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Mobility Technology Solutions Can Reduce Interest Rates of Microfinance Loans

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Emerging Technologies for Emerging Markets

Part of the book series: Topics in Intelligent Engineering and Informatics ((TIEI,volume 11))

Abstract

In recent years there is intense criticism of the exploitative interest rates charged to borrowers of microfinance institutions (MFIs). Development specialists and researchers have found incidences of usurious lending rates being levied upon the unbanked population, ironically in an attempt to lift them out of poverty. The borrowers suffer greater indebtedness and take extreme measures to repay while others just defaulted. One important reason for the high lending interest rates is the transaction cost or sometimes called administrative cost or operating expenses. It presupposes that high lending interest rates are necessary to cover the transaction and administrative expenses (TAE) of providing many small loans and monitoring many small borrowers. Thus this paper aims to identify the cost drivers and the cost of the MFI transactions and administration by using activity based costing (ABC). Thereafter a mobility solution is designed to replace the manual processes to lower the TAE, which in turn reduces lending rates charged to MFI borrowers. A pilot project has been started in Indonesia to test the hypothesis.

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Authors and Affiliations

  1. Financial IT Academy, Singapore Management University, 80 Stamford Road, Singapore, Singapore

    John Vong

  2. School of Business (IT), James Cook University, 600 Upper Thomson Road, Singapore, 574421, Singapore

    Insu Song

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  1. John Vong
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  2. Insu Song
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Correspondence to Insu Song .

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Vong, J., Song, I. (2015). Mobility Technology Solutions Can Reduce Interest Rates of Microfinance Loans. In: Emerging Technologies for Emerging Markets. Topics in Intelligent Engineering and Informatics, vol 11. Springer, Singapore. https://doi.org/10.1007/978-981-287-347-7_2

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  • DOI: https://doi.org/10.1007/978-981-287-347-7_2

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  • Print ISBN: 978-981-287-346-0

  • Online ISBN: 978-981-287-347-7

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