What security does Mifos provide?

Is Mifos available as Free and Open Software Now?

Why is microfinance needed? Why don’t commercial banks meet this need?

How did microfinance get started?

Who does microfinance serve?

What are the barriers to growth of microfinance?

How does Mifos address the barriers to growth of microfinance?

What is the mission of an MFI?

What is the reach of the MFIs?

What are typical MFI products?

How do the MFIs work?

What does a loan officer or credit officer do?

• Verifies all fund balances
• Updates or prepares collection sheets
• Prepares savings and loan pass books
• Prepares and reviews loan utilization reports.

• Collects loan repayments
• Accepts new loan applications
• Disburses new approved loans
• Collects insurance and other fees
• Collects fines, if any
• Collects voluntary savings and remits withdrawals, if permitted
• Maintains minutes

How are repayments made and tracked? What about savings?

What reporting does MFI management need?

• Compare expected loan payments with actuals on a payment by payment basis (broken out by branch, field officer).
• Develop derivatives of the above data that provide a portfolio aging report and the statistics on arrearages or late payments.
• Show exceptions that indicate which branch, which product and which field officer are falling behind in targets for client retention, savings deposits, and non-payments.
• Aggregate summary reports that allow accounting entries to be made at the head office - expected loan disbursements next week, expected loan payments, total owed in interest on savings, etc.

• Identify duplicate borrowers - people who take loans out from two branches
• Allow loan officers to move from branch to branch and for productivity reports to be tied to those movements.
• Track loan limits—i.e., any loan can be up to 50% of the groups balance.

What are major regional differences, and their impact on MIS system requirements?

Please give some examples of various MFI operating differences to better understand the scope of the system requirements?

What is Mifos?

Why is this system needed?

Why a new system?

Why doesn’t Grameen build upon an off-the-shelf solution, or on one of the MFIs' home grown products?

What research was done prior to launching this project?

What is the Mifos “market target”?

What is the general development plan?

What are the core structural and functional components?

What is the development strategy?

Why isn’t Mifos available as Open Source code now?

When will Mifos be released for use by the Microfinance institutions?

How will Mifos be supported in the field?

How will the product releases be governed?

Currently, a team that works for a leading commercial software company has volunteered to help define the Mifos Specialist program and develop its business case. In addition, the Grameen Mifos team has begun to identify IT professionals and operations that are candidates to become Mifos Specialists in different regions.

How will the product releases be governed? An analogy: Grameen will publish the recipe but manage a full service restaurant. Open source means there can be as many versions and code forks as developers are willing to produce. However, the MFIs will want to base their operations on code that has been fully tested, is managed by a trusted source, and supported by the Mifos Specialists. The Grameen Mifos team, (including the Mifos Software Development Manager), and a core group of contributors from the open source community will have the responsibility of deciding what new code should be added to the releases of the product. to the Mifos Specialists, which will in turn influence the adoption of Mifos in the MFI industry.

Mifos FAQs

Savings: A mandatory savings deposit from group members is established as a Loan Security Fund. A client can transfer monies from her fund to her loan account for payment.

Operational Issues: As with many MFIs, flexibility is needed to move clients from one group to another; to change Loan Officers’ group responsibilities; to move Loan Officers to new branches, but keep groups at original branch; etc.

Operational Issues: The MIS system should recognize lack of connectivity at the branches due to infrastructure issues. Track loans against specific funding sources, in some cases with loan repayments going directly back to the loan source. Tracking is needed for allocation of funds by town. They need to be able to add individuals to existing groups.

Part 3: MIFOS

What are the core structural and functional components?

