IT Systems for Effective MFI Activity in Rwanda

In his article ‘Rwanda: How MFI’s (Micro-Financing Institution) Can Develop Cost-Effective IT Systems,’ Saddiq Mwai explains the potential benefit of creating a transparent, cooperative IT framework between MFI’s, in order to cut costs and effectively address poverty reduction in Rwanda. As Mwai describes, a financial services sector is essential to the success of nearly all social and economic objectives. MFI’s in Rwanda currently incur large expenses when serving their target populations, which are often rural and remote. These logistical expenses hinder MFI’s from doing ‘the most good.’

What Mwai proposes is a ‘common information technology platform to reduce costs associated with the acquisition, operation and maintenance of information systems.’ In other words, MFI’s would collaborate in creating a shared platform, on which MFI’s could communicate and share both information and capital with each other on a regular basis. This network would be operated from a processing hub in Kigali, and would be available to any MFI with simple PC-access. MFI’s could be charged on a ‘per account’ or ‘per client’ basis to use this existing, communal software. This on-demand payment method outsources software development costs and is significantly cheaper than purchasing or creating new software altogether.

In addition to cost-sharing among fellow MFI’s, such a network would allow MFI clients to complete necessary transactions via mobile phone, which would significantly reduce transportation and logistics costs to the benefit of both MFI’s and the consumer.

 

 

Urwego Opportunity Bank, an agricultural MFI in Rwanda

 

This proposal represents a promising opportunity for micro-finance institutions in Rwanda. Technological advances have provided new, unprecedented methods of lowering lending and transaction costs  in the developing world, and Mwai’s proposal takes a collaborative, cost-sharing approach to poverty reduction. Micro-finance and micro-lending institutions have the principle goal of reducing poverty and fostering self-sustaining community development. Therefore, any measure that would increase transparency and cost-efficient access between client and provider would be a positive investment, even if it means partnering with other institutions. With the increased disposal income once used for software and maintenance of a personal platform, an MFI can increase the amount of social ‘good’ it provides. The more resources available, the more potential there is for poverty reduction.

Read the article here.

Micro-Bias: New Study reveals Implicit Bias in Kiva Loans

Micro lending websites, such as Kiva.org, are a newly emerging tool that allow people to send money to people in developing countries. Kiva’s purpose has been summarized in an earlier blog post. However, the problem of potential bias has not yet been addressed in this blog.

According to an analysis released by researchers at Nanyang Technological University in Singapore, lenders on Kiva tend to favor attractive, light-skinned females. This is made possible by the profiles created on the site, which feature a picture of the person who is asking for aid. Internet users are able to browse through profiles on the website and search based on country or type of project. The researchers in the study found that in order to get money more quickly, “it is better to be pretty than ugly, female than male, skinny than fat, and, yes, light skinned-than dark-skinned.” The study used a skin color scale taken from research on bias against new immigrants. Conclusive evidence was found that light-skinned borrowers received money faster, and being attractive didn’t hurt.

Walter Theseira, Assistant Professor at Nanyang Technological University, Singapore

Walter Theseira, the lead author of the study, comments:

“This is why [NGOs] spend so much time choosing just the right photographs to illicit donations… why people do that… it’s a bit hard to say. Our hypothesis is that this is probably more a form of implicit discrimination than people acting on explicit bias.”

Interestingly, being from Africa helps when receiving loans. Loans to Kenya fund much faster than loans to Bulgaria. This geographic discrimination has been found to be much more influential than skin tone because many users believe that there is more need in poorer countries, which fits Africa’s stereotype. Some lenders also believe that their dollars will go farther in Africa than in other countries.

Researchers worry that “baked-in-bias in peer-to-peer choices could undermine the very idea of a financial solution to unfairness.” This bias is seen in other studies. For example, subconscious bias appears in a Stanford study that found that online shoppers were less trusting of an ipod for sale if the hand in the picture was black. Another study from Wharton found that black borrowers on Prosper.com were up to 35% less likely to get a loan at a similar interest rate when compared to white borrowers. Prosper responded to this by eliminating user photos.

Prosper.com Review from P2P Lending News

One of the interesting elements of Kiva is the personal feel to it. By looking at a picture of a person in a different country, you get a sense of personal connection. You almost feel like you know them, that you could shake their hand after providing aid. Eliminating profile pictures may be a way to combat implicit bias, but it will eliminate this personal aspect of Kiva. This may hurt participation rates as people in developing countries search for new visual stimulation.

An important implication of this study is that online crowdfunding, microfinance, and lending websites need academic examination. The big question now is what the sites can do to fix the problem. Theseira suggests that the solution lies in regular Kiva users:

“What we found [on Kiva] are these patterns of discrimination are most evident in people who don’t lend much…In the case of the Kiva website itself, I think if we can try to establish more clearly whether it’s implicit discrimination or something else, it might be possible to use technology to address it.”

Theseira believes that those who habitually use Kiva are more strategic, businesslike, and less biased. These repeat users are interested in details that are relevant to loan-worthiness rather than irrelevant details such as attractiveness. His suggestion is to present a set of profile designed for newer users to counteract measured biases. Theseira also suggests that offering fewer choices or designign elements of the site to slow the decision-making process could help with users who feel overwhelmed by choices.

Theseira, like many academics in the field, is hungry for more information about why people prefer to fund light skinned, attractive people. Current research is at the tip of the iceberg. Theseira has expanded his research to myc4.com, a European lending site where investors earn interest. This will help to better understand the incentives behind the decisions made when lending.

“You can lend directly to a small business in Africa”

Kiva’s leaders have been “admirably open” about the problem of biases and are eager to innovate ways to avoid micro-discrimination in regards to geography, industry, and male-female bias. With new information and published studies, hopefully these biases can be buried.