Since microfinance is based on small loans with no formal information and no real guarantees, technology plays a key role in lowering transaction costs and increasing profitability. In this Brief, we understand technology in a broad sense, not only focusing on technological advances in equipment, but in the personnel, processes and procedures that make use of these advances. This Brief provides an overview of how the microfinance business is organised at an operational level and the role that basic technologies have played in making it a viable activity in Latin America. We also show practices that, when coupled with an effective use of equipment, have been quite successful, contributing to the development of microfinance itself, and making microfinance a business of scale in the region, focusing on operations related to decentralised decision making, long-term client relationships and diversified products. Finally, we outline enabling factors that facilitated the adaptation of technologies and effective operations and the lessons learned in the process.
Technology needs to be understood not only as the use of IT devices, but as the right combination of human resource abilities and adaptating IT to their needs. Capital investments in technology are essential to reduce risks, but the Latin American experience shows that organisational innovations in personnel management must be simultaneously carried out in order to boost productivity.
Latin America shows how both infrastructure development and regulation play an important role in technological development, making it possible to use the newest IT, promoting healthy competition and setting the minimum requirements for operations.
Determination of a technology's specific objectives is essential in adoption of decisions. An evaluation of benefits and costs of a particular technological solution is crucial for optimal results.
Jaramillo, M. ELLA Policy Brief: Latin American Innovations in Microfinance Technology. ELLA, Practical Action Consulting, Lima, Peru (2013) 8 pp.