Structural Components Open Framework. The open framework is a key feature of Mifos. While the initial release of the product will be a high-quality, highly functional, robust platform, making the source code available to the industry will facilitate a faster delivery of platform enhancements (including new product modules and third party extensions) and localization (an MFI in Egypt will immediately be able to take Mifos and have it modified, incorporating the Arabic language and other local requirements, without waiting on a proprietary solution provider to reach this stage in its product lifecycle). Mifos will adapt according to market-driven demands, however following are examples of new products and service delivery modes for which the Mifos platform will have the flexibility to support: Credit line products; In-house claims processing for insurance products; Remittance payments to savings accounts; New payment mechanisms such as g-cash and rural transaction systems; Integration of biometric identity technology

Flexible Data Model. Mifos will ship with a data model that can be expanded, as MFIs needs grow, to support new functionality without affecting the core functionality or requiring code to be re-written. As MFIs grow they may eventually need to move to a larger database system. The advantage of Mifos is that the data model is not tied to a particular database. It can be changed without affecting the large majority of the application code.

Web-based, user interface (UI). The web interface for Mifos will be highly intuitive and easy to use. Exposure to the web- paradigm is relatively widespread in the microfinance sector, therefore Mifos is introducing an environment many users are already comfortable with. The UI layer is separate from business logic, allowing developers to easily modify it. There is a delivery advantage in the web-based user interface in that users only require a web browser on their computer.

Security. Data security is a critical component of the Mifos system to minimize fraud and error. The database level security of the Mifos system will ensure that transactions cannot be compromised.

Connectivity Modes. Unlike many of the applications in the market today, Mifos will support different connectivity modes, recognizing that these can vary considerably across countries and within countries. Remote Server Mode (RSM) assumes that there is a central server located at the Head Office (HO) or hosted by an ASP. This server will be accessed via web interface. In Local Server Mode (LSM) HO acts only as a data aggregation point and all branches will have separate installations of Mifos on their local computers. In Mix Mode an MFI can opt to operate with some branches in the remote server mode and others operating in local server mode.

Localization Support. Mifos is designed with Internationalization and Localization support to ensure a truly global applicability. The initial release will ship with English and Spanish language support, however because of the underlying architecture other languages can easily be added and we anticipate Chinese and Arabic will be next. Mifos will support the display and math calculations for several currencies. Thus, an MFI can select one of these languages, time zones and a currency for their installation. A user can still select a different language for their user interface; however, all inputs will be stored in the official language and currency selected by the MFI. Multiple instances of Mifos can co-exist that have been setup in different language and/or currency. If the market demands, the open source community can adjust the Mifos user interface and code to support multiple languages and multiple currency in the same installation.

Data Standards. Incorporating data standards into the implementations of Mifos, we will expand the MFIs’ flexibility in operations and reporting, such as: Sharing data with a centralized Credit Bureau (currently being piloted by GFUSA in Morocco); Enable asynchronous transactions in remote locations, by integrating with Rural Transaction Systems, ATMs and mobile phone payment systems; Provide full visibility of transactions over a segment of the portfolio sold as security

Multiple Lending and Savings Methodologies. From the instigation of the data model, GFUSA has had numerous microfinance models at the forefront of the design. This includes Grameen style group lending, revolving fund lending/savings and individual lending.

Client & Impact Surveys. Mifos will provide a set of defined surveys for impact assessment, monitoring and evaluation of microfinance programs. This will include GFUSA’s ‘poverty scorecard’, which will enable a more comprehensive social performance measurement.

Loan Portfolio Management. Creates loan terms for an unlimited number of loan products. Records data on loan applications, approvals, disbursements and user can input transactional data including repayments. Will track individual and group loans, including individual transactions for group accounts. There will be a bulk entry tool for group lending methodologies.

Savings Management. Creates terms for unlimited number of savings products including voluntary, mandatory and loan insurance for individual and group savings accounts.

Insurance. Creates terms for unlimited number of insurance products including insurance against loans, group insurance, insurance against death or injury. Tracks collections of premiums for third-party insurance products.

Accounting Support. The Mifos platform will be designed to allow integration with third party accounting applications. This will allow MFIs to continue to utilize full-featured accounting software, which is often specific to the regulatory environment of their country. General Ledger codes for all product, account and transactional data will be captured in the Mifos system for a seamless interface.

Reporting. Mifos will include a set of defined formatted reports for analysis of financial, operational and general client portfolio data. It will provide a flexible report infrastructure to enable the addition of reports as needed.

