CIOIN

Suresh K. Krishna

MD, Grameen Koota

Executive summary

When Grameen Koota wanted to help the poor with microfinance, the growth started catching up with the software. Maintenance issues cropped up, MIS reports took longer to create and expanding the institution's operations was becoming a problem. Open Source solution would fix all their problems: it was scalable, free from vendor dependency and could be customized at the branch level.

It sounds unbelievable but Bangalore, arguably the world's IT capital, is the 13th poorest district in Karnataka. An estimated 38 percent of the district's 1.7 million people live below the poverty line. Experts agree that development among this class of poor is hard. Mainly because the cost of servicing microfinance loans (under Rs 30,000) doesn't make business sense and commercial banks don't trust the poor to repay their loans.  That's a view that's beginning to change. "Microfinance is needed for people who are left out of formal financing institutions. Their inability to pay is never a reason, they pay back better than others," says Suresh K. Krishna, MD, Grameen Koota.

When Grameen Koota started in 1999, its aim was to help poor women in rural areas and urban slums through micro credit. Their target audience were women who earned between Rs 40 to Rs 80 a day. If they could deliver need-based financial services to these women - in a cost-effective manner - they could be a financially sustainable microfinance institution to the poor. The Grameen Foundation, which also works with the Grameen Bank in Bangladesh (which got the Nobel peace prize for its work in micro-credit), supplied Grameen Koota with Rs 44 lakh to start work in the Bangalore district.

Today, the institution's mission hasn't changed - but its way of working has. When it started, it worked with a microfinanc e management application. Like all start-ups, it was satisfied with an application that met its basic needs: track its portfolio and accounting for microfinance. But it became difficult with rising numbers. "The system could not maintain transaction data," says Krishna. It overwrote "each transaction on top of the last one, maintaining only balances." This meant that a loan officer in a remote village could not tell when the last repayment was made - only how much more needed to be paid. Since transaction records were maintained off the system, "you had to do a lot of work to generate proper transaction data," Krishna says.

These tedious workarounds left Grameen Koota unable to handle the volumes it needed to meet its growing targets. Worse, the software was unable to support new product innovations. In a bid to get a system that would meet all its current requirements and handle expansion, Krishna and his team walked through all the available products and opted for Open Source. And it would be less expensive than a bought solution - an important criteria. "Applying an Open Source model to a microfinance application is a very innovative approach to tackling the severe cost pressures in the microfinance sector.

Grameen Koota identified a solution: Mifos, an Open Source management information system designed specifically for the microfinance industry. Mifos, developed at the Grameen Technology center at Seattle with help from IBM, allowed individual MFIs to modify the software to their needs. It also provided the key functions required by a MFI including client management, loan and savings portfolio management, loan repayment tracking, fee and savings transactions, and reporting.

What helped, everyone agrees, is that the ground was ripe for user acceptance and users and the IT team were enthusiastic. Currently Grameen Koota is figuring out how to mine their data. "We understand the profiles of our customers. If we know their requirements, we can tailor products according to their needs," he says. The new system has allowed them to open new centers faster and meet their target of acquiring 10 lakh clients by 2012 - simply by making their processes more efficient.