Smart Microloans is a project to provide an ICT solution for consumers of micro loans in the village of Rajugela, India, that will enable
• Consumers to have access to a wider choice of micro loans and shift the bargaining power from banks and financial institutes to individual consumers
• Consumers to have access to their credit credentials
• Far-fetched and small villages even with few consumers to be served efficiently by Micro Financing Institutions(MFI)
The primary intention behind this project is to enable the economic empowerment of the people of Rajugela village.
The project is sponsored by the India School Fund (ISF), a nonprofit founded by Harvard students to offer high-quality education to children and teach them entrepreneurship skills at an early age. The first ISF school opened in Spring 2007 in the village of Rajugela, in the state of Uttar Pradesh, and more than 200 kids now attend ISF classes on a daily basis.
Teaching entrepreneurship to young people and to women in the village is at the core of the ISF method. By giving people the financial means to start a new business and the management skills to be successful, ISF wants to take families out of poverty.
The goal of the Smart Microloans project is to create a marketplace for the people of Rajugela to have access to microloans from a variety of Micro Finance Institutions (MFI) including commercial banks, at competitive rates. While micro-finance is not a novel concept, there is usually just one MFI catering to a given village due to overhead involved in physically travelling to the village to administer the loans. As a result, there is no competition, and villagers have to accept the rates quoted by the MFIs. While the rates charged by MFIs are much lower than what traditional money-lenders charge in a village, the absence of competition removes the incentive for MFIs to reduce rates further.
The scope of the Smart Microloans project is to develop an ICT based system which will
1. Allow micro loan consumers to enter their information and apply for loans using their mobile phones, without the need for banks to travel to the village.
2. Provide banks with access to the borrower’s information including borrowing and repayment history.
3. Allow banks to communicate rates back to the potential borrower.
The banks can use the borrower’s financial history to determine interest rates to be charged, and the borrower can select a bank based on favorable interest rates.
Some of the issues to be ironed out during our forthcoming meetings and interview sessions with ISF or which need validation are
• What form of information will be used by MFIs to rate borrowers
• Would borrowers have access to their own mobile phones or would they use a rented mobile phone
• How would the mostly illiterate borrower provide large amount of transaction history during his loan application via a mobile phone
• Will a borrowers transaction history be recorded on a memory device (SmartCard) in conjunction with a mobile phone, would that cause security, privacy or tampering issues
• How would the system be able to accept input from mostly illiterate borrowers
• What would be the course of action once a borrower wants to go ahead with a micro loan offer