What is the development strategy? Initial release of Mifos platform The initial release is being built using an experienced and compensated development team to accelerate progress and ensure the highest possible quality for the core system. GFUSA has contracted a development firm in India, Aditi Technologies, to develop the initial beta version. To meet the complex challenge of developing a solution that addresses the diversity in methodology, geography and operational environments, GFUSA has complimented the efforts of Aditi with expert volunteers. The initial release of the software will be implemented and tested at four MFIs. Not all of these practice Grameen-style microfinance. This diversity reflects an intentional strategy to mitigate the risk of homogeneity and ensure the Mifos design addresses the needs of a broad spectrum of MFIs. Following the beta testing period the product will be released for broader adoption.

Build ongoing development and support infrastructure

Why isn’t Mifos available as Open Source code now? Mifos will be a fully free open source system. Its core value is being open source and thereby easily adaptable to the individual MFI operations, local language, currency and regulatory environments. The timing of when to make the code base available to the entire open source community is continually being evaluated. In most open source projects, the initiator(s) generates a basic architecture and initial code before posting it to the open community. Mifos is in this first stage.

When will Mifos be released for use by the Microfinance institutions?

Introduction to the Mifos Domain

Purpose:

Initial Overview:

The GFUSA website is also the best place to learn more about the overall scope and operations of the foundation ( http://www.gfusa.org/ ) Here is a link to the Grameen Foundation FAQs document http://www.gfusa.org/about_us/faqs.

Part 1: Microfinance

Because it is effective, there are now thousands of organizations in the microfinance industry. Over 3000 Microfinance Institutions (MFIs) operate programs around the world. These range from small community organizations to large international networks. Several organizations known for assisting the poor in other ways (such as CARE and Save the Children) operate microfinance programs. In addition, there are a many organizations that fund and support MFI operations. These encompass a wide range of microfinance related missions. They include non-government organizations like Grameen Foundation USA as well as governmental initiatives including the United Nations Consultative Group to Assist the Poor (CGAP)

CGAP (http://www.cgap.org/ ) is a rich resource for learning about the microfinance industry. Among their many activities they operate the Microfinance Gateway (http://www.microfinancegateway.org/) which is an on-line library and marketplace for ideas relating to microfinance. They also sponsor the Microfinance Information eXchange (MIX) which focuses on reporting and exchanging quantitative information about MFI operations (http://www.mixmarket.org/en/home_page.asp).

CGAP views the subject of financial services to the poor more broadly than the microfinance industry by including some financial cooperatives and rural banks in their scope. Never-the-less, microfinance is a major part of their focus. Earlier this year CGAP published Access For All: Building Inclusive Financial Systems by Brigit Helms. This book is an excellent one-stop source for learning about the broad subject of delivering financial services to the poor and it contains a great deal of information on microfinance specifically. A downloadable version is available for free at http://www.cgap.org/publications/access_for_all.html.

{This FAQs makes heavy use of the information provided by CGAP and the Access For All publication. They in turn also draw on an extensive number of references. To avoid the heavy footnoting and crediting that would be normal in a published document, please accept this statement as a general crediting of CGAP materials and their sources.}

Why is microfinance needed? Why don’t commercial banks meet this need? Financial services provide many of the poor with the capital resources they need to climb the economic ladder out of poverty. Unfortunately the practices and requirements of commercial banking operations cannot be met by the people living on the lower rungs of the ladder. The poor do not have the steady incomes and collateral that commercial banks require. Commercial operations do not profitably scale down to the types of services need by the poor. For example a small loan requires set-up costs and perhaps over 50 payment transactions to complete. Normal commercial operations simply cannot be profitable serving this market. On the other hand, microfinance uses peer support group as substitutes for steady income and collateral, and microfinance operations are oriented to the high number of small transactions. And while becoming self sustaining is a primary goal for MFIs, few have attained that status. Commercial banks cannot sustain non-profitable operations over a long period.

