Implementing Microfinance Information Systems: A Practical Guide
Introduction
Information processing is critical for any lending organization. How efficiently and accurately a company handles large data sets directly affects the success of its operations. For microfinance institutions (MFIs), this task is particularly challenging. The lack of qualified staff, funds, and formalized processes in place make the implementation and management of information systems especially complicated for them. Therefore, in microfinancing, it is vital to get it right in order to get good results, improve performance, and create conditions for growth.
This guide describes a step-by-step process for implementing information systems in microfinance organizations. It is suitable both for companies that are considering purchasing new software and for those who want to improve existing solutions.
The manual is addressed primarily to the microlenders’ Project Management Office (PMO), which will manage the project. It presents four main phases:
– preparation for implementation,
– the analysis of the microcredit organization’s needs and requirements,
– the process of selecting a solution,
– implementation.
Project Preparation
This phase is primarily necessary for the project team of a microloan company to gain a clear picture of the organization’s challenges to be addressed, the anticipated results, possible risks, and the amount of resources required for implementation.
Define your goals
To do this, microfinance company needs to clarify a number of key issues:
- First, you need to identify the main reason why the organization is starting this project.
- Define what problems the new solution for microfinance loan processing is supposed to solve. Such challenges may include slow processing of information, data inconsistencies of all kinds, problems with originating personal microloans etc.
- Identify those features of the future product that create the most value for your microcredit organization and your target audience. Use customer surveys, research, and study business cases. The features you identify should be prioritized.
- Determine the anticipated benefits of the implementation. For example, reducing labor costs for information processing speeding up processes. Use distinct metrics to measure those benefits both for the company and clients. Utilize business intelligence tools to monitor shifts in customer behavior caused by implementation.
- Identify what growth in terms of customers, employees, branches, and products is expected as a result of the implementation.
- Figure out what processes the organization seeks to change by starting this project.
Assess risks
Every IT project, including projects for microlending companies, is subject to cost overruns, time delays, and unforeseen scope changes. For example, a project with significant software development is susceptible to scope creep because software development timelines depend on factors that are difficult to anticipate in advance.
Get the resources you need
To gain institution-wide recognition for the project, form a project team. Typically, the project is controlled by a steering committee made up of senior executives, while the everyday management of the project should be carried out by the project team.
Determine an approximate budget and initial investment
The budget will change as the project progresses, but it is still worth calculating it in advance, at least roughly. At the start, you will have to invest in all sorts of hardware like servers, additional computers, printers, etc.), software licenses, customization and configuration of the solution, data migration, and employee training. Then you will have to pay for technical support.
Requirements analysis
At this stage, it is important to create a requirements document that should then be shared with the vendors. This document should be precise and comprehensive yet flexible enough to allow vendors to offer several different approaches for your consideration. The requirements document should answer the question of what microfinance opportunities you want to get with the system. Allow vendors to offer options on how to accomplish this.
There are three main categories of requirements: functional, operational, and technical.
Functional requirements
Functional requirements apply to both existing microbanking products and processes in the company and new ones that need to be implemented. First, determine which functions are working in your existing systems and which are not. Decide what functionality you would like to duplicate in the new system and what you would like to eliminate. Then, analyze what functions related to the organization’s existing products and processes are missing and should be added to the new solution. At this stage, it is useful to conduct a series of interviews with employees who use the existing system on a regular basis and who probably know exactly what they would like to have and what they would not like to have in the new solution. After that, think about the functionality related to the products and processes you plan to implement in the future. It is recommended to consider a perspective of about three years. How are you going to stand out in the microfinance market and probably become a subject of microloan investing?
Operational requirements
These requirements relate to back-office operations and processes
For instance:
- Operation-related reports
- Process of closing operations
- Adjusting parameters
- Requirements related to cash management
- Setting of user roles
Technical requirements
In this section, you need to specify the architecture of the solution and the platform on which it will work.
