Information technology could cut rates in microfinance sector
MOBILE AND online technology can improve the operational efficiency of microfinance institutions (MFIs) and result in lower interest rates, Paul Chin, general manager of Microfinance Services at the Development Bank of Jamaica (DBJ), stated as he addressed a session at the Small Business Association of Jamaica MSME Conference, held at the Hilton Rose Hall Resort and Spa in St James on July 20.
Chin told delegates that high administrative costs were the main factors behind soaring interest rates in the MFI sector and those costs are relatively high, as loans are smaller, and require the same management as larger loans.
“However, investments in IT services will help to improve efficiencies, which, over the long term, may help to lower interest rates and cut administrative costs,” he advised.
He also said that increased use of smartphones could assist lenders to make disbursements without the borrower stepping into a bank branch and conversely, customers could also make payments and check their balances online. Therefore, the use of mobile and online technology in the MFI sector will lower operating costs and increase the speed of financial transactions.
“Technology also allows the rapid dissemination of best practices, thereby strengthening the institutional capacity of financing institutions,” the DBJ general manager explained, adding that microclients generally honoured their loan commitments.
“At present, interest rates in the industry range from a low of 10 per cent and can go above the 40 per cent set by the Ministry of Finance,” Chin shared. “And MFIs implemented high interest rates to cover their costs and earn a profit.”
He also pointed out that the DBJ provided assistance to MFIs to improve efficiency. And, added to that, the organisation would strengthen the sector by staging a mobile money conference in 2018, which would outline how technology could enhance their business by introducing more clients into the formal banking sector.