However, the success of microfinance and Microfinance Institutions has caught the attention of the commercial banking sector. Some banks are implementing programs targeted to the poor, and some MFIs are moving to full banking status. These are welcome developments. Microfinance exists to bring the poor into the mainstream economy and these trends are a movement in that direction.

When did microfinance begin? Roots to financial services for the poor can be traced throughout history. Money lenders and pawnshops in some form have likely existed from the beginning of money itself. Microfinance as we know it today began in the early 1970s. Early experimental programs such as the Grameen Bank started by Prof. Muhammad Yunus in Bangladesh developed techniques that have been refined and expanded over the years. An interesting book with this history is Banker to the Poor: Microlending and the Battle Against World Poverty by Muhammad Yunus (Public Affairs, 1999) The decades of experience in many regions and cultures has culminated in an industry that knows what works and what doesn’t. Today the need is to reach and serve more people.

Who does microfinance serve? Today there are approximately 100 million microfinance clients. The vast majority of microfinance clients are women that use the improved financial condition for the benefit of their families. It is estimated that 500 million individuals currently benefit from microfinance programs.

Studies of the world’s poor and the impact of microfinance have used differing terminology to describe the clients being served. In general microfinance has reached the moderately poor (people just below the poverty line) and the extreme poor, but not the truly destitute. Data collected and reported by the Microcredit Summit shows that two-thirds of the clients fall far below the poverty line or live on less that $1 per day.

One of the strengths of microfinance is that it leverages the skills and abilities that clients already have. Not all of the poor are in position to benefit from microfinance services, however there are a great many more that can.

What are the barriers to growth of microfinance? There are multiple ways to look at this. From a high level view, CGAP identifies scale, depth and cost as the key challenges: scaling up quality financial services to serve large numbers; achieving the depth needed to reach poorer segments and more remote people; and lowering costs to both clients and service providers.

The Grameen Mifos program focuses on achieving sustainability and scale - enabling MFIs to sustain their operations and scale larger to serve more people in more ways. The success of microfinance as a technique has encouraged the creation of many Microfinance Institutions targeting more and more regions and segments of the poor. Transitioning from start-up to sustainable operations and then to self-sustaining is not a sure path. Yet reaching more remote areas and more segments of the poor population requires sustainable organizations to carry out the work.

There are many MFI organizations, but a wide range to their ability to sustain and scale their operations. Funding, management training, operational efficiency are all areas that affect sustainability. And only sustainable organizations will scale larger to serve more people.

How does Mifos address the barriers to growth of microfinance? Mifos will be discussed in detail in later parts of this tutorial, but a high level understanding of how it fits into the bigger picture is appropriate here. Mifos addresses the issues of scale and sustainability in several ways:

Improved operational efficiency. As an automated management information system, Mifos will lower the cost per transaction and lower the cost of supporting multiple financial products. Reporting from the system will be efficient and consistent, yielding better measurement of operational, financial and social impact performance. This information in turn will be the basis for continued improvement in MFI processes.

Higher portfolio quality. Easier and consistent tracking and reporting of clients, transactions, products, etc. will yield a higher quality overall portfolio – which in turn allows for a more sustainable operation

Increase funding and lower cost of capital. Clean and consistent reporting of results – both financial performance and social impact – is a key to attracting increased program funding and lowering the overall cost of capital. Microfinance is entering an era where it is possible to tap into commercial financial markets for loan guarantees or even direct loan funding. Mifos will improve the transparency of performance reporting and contribute to the establishment of data standards – essential improvements to increasing the supply and lowering the cost of funds. The social surveys features will provide facilitate measurement of the social impact of MFI operations, a key to proving the worth of the programs to funding sources.

Easier compliance to regulatory environments. Though non-profit, MFIs are subject to an array of regulations. Product localization and reporting features of Mifos will ease the burden of complying with local regulations and meeting the reporting requirements of the governing agencies. Facilitates innovation and further automation. An easily customized MIS system facilitates further automation. For example links can be made to back office accounting systems. New front end electronic transaction systems will become more feasible. New financial products, more closely meeting the needs of the target segments of the poor can more easily be brought to market.

