan loss reserves = 31%
This implies a 31% break even interest rate, which Peter discussed, might seem like a usurious interest rate to folks in the US, but is actually superior to the informal credit sector alternatives (e.g. village money lenders). Peter also warned against regulation that caps the interest rates MFI can charge their borrowers since these regulations might prevent MFIs from reaching self-sustaining operation.
Peter also provided more detail around the drivers of loan administrative costs and discussed technology’s role in lowering these costs. The more core technology for any MFI is its Management Information System (MIS). Today, a large percent of MFI MIS rely on paper/pencil or Microsoft Excel. The MIFOS project, an initiative of the Grameen Technology Center, is an attempt at creating an open source MIS that can beeasily deployed / customizable by MFI practitioners world wide.
Emily Tucker, Technical Project Manager, at Grameen Technology Center, demoed MIFOS and walked through its utility from the perspective of an MFI loan officer and an MFI manager.