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Mobility Technology Solutions Can Reduce Interest Rates of Microfinance Loans

  • John Vong
  • Insu Song
Chapter
Part of the Topics in Intelligent Engineering and Informatics book series (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.

Keywords

MFIs Microfinance Microcredit ABC Costing Interest burden Systems technology 

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Copyright information

© Springer Science+Business Media Singapore 2015

Authors and Affiliations

  1. 1.Financial IT AcademySingapore Management UniversitySingaporeSingapore
  2. 2.School of Business (IT)James Cook UniversitySingaporeSingapore

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