Part 2: MFI Operations

What is the reach of the MFIs? An estimated 100 million women and men are accessing the services of over 3,000 Microfinance Institutions (MFIs). GFUSA, alone, through its 52 partner global network, touches 22 countries and impacts 5.5 million of the world’s poor. These MFI program partners encompass a broad spectrum of microfinance institutions from industry leaders to emerging programs that are working in regions of the world that traditionally have been underserved by microfinance programs. The MIFOS system is being developed not only for GFUSA partners, but also with the flexibility and localization opportunities needed to service most MFIs.

What are typical MFI products?

Loans. Microfinance programs primarily extend loans to individuals or groups for income generating activities. The loans typically have duration of three months to one year. Often repayments are weekly or biweekly. Interest may be included in each payment or, in some regions, paid up front. Interest is typically calculated on a simple rate basis. Other, less frequent, types of loans may be for agricultural production, home improvement or home mortgages. Product offerings are intentionally kept simple and easy to understand.

Savings. This is sometimes called the “forgotten half” of microfinance. It is a critical service but can typically be offered only by regulated institutions. Many MFI’s are permitted to offer some type of savings deposit option. In fact, a CGAP 2004 survey of financial institutions serving the poor determined there are four times as many savings accounts as loans.

Lines of credit. Some MFIs also offer lines of credit with multiple, irregular drawdowns or tranches and various repayment schedules. Insurance. This is an important product offered by many MFIs. The insurance will typically be for the loan amount. In the event of death, it will pay off the remaining value of the loan, with the remainder going to the next of kin. The MIS system must track upfront and/or ongoing premium payments and ultimate disbursements. Other types of insurance may also be offered.

Group fund loans or emergency loans. There are a variety of special types of loans made for needy members and emergency situations. Some of these are identified below.

How do the MFIs work? There are two primary MFI models and numerous variations on each, often depending on the geographic area and regulatory environment. Comments below are very generalized and vary from MFI to MFI and region to region.

Group Solidarity Model. Many GFUSA partners are organized on the group solidarity lending model. An MFI often has branches in several locations. A branch may consist of a Branch Manager, several Loan or Credit Officers and a support person who may also be the cook and watchman. Branches are located in towns that have a bank and gas station. They often provide housing for the Loan Officers. They are within reach of many surrounding villages where groups are formed.

The Loan Officers travel from the branch office out to rural villages, where they initially educate and assist women to form groups. A group is often about five women and there may be several or many groups in a village. Members of the group take out loans individually. The group provides a social context or social support for the loan program and repayments by helping one another with their businesses and, on occasion, helping members with repayment.

Village Banking model. This model typically pulls together 10-50 villagers who form a group that decides who gets to take out loans and for how much. These are sometimes started when a group of women form a mutual savings group as “equity” and borrow to complete a loan pool. In this model, the loan is made to the group and the group members decide internally which individuals will receive loans. The books of the MFI reflect one group loan, but it is desirable for the MFI to track the subsidiary individual loans as well.

A third, less commonplace, variation is loans are made one-to-one, directly to individuals without group support.

What does a loan officer or credit officer do? The loan officer is the key person in the day-to-day operations of the MFI. The loan officer is typically a 20-25 year old woman with 12 years of education who is eager to learn and dedicated to helping her community. She leaves her branch in the morning with a schedule of 4-8 meetings a day with groups in remote villages outside her branch. She may have hundreds of clients. The loan officer is initially responsible for promoting formation of the groups, providing the initial education, collecting the members’ basic data and convening the meetings. Prior to each meeting she: - Verifies all fund balances - Updates or prepares collection sheets - Prepares savings and loan pass books - Prepares and reviews loan utilization reports.

On a weekly or biweekly basis, she travels to each village and has a one-hour meeting with each group. She: - Collects loan repayments - Accepts new loan applications - Disburses new approved loans - Collects insurance and other fees - Collects fines, if any - Collects voluntary savings and remits withdrawals, if permitted - Maintains minutes

She also tracks attendance, facilitates the group discussion and offers advice. Often the meetings are held under a shady tree early in the morning before the group heads to work or later in the afternoon after the workday.

