Governments and Financial Institutions in the emerging economies have recognized the enormous untapped potential of human capital at the “Bottom of the Pyramid,” for fuelling the growth of the economy, and have identified easy access to capital as a key factor in realizing this potential. Many of the central banks and financial services trade associations are also in the process of creating a regulatory and governance framework that is conducive for financial services players to fulfil the need and the potential of this market, at the same time minimising the risks for all stakeholders. The Microfinance sector is thus seeing a rapid expansion in terms of geographical reach, and an explosive growth in terms of the number of service providers and customers. Given that Information Technology (IT) is a critical enabler for this growth, there is a large rush of IT providers eager to service this market. This brings with it (a) the risk that inappropriate or substandard IT solutions are implemented, resulting in wastage of resources, and (b) the potential for misuse and fraud. This chapter makes a case for creating an IT requirements and governance framework at a policy level, in order to ensure that the needs of this market are properly serviced, and resources are optimally and efficiently deployed, so that the benefits of Information Technology flow through to the grassroots level.
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The microfinance sector has seen explosive growth in India in the last decade, and is poised for even more aggressive growth in the coming few years, due to various policy initiatives of the Ministry of Finance, the Reserve Bank of India and other government owned financial institutions. In India, microfinance is provided by a variety of entities, including banks (commercial banks, Regional Rural Banks, Co-operative Banks) and Microfinance Institutions (MFIs, that include Non Banking Finance Companies, Not for Profit companies, trusts and societies). The number of Self Help Groups (SHG) that got access to accounts in commercial banks is a telling indicator of this growth. The National Bank for Agricultural and Rural Development (NABARD) launched a Self Help Group – Bank Linkage Program (SBLP) in the early 1990's as an initiative to promote financial inclusion for the poor. Under this project, the total number of SHGs services by banks increased from 33,000 during 1992-99 to 264,000 in 2000-01 and 2,239,000 in 2005-06, and the cumulative bank loans disbursed went up from Indian Rupees. 570 million (roughly US$ 10.4 million at today's exchange rate of Indian Rupees.50 to the US dollar) in 1992-99 to Indian Rupees. 4.81 billion (US$ 96.2 million) in 2000-01, and Indian Rupees. 113.98 billion (US$ 2.27 billion) (Reserve Bank of India Report, 2008, Chapter V.58). There is no definitive data on the number of MFIs operating in the country, but the Report of the Committee on Financial Inclusion (January, 2008, Para 105) set up by the RBI under the chairmanship of Dr. C. Rangarajan estimates that there are about 1,000 Non Government Organizations (NGO) operating as MFIs, and around 20 company MFIs. The company MFIs dominate the scene, with about 80% of the outstanding loans portfolio. Another estimate, as per the Bharat Micro Finance Report of Sa-Dhan, (March 2008), the 223 member MFIs of Sa-Dhan had an outreach of 14.1 million clients with an outstanding micro finance portfolio of Indian Rupees.59.54 billion (approximately US$ 1.2 billion).