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Microfinance has been considered a powerful instrument to fight poverty and create opportunities for low-income individuals, especially in developing countries. Even more important to consider is that its effects are not restricted to the individual level, since the increased access to goods and services, promoted through microfinance, will typically influence the whole business chain and transfer economic impacts to whole communities (Isangula, 2012).
Over the last few decades, the concept of microfinance has evolved from solely offering microcredit to including other poor-oriented services. Despite being, in its origins, mainly related to NGOs (non-governmental organizations) and government-sponsored and donor-driven initiatives, the microfinance sector has also witnessed the growing involvement of private investors since the 1990s (Daley-Harris, 2009), as a result of which a more relevant participation from the mainstream financial sector has been claimed (Littlefield et al., 2006; Young, 2009). Indeed, the interest of commercial banks in microfinance has led these institutions to create new microfinance delivery models, operating either directly within their own business units or through partnerships with dedicated microfinance institutions (MFIs). In any case, the question that remains is the role that information and communication technologies (ICT) can play in the process (Kauffman & Riggins 2012).
In Brazil, commercial banks increasingly consider including microfinance in their business strategies, especially since the introduction of government incentives. Nonetheless, microcredit penetration in Brazil remains particularly low: no more than 2-4 percent of the country’s estimated 19 million micro businesses (formal and informal) have access to microcredit (Nichter et al., 2002; Feltrim et al., 2009). A major factor contributing to such a disappointing performance is a problem that is not specific to Brazil: the stakeholders’ limited understanding of the how to use ICT as a key component of the infrastructure needed to help microfinance gain scale.
The research question guiding the study is: How can an ICT-based platform – like the Brazilian CB model – help to scale up microfinance operations through the partnership of commercial banks and local MFIs? We present the case of Banco Palmas, revealing how this local MFI successfully built an innovative partnership with two major commercial banks and, thus, significantly improved the offer of microfinance in a poor neighbourhood. As our results suggest, the lessons produced from this case uncover an innovative alternative for banks and MFIs in other countries and contexts, inviting them to pay more attention to the role that ICT-based platforms might play as a bridge that helps their partnership succeed and their microfinance activities improve.