How are repayments made and tracked? What about savings? Depending on the MFI and geographic location, payments are made in cash, by voucher (a deposit slip showing a bank deposit) or, in some instances, by check. The loan officer takes a collection sheet with her that shows the expected payments and disbursements to be made. She updates the members’ passbooks and marks the collection sheet with any differences and returns it to the branch at the end of the day with the remittances. She deposits the cash, and the collection data (repayments, disbursements, savings, withdrawals, fees) are entered into the MFI’s MIS system, spreadsheet, or manual register. It is reconciled with the remittances, both balancing the cash and allowing aggregation of the data for reporting. In the event the MFI has a savings product, the credit or loan officer will also be responsible for updating the members’ passbooks with any changes.

What reporting does MFI management need? At a minimum, reports must: - Compare expected loan payments with actuals on a payment by payment basis (broken out by branch, field officer). - Develop derivatives of the above data that provide a portfolio aging report and the statistics on arrearages or late payments. - Show exceptions that indicate which branch, which product and which field officer are falling behind in targets for client retention, savings deposits, and non-payments. - Aggregate summary reports that allow accounting entries to be made at the head office - expected loan disbursements next week, expected loan payments, total owed in interest on savings, etc.

Additionally, examples of additional reports may: - Identify duplicate borrowers - people who take loans out from two branches - Allow loan officers to move from branch to branch and for productivity reports to be tied to those movements. - Track loan limits—i.e., any loan can be up to 50% of the groups balance.

What are major regional differences, and their impact on MIS system requirements? Regional differences arise from regulatory requirements, local customs, banking protocols, security situations, and MFI philosophies and organizational heritage.

In South Asia, many programs focus on rural women in densely populated rural areas, just starting income-earning opportunities. In Latin America and East Africa, the focus of traditional microfinance is primarily on urban or near-urban entrepreneurs, mostly traders. In Latin America, with the longest tradition of commercially viable microfinance, many clients obtain services from regulated financial institutions. They, therefore, have more access to a broader range of services, including savings. Microfinance in Africa is more under-developed and faces higher operating costs than in other regions. Many organizations are financial cooperatives.

At the product level, there are differences in interest rate calculation methodology, repayment schedules, delinquency flexibility, and types and calculation of fees. Differences also are evident in the availability of a range of other financial services--for example, the offering of mortgage loans, money transfers, or insurance.

Please give some examples of various MFI operating differences to better understand the scope of the system requirements?

Case 1: Southeast Asia This MFI is a Southeast Asia Grameen partner. It follows the typical scenario outlined above for a group solidarity format. Several specific additional products and specific parameters are of note.

Compulsory Contributions: Compulsory savings requirement for all members on a weekly basis. Savings may be withdrawn if member drops out or the group approves a special loan based on need. A second compulsory savings requirement is to be used for developmental activities only as approved by the Group Leader and Secretary. A third compulsory saving for emergencies is to be used to pay off outstanding loan amounts and compensate member families in the event of death. (A mutual aid or fraternal type of insurance).

Government subsidized insurance for accidental death or disability is also offered and premiums collected monthly Collective Responsibility Fund is a fund to which members contribute that repays defaulted payments of group members under certain guidelines.

Processing Fees: A 2% processing fee is charged on each loan

Loan tracking: Loan utilizations are checked each quarter and documented

There are maximum limits on the amount of loan to each member depending on years with the group. Interest: Loan interest is set at a flat interest rate applied to the original loan amount and paid back over 50 week equal installments. Savings interest is calculated bi-annually on the minimum balance for the period. Other: The Branch Manager and Loan Officer receives an incentive payment based on group formation, replacement members and other criteria

