Why Microfinance Matters to Big Tech

Last week, Forbes published a comprehensive article delving into the recent growth and associated growing pains of microfinance institutions (MFIs). The explosion of small lenders and the entry of more established financial institutions have combined to increase competition, drive down margins, and shift the industry’s focus from local empowerment to corporate profitability. Such rapid growth may be creating a ripe environment for inefficiency or fraud. For example, with little communication between lending agencies, some loan recipients have borrowed multiple times against the same collateral. But so far the industry’s expansion has been healthy, and MFIs even seem to be insulated from the credit crunch in mature markets.

Why does the rapid expansion of microfinance institutions matter to technology companies? First, this exponential growth presents direct opportunities for more technology sales to this sector. The increased number of clients and services and the need to integrate data with other members of the financial services eco-system can stress the paper or spreadsheet-based systems commonly used by microfinance institutions that were originally designed for small community-based lending schemes. With profitability based on volume transactions, the need to cost-effectively and efficiently track and manage millions of small pieces of data is integral to continued growth and competitiveness. This is good news for IBM, SAP and others. These companies are in a good position to increase efficiencies and support greater demands for data tracking and management.

Improved access to financing presents indirect opportunities for other technology companies, as well. In many developing countries, lower-income consumers are now able to own previously unaffordable technology products such as a PC, mobile phone or Internet connection. These products and services have an advantage over “old technologies” such as TVs and radios because they could be used to expand a business and increase productivity (thereby contributing to the repayment of the loan). In this new financing environment, successful technology companies will market their devices to certain market segments as business tools in order to facilitate microfinance-funded purchases. The perceived utility of mobile phones and the potential for tapping into local lending schemes (i.e., MFIs, agricultural cooperatives, RoSCAs, and others) is explored more in Vital Wave Consulting’s recent report, Strategies to Accelerate Handset Financing in Emerging Markets.

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Pop Ups Plague Emerging Markets

Cyber security organizations warned this week that computer users don’t need to connect to the Internet, download programs or open suspicious email attachments to get viruses. Digital infections are now coming straight from the factory. Plugging in an iPod or a printer may be enough to spread a factory-originated virus. Lax quality control in manufacturing plants appears to be the culprit. A virus can easily be “pre-installed” when a careless worker plugs an infected device into a factory test computer. For developing-country PC users, the Internet has never been the sole source of viruses. In fact, many computers are impaired or rendered completely unuseable by viruses spread through file transfers from discs and USB drives.

Recent field research by Vital Wave Consulting researchers in India affirmed that, even in school-based PC labs with no Internet connectivity, a significant amount of down-time is caused by software issues connected to rampant viruses. School systems in India that invest in technology are often unable to cope with debilitating viruses because the machines are running pirated or ineffective antivirus software. While new PCs come with preinstalled antivirus software, many schools have no easy way to update virus definitions or renew subscriptions.

The Indian government’s recent announcement of their intent to provide one computer for every two students in 100,000 public schools is another example of the increased commitment to ICT-in-education programs globally. Such rapid expansion, coupled with ever-increasing virus threats from the home, factory or (when available) the Internet, presents a compelling opportunity for software manufacturers. There is a demonstrable demand – even among the unconnected – for low-cost and easily updatable antivirus software. By working directly with vendors and maintenance providers, antivirus software providers could increase school uptime, see a healthy return on their emerging-market expansion efforts, and directly contribute to increased technology access for school children in developing countries worldwide.

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Growing a Backbone of Data Transfer

Last week, Computer Weekly reported on a partnership between the Vodafone Group Foundation, the World Health Organization (WHO), the national Ministries of Health and the United Nations Foundation (UNF) to develop an improved system for the collection of health data and the integration of various healthcare campaigns. The electronic system is being designed to replace paper-based health-data systems and streamline activities such as surveying, collecting data, and administering immunization programs. The system allows application developers, content providers, and project implementers such as NGOs and governments to modify the data-gathering application to better address evolving health needs, especially of remote populations.

By building a flexible platform to enable healthcare data transmission, the partnership will enable a wide range of future health services. Increasingly, global organizations and governments addressing broad social issues recognize the need for two-way information delivery and synchronization with existing back-end systems. The technology must also interact with various devices, including mobile devices in the field. This will require a flexible backbone and architecture that goes beyond the partnership’s current designs. The impact of efficient, effective technology could extend beyond community health programs and provide positive outcomes in education, government services, commerce, and business processes. Global organizations and governments represent a growing market willing to dedicate a greater share of budget to technology architecture development.

Multinational corporations can capture a larger share of the growing service delivery and outreach market by building an extensible technology backbone that enables the transfer of data across multiple devices and addresses stakeholder needs across verticals. Data collection needs, which span financial, government, and communication services, are becoming a larger component of emerging-market budgets. Multinational corporations would do well to identify where they can best contribute to the development of this architecture. The partnership between Vodafone, WHO and the UNF is one of many future initiatives that pave the way for new opportunities for companies focused on delivering financial, e-government and communication services in emerging markets.

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New Software for New Solutions

As low-cost laptop sales in developing countries heat up, the discussion of appropriate operating system software has gotten louder. Some recent press reports say Linux may not be the answer because users find it hard to use and Asus, the segment leader, believes that Eee PCs with Windows XP preloaded will account for 2/3 of all sales worldwide. Others argue that using Linux operating systems enables manufacturers to offer a full software suite at a dramatically reduced purchase price and that Windows Vista won’t work on the stripped-down hardware configurations of the low-cost laptops. Microsoft, which has opted to continue to make Windows XP available to hardware vendors beyond its original retirement date, has so far stuck to its revised June 2008 deadline to end all Windows XP sales - making this a critical issue for low-cost laptop manufacturers.

Most industry watchers would agree that the emerging low-cost laptop segment is gaining traction because of its "purpose-built" approach. Rather than creating lower-performing versions of existing models, manufacturers, which many say were inspired by the One Laptop Per Child Initiative, created entirely new solutions. This disruptive technology was not over-loaded with bells and whistles – as many engineering achievements are – but instead focused on a few core requirements and delivered “just enough” functionality. To date, the software industry has focused less on a purpose-built approach for emerging markets and more on identifying which existing software suites fit the hardware requirements.

Business leaders developing strategies for low-cost laptops in emerging markets would do well to put aside the debate over Open Source versus proprietary software and instead focus on the modifications that suit both the platform and the target markets. The recent success of new laptop characteristics such as low-cost, low-power, ruggedized laptops demonstrates that solutions designed specifically for the unique requirements of rapidly expanding emerging markets are needed and valued by users. The opportunity for the software industry is to build or modify operating systems that both address the features and functionality desired by developing-country users and operate efficiently on low-cost laptops.

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