Is SaaS the Appropriate Technology for Microfinance?

Microfinance, the provision of financial services to poor people, suffers from high interest rates owing to high transaction costs. Within these transaction costs, technologies such as MIS may be a solution to lower operating costs. However, the small size of most MFIs makes software seem expensive and the MIS providers are many and the offer is rather opaque to MFIs who cannot distinguish between the offers. At the same time, the specificities of the microfinance sector and its large diversity require high degree of support from MIS suppliers. Shared infrastructure solution such as Software as a Service (SaaS) may be a possible solution to bring down costs and remove uncertainties. The sharing of infrastructure costs comes from a gap analysis which indicates that software providers would like to receive high margins and provide low support to a few customers. As opposed to this, the long tail of small MFIs would like to buy cheap products and get volunteer support for their products. The Software as a Service (SaaS) provider becomes an intermediary who enables both of these opposite needs to be addressed. Essentially, the SaaS provider uses a software solution which they host in the cloud. The MFIs use this paid on a pricing model such as number of transactions, accounts or customers. The paper provides technical detail of how SaaS will operate in an international microfinance setting with its unique problems mentioned earlier. To overcome many of the problems a hybrid SaaS solution is proposed. Case studies (MicroPlanet Technoloiges, IBM , FINO and MOSTFIT) illustrate the mechanics of this partnership between MIS and Microfinance. The paper deals will questions such as under what conditions SaaS is appropriate partner for MFIs, the difficulties of implementation and needs of tailor made solutions