Case 2: East Africa This MFI is not a Grameen partner, but has evolved from an NGO to a non-bank financial institution. It operates in the village banking model described above. In addition to loans and insurance, it provides training and education to its clients. Several specific additional products and parameters are of note. Loans: The loan responsibility organization is three-tiered---groups serviced by loan officers, individuals with no group affiliation, and loans managed directly by branch managers. Approximately 25 products are currently active, with over 50 in total over time. In addition to business loans, it also provides educational loans, emergency loans and asset financing for higher initial amounts. New products are being created continually. Clients may have as many as three loans. In addition to standard loan repayments, products may have balloon payments, with interest paid weekly and the principal at the end. Another product is financing of a local purchase order (LPO), whereby the client delivers goods to a third party and the receivable is financed for the amount of the PO for three months. Savings A mandatory savings deposit from group members is established as a Loan Security Fund. A client can transfer monies from her fund to her loan account for payment. Operational Issues As with many MFIs, flexibility is needed to move clients from one group to another; to change Loan Officers’ group responsibilities; to move Loan Officers to new branches, but keep groups at original branch; etc. Loan accounts need to be tied back to a specific bank account for each branch. Case 3: Latin America In this MFI, loan groups, or trust banks, of 20-30 women train together in the basics of microcredit for a four-week training period. During this time four or five women join together in small groups of co-guarantors who will become responsible for one another’s loans. Each woman presents her own business plan that must be approved by all members of her small group. If a woman fails to repay her loan in full, her small group of co-guarantors becomes responsible for repaying the amount lacking in order to receive a renewal loan. They remain part of the larger group, but it is not specifically responsible for repayment. When the loans are repaid in full and on time, borrowers become eligible for a larger renewal loan. Renewal loans are possible as long as a borrower remains current with her repayment and attends the regular meetings. Loans Loans are to individuals, but guaranteed by the sub-group and should be tracked accordingly. Also tracked as part of larger group as voluntary secondary collateral. Operational Issues The MIS system should recognize lack of connectivity at the branches due to infrastructure issues. Track loans against specific funding sources, in some cases with loan repayments going directly back to the loan source. Tracking is needed for allocation of funds by town. They need to be able to add individuals to existing groups.

These are, of course, examples. The combination of modes of operation, product offerings, methods of calculation, reporting and regulatory requirements are unlimited. This is why the Mifos system has been planned on an open source platform and with local supporting specialists. This is discussed in the next section.

Part 3: MIFOS What is Mifos? Mifos is a universal, flexible and scalable management information system (MIS) for the global microfinance community. Microfinance Institutions (MFIs) will use Mifos as their base operational software to administer their client accounts and financial portfolio. Loan officers will use it to create loans as well as savings, insurance and other financial services. Mifos will be used to record all transactions. It will manage the user and client database, define the products, and create reports for internal use and outside reporting to regulators, funders and supporters. Finally, it will include surveys to help measure the social impact of the MFI operation.

Mifos is being designed in the open source framework. Why is this system needed? A limited access to capital for lending and operational inefficiency are two of the primary barriers to growth for the microfinance industry and automation of MFIs’ management information systems (MIS) is a fundamental step in addressing these barriers. Data integrity and operational transparency into client, portfolio and impact data dramatically improve day-to-day management and decision-making. And in order to get access to commercial and other sources of capital, there is a need for increased transparency in how MFIs are able to report out to financiers, supporters and regulators. Mifos is an industry solution to the MIS need. The Mifos MIS will enable the operational efficiency to source, approve and transact hundreds of thousands of loans and savings. Through data standards propagation, Mifos will improve access to commercial sources of funding, increase the relevance and utility of rating and credit agencies and enable a faster adoption of new technologies in transaction and/or payment processing. Mifos will provide an industry standard in information management and is designed for all MFIs irrespective of their geography or methodology. Why a new system? There are two primary reasons why the MIS solutions in the marketplace today are not meeting the needs of the broader microfinance industry. First, solutions do not have applicability outside a limited number of MFIs, as they were designed with one organization or methodology in mind. Secondly, there is great difficulty in sustaining a MIS product given the wide variety of functionality required within the sector, the need for localization in nearly all implementations, and the remote location of many installations relative to the vendor. MFIs are often dependent, for even the smallest modification or bug fix, on proprietary solution providers, who often sit in different time zones and speak different languages from their MFI customers. The costs and inefficiencies associated with this market paradigm contributes to the low adoption of automated systems, evidenced by the findings of a Consultative Group to Assist the Poorest (CGAP) study which found that 46% of MFIs are still using manual or spreadsheet based systems.