It may include:
- Integration with existing functionality
- Requirements related to the scalability of the solution
- The architecture of the network
- Technical environment (databases, operating system, etc)
- Hosting specifications
- Security requirements
The solution should have the best security features, like MFA and encryption, to keep customer data safe and avoid getting in trouble with the law. It also should comply with local norms. Microloans in the USA are regulated differently than in Bangladesh. Moreover, norms differ from state to state. For example, NYC MFI is subject to state law.
Also, you should take into account requirements related to the business environment. For example, the working language of the organization, currencies the company uses in its operations, connectivity with various payment systems, possibility to report to investors or donors.
Selection
Once the needs of your microfinance company are identified and a requirements document is created, the PMO can begin the process of selecting the solution that best meets those requirements.
To start with, you should make a long list of candidates. Then you should call them to get a first idea of the characteristics of the systems on offer. Determine whether they offer solutions for traditional banks, microfinance banks, or non-banking microfinance institutions. Or whether they are universal and can be easily customized to meet your needs. Then, narrow the list down to a few vendors. When doing this, consider the following factors:
- Make sure that the vendor is represented in the local market
- Check that the solution interface supports the company’s working language
- Make sure that you can afford the vendor’s pricing
- And, of course, try to get feedback from organizations like yours about the product.
After narrowing the list down to three or four vendors, send them a Request for Proposals. This document usually contains:
– a description of the organization;
– the company’s mission and vision, its scope and purpose;
– report summary;
– a description of existing business processes;
– technical environment;
– a guide to the response (what information the company wants from the vendor);
– a brief description of the vendor;
– an overview of the system, including technical characteristics, functionality, and customization options;
– license price, implementation, and support costs.
Study the answers you receive from the vendors. Given the criteria that are most important to you, determine which solutions are definitely not a good fit and focus on the rest.
The next step should be a personalized demo of the solution tailored to microfinance loans. Decide in advance what you would like to see during the demo. The best way to do this is to create a test script that describes the processes you are interested in. You can also show your test script to vendors so that they can do an effective custom demo. Typically, the demonstration begins with a presentation of the core functionality of the solution. The vendor then focuses on the features that are most important to you.
This way you should have a clear understanding of the following: standard functionality, customization options, features that will be available in the near future, and features that are not available.
When choosing the right product, keep in mind that no single system will completely meet your requirements. You will likely have to compromise on features of the solution that are not critical to your institution. Moreover, many systems are built on best microfinance practices. Therefore, in some cases, it is better to revise some of your business processes following the logic of the solution.
Implementation
Finally, you have selected the most suitable solution, and it is time to implement it. This phase includes steps such as installing the necessary hardware and software, data transfer, employee testing, and user training. But first, you need to develop an implementation plan. It will allow you to break down the entire process into sequential steps and better control the implementation of the new software.
While making your plan, you will need to clarify the following:
- Decide whether the time frame will be rigidly fixed or not. It depends on the scope of the microlending project. If your solution requires the implementation of a large amount of new functionality and deep customization, it is better to set a rough framework.
- Define what resources will be needed to execute the plan on time and within budget. What number of personnel will be required for the project, what equipment will need to be used, and what needs to be purchased?
- Think about who on the staff can temporarily lead the implementation
- Who else in the organization can be involved? At what stage? What should be done to ensure that their involvement in the project does not negatively affect their daily work?
- Identify risks expected during implementation, and think about what you can do to mitigate these risks. Insufficient technical training of staff may be one such risk. To address this, we can organize pre-training.
- Define the criteria for successful implementation.
Customization issues
- Decide how deep the customization of the solution needs to go to meet the needs of the institution. Take into account budget limitations
- Think about who in the organization will oversee the customization process, creation of test scripts, and testing
- Think about potential customization issues that may arise in the future and how the organization can protect itself from them. Make sure that the vendor provides adequate support and upgrades to help avoid these problems
- Since microfinance refers to banks as well, we would like to point out that banking software for microloans has its own specifics and usually needs extensive customization
Issues regarding hardware, software, and Infrastructure
- Determine what hardware, software, and infrastructure are needed. How should they be configured at the start and over the course of time? When should they be updated?
