By Samuel Silva
Once a week, Anaí Silva Velasquez travels from Bolivia’s capital city of La Paz to the Chilean city of Iquique to buy toys for her wholesale business and small toy shop. Before leaving, she stops by one of the branch offices of Prodem, a private financial fund. At an optical scanning device—similar to an automatic teller machine—she swipes her smart card and verifies her identity by placing her thumb in an electronic fingerprint authenticator attached to the card scanner. She removes paper currency from the automatic teller and, with the money tucked safely in her purse, starts off on her shopping trip.
“I don’t have time to stand in line at a bank,” explains the microentrepreneur. “The Prodem card allows me to deposit and withdraw funds quickly.”
The fingerprint authenticator and the smart card (which includes an embedded microchip containing basic customer information) have allowed Prodem to significantly expand its microcredit and microsavings operations. From fewer than 1,400 customers in early 2001, it recorded a total of almost 12,000 by the end of the year, while over the same period deposits skyrocketed from US$280,000 to US$3.6 million. Sergio Prudencio, general manager of Innova, Prodem’s technology development affiliate, says simply: “Technology made possible that quantum leap.”
The fingerprint identifier played a crucial role, since many of Bolivia’s microentrepreneurs can neither read nor write and are therefore unable to sign their names. In addition, many Bolivians lack personal identity cards, which means that they are unable to deposit funds in a savings institution because they would subsequently have no way to prove their identity in order to withdraw their money. “We have succeeded in ‘bankizing’ people in rural areas,” Prudencio explains.
Moreover, identification based on a fingerprint provides increased security for the financial institution. “The system makes it possible to strengthen internal controls,” notes Eduardo Bazoberry, Prodem’s CEO. “At present, Bolivia’s largest companies, and even multinationals, are leaning more and more toward fingerprint technology.”
But doesn’t technology frighten the customers? “It turned out to be exactly the opposite,” Bazoberry says. “They love seeing their fingerprint on the screen, and the operation is so simple that they see it almost as a game.”
The Power of the Palms
The introduction of new technologies in the field of microfinance began a few years ago with the arrival of the Palm Pilot. The pocket computers, now used by many institutions, allow a loan officer in the field to fill out an electronic form containing customer data, thus providing an initial indication of whether the loan request will be approved.
At the start of the workday, the loan officer simply updates his or her Palm Pilot with current portfolio information on new and outstanding credit applications, along with lists of loan payments, loans scheduled for renewal and loans that have become delinquent. Information in hand, the loan officer schedules customer visits for the day. Later, back at the office, he or she uploads the new information to the server, updating the portfolio.
ACCION International, a network of 18 microlenders in 13 countries in the region, has introduced the Palm Pilot technology in five of its affiliated organizations: Banco Solidario in Ecuador, Compartamos in Mexico, Bangente in Venezuela, Finamérica in Colombia and BancoSol in Bolivia. In addition, these same institutions are using a credit scorecard that provides information on the customer’s credit history to forecast future behavior.
“We are automating the information-gathering process by using the Palm Pilot technology,” explains Carlos Castello, senior vice president and Latin American department manager for ACCION, “in order to eliminate paperwork and provide the credit officer with a tool that will increase individual productivity while improving management of his or her portfolio.”
The institutions affiliated with the Women’s World Banking (WWB) network also use Palm Pilots, along with a credit scoring system based on an econometric model. This scoring instrument has been woven into the portfolio monitoring system and provides an auxiliary tool for deciding whether a loan application will be approved. Hans Dellien, WWB manager for Latin America, reports that the new technology is now being applied in pilot programs in five organizations in Colombia and one in the Dominican Republic. The programs have three components: the scoring system, the administration of that system using Palm Pilots, and the introduction of a debit card that borrowers use to draw money from their loans. “Our intent is to work with MasterCard or Visa,” Dellien says.
BancoSol in Bolivia has recently begun using the scorecard developed by ACCION International. According to its manager, Kurt Koenigsfest, “this technology opens up a window through which we can reach an increasingly large target population.” The scoring system, which has been incorporated into the Palm Pilots, provides three scores. The collection score assigns a probability of compliance with future loan payments; the segmentation score assigns quotas for credit lines, thus making it possible to sell more products; and the selection score aids in approving or rejecting credit applications submitted by new customers.
Remote Access
One of the pioneers in the use of the Palm Pilot was the Banco del Estado de Chile, a government commercial bank that in recent years has been moving toward microfinance, mainly through its subsidiary Banestado Microempresas.
Jaime Pizarro, who heads the subsidiary, says that after a year and a half of using the Palm Pilot, Banestado Microempresas decided to change its technology. The problem lay in the fact that the Palm Pilot requires special software for each operation, and developing that software would take time and money. Furthermore, any change in the head office’s centralized credit administration system meant new software.
“Instead of developing new software for the Palm each time, we decided to seek out a technology that would enable us to transfer information from the central servers to the mobile device that we would be using in the field,” explains Pizarro. “We created a data transmission system that is accessible with a laptop computer using a Windows-based operating system.” The laptop communicates with the server via modem, using either a fixed line or mobile telephony. It is tantamount to having the central computer system in the laptop, and loan officers can even print loan documents in the field, using remote printing technology.
“We have reduced the cost of our loans by 18 percent,” Pizarro says.
Castello, of ACCION, concedes that replacing Palms with laptops is worth looking into, but says that “Palm Pilots have worked well for us and have reduced our costs.” The initial interface problems were resolved, and the network’s member institutions are adding to the Palm Pilots’ real-time communication capability through the use of wireless technology. “The other advantage of Palm Pilots is that they cost $120, whereas a laptop carries a price tag of $800,” adds Castello. “If you have hundreds of credit officers deployed in the field, it is possible to generate considerable savings.”
Prodem, the Bolivian microfinance institution that developed the smart card with fingerprint recognition, also used Palm Pilot technology for more than a year for its field work, but Prudencio reports that since the introduction of the new system, “now we are flying.” The firm is developing an application that will enable its customers to obtain automatic credit, acting almost like a credit card.
Bingo. Automatic credit with a technologically enabled card would be the easiest way for a microentrepreneur to obtain credit. “Microfinancing in the United States is the credit card,” says consultant Mark Schreiner of Microfinance Risk Management, “and in another 10 years, the same will be true in Latin America.” Does this mean that microfinance institutions may end up becoming credit card managers? Schreiner smiles. “Something like that,” he says.
For Pizarro, the whole issue is crystal-clear. “Technology is the difference between having a profitable and an unprofitable business,” he says. And Vicente Fenoll, general manager of the Mexican micro- finance institution Fincomún, echoes Pizarro’s thoughts with a strong opinion of his own. “Palm Pilots and cell phones are no longer working tools,” he says. “Rather, they have become prosthetic devices.”