- Define what existing equipment can be used and what hardware you will need to replace
- Figure out what equipment you will have to buy
- Think about measures to ensure the uninterrupted operation of the organization in case of a power outage. For example, you might need to buy power generators
- Define what Internet connection capability is required
- Find out if the organization has to find a data center for hosting the software for microloans
User testing
- Use an MVP approach which speeds up implementation, reduces its cost, and minimizes risks. Test minimum viable product first to fix bugs and make necessary corrections on the early stage of the project.
- Decide who in the company will be responsible for creating test cases
- Organize isolated testing. Take care of the proper environment in terms of hardware, software, and architecture.
A series of user tests is an important stage in the system implementation process. It allows one to check in practice how fully the functionality of the system for microcredit loans meets the needs of the institution. In particular, the tests provide an opportunity to find out whether the system functions as expected and processes information in an appropriate manner. It is better to conduct these tests involving different parts of the organization to make sure that the system covers all the needs of the company. Keep in mind that the testing should be done in a special isolated and well-controlled environment (not on a live platform). The temporary system should use a partial data set. This data can be created specifically for test cases, or it can come from an incomplete migration performed to fill the database for testing.
Training
The process of implementing a new information system is impossible without staff training, which will allow you to adapt to the software in the most efficient way. To better prepare for the training process, think about the following issues..
- Define what basic training is required for IT department specialists
- Decide what basic training is required for other employees
- Determine what specialized training should be given to different groups of staff (credit managers, branch managers, etc.) Training is most effective when it is practically oriented and utilizes real company data, terminology, and forms.
- Decide who will provide the training and what kind of work experience this person should have. It is desirable that he/she has experience with financial institutions
- Think about opportunities to conduct training in the future to deepen the knowledge and skills of employees, to learn new functions, or to train new staff
- Identify what conditions and resources are needed to conduct training (premises, equipment, additional costs)
Business process changes
The implementation of a new system inevitably affects the company’s business processes. You must be prepared for this. Moreover, the changes may be more significant than you expect. They can result in the exploration of new microfinance fields, such as the development of microcredit programs for customers. You need to understand what changes are needed in the company’s processes to best adapt the new solution and get the most out of it. You also need to determine who will take the lead on the process alignment task.
Gradual implementation
To begin, the management of the financial institution must decide whether to begin using the old and new system at the same time or to determine a date when the existing system is decommissioned and the new system starts operating.
If the implementation is broken down into phases, it can be structured by:
- Functionality (modules) of the solution
- Levels of access in the organization
- Region, division, or department.
Keep in mind that the initial phase is fraught with risks and unforeseen complications. This stage reveals all sorts of bugs and other issues that need to be resolved. Based on the experience gained in the first phase, the financial institution should make adjustments to the implementation plan to avoid problems in subsequent stages.
Typically, during the first phase of implementation, a company will migrate its existing core operations from the old platform to the new solution. It is critical to conduct regular audits at each stage to ensure that the migration to the new system is proceeding without problems or inconsistencies.
The second step usually involves connecting solutions or modules that previously worked separately. For example, if a company monitors life insurance and credit insurance on a manual basis or in a standalone software.
Finally, in the third stage of the implementation process, the financial institution incorporates new features and modules into the system that have not been utilized before. The success of this stages will define microfinance operations’ efficiency.
Data migration
The importance and complexity of this stage is often not fully realized. At the same time, it requires a very responsible approach and careful planning. It is important to minimize the amount of data to be migrated. For example, migrate only active loans without migrating closed ones.
Sign-Off
Once the data migration is complete, the PMO should discuss it with staff from different departments to see if they are satisfied with the results of the migration, how well the solution was implemented, and whether it meets their demands. Once the representatives of departments sign off on implementation, the project committee should examine the implementation plan to verify that all tasks have been accomplished as required by the microfinance organization.
Closing the Project
Prior to formal project closeout, the PMO, together with the steering committee, should analyze the terms of the contract with the provider to ensure that the provider has met the requirements outlined in the contract. After the project is closed, take care of further training for employees, develop a user manual, and allow employees to give continuous feedback on the use of the system. In this case, the adaptation of the new solution in your organization will be more effective and seamless. And you will be able to make the most of its potential.
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