For those that do move forward, the wheel is being reinvented continually as MFIs opt for developing their own solution. The CGAP study found that 44% of MFIs have solutions that are custom built or developed in house, with off-the-shelf packages only capturing 10% of the market. This needless duplication of effort and the poor adoption overall is becoming a drag on the growth and scale of the microfinance industry.

Why doesn’t Grameen build upon an off-the-shelf solution? Grameen assessed several off-the-shelf products and has a lot of hands-on experience in helping MFIs deploy some of them. Even though there are approximately 60 products available, they all have fatal flaws that limit their general applicability. Consequently none has gained a leadership position in the market or offer the hope that it can advance to universal use. Most have very thin feature-sets that make them difficult to fit in to most current MFI operations and local regulatory environments. For some, the overall architecture limits their size and do not enable the MFI to scale. Off-the-shelf programs are, of course, proprietary, making users wait for (or never achieve) versions that meet current needs. Why doesn’t Grameen build on one of the MFI’s homegrown solution? Grameen also assessed several of the best homegrown solutions. None had the flexibility or scale to make it an appropriate base for a universal open source solution. What research was done prior to launching this project? Having spent the last four years helping to implement MIS solutions at MFIs and piloting various automation solutions for the microfinance industry, GFUSA has a comprehensive understanding of the business requirements for this sector. Building on this, the Mifos team has completed in-depth interviews and in field visits with approximately 50 MFIs from around the world to develop the functional specifications, which considers the unique and diverse needs of the microfinance sector. This research included many MFIs that are not Grameen partners in order to gain the broadest possible perspective. In addition to the knowledgeable (but small) full time staff on this program, the Mifos program is guided by its Technical Advisory Council that includes several high level, deeply experienced individuals. These include Paul Maritz, formerly a VP on core products at Microsoft, Shel Kaphan, formerly a founder and CTO of Amazon, and Pradeep Singh, currently CEO of Aditi Technologies a developer of software for e-service solutions. What is the Mifos “market target”? Development of new products generally requires focus on a specific segment of the market. However, rather than select a specific market target, Mifos is based an open source architecture so that is can serve the widest possible range of Microfinance Institutions. The need to localize and customize to meet specific needs is very real. Targets for specific features, currencies, languages, regulatory environments, etc. will drive the functional requirements for all of the development efforts. But, there is not a single defined “market target” for the product as a whole – it is intended to serve the needs of any MFI in the industry that does not already have a suitable MIS system. What is the general development plan? GFUSA will build the initial release of the Mifos MIS system and test it with four MFIs across different geographies and methodologies. Following, the product will be more broadly released and GFUSA will build a support infrastructure to ensure Mifos is highly flexible, scalable and sustainable over time. It will rely on a channel of local service providers to address the challenge of diversity in methodology and operational environments across the sector and the remoteness of many installations. Optimizing the open source model, GFUSA will develop a network of dedicated software developers, within the microfinance, corporate, academic and volunteer communities, to contribute to the ongoing enhancement of the Mifos product. What are the core structural and functional components? Mifos Component Description Structural Components Open Framework The open framework is a key feature of Mifos. While the initial release of the product will be a high-quality, highly functional, robust platform, making the source code available to the industry will facilitate a faster delivery of platform enhancements (including new product modules and third party extensions) and localization (an MFI in Egypt will immediately be able to take Mifos and have it modified, incorporating the Arabic language and other local requirements, without waiting on a proprietary solution provider to reach this stage in its product lifecycle). Mifos will adapt according to market-driven demands, however following are examples of new products and service delivery modes for which the Mifos platform will have the flexibility to support: Credit line products In-house claims processing for insurance products Remittance payments to savings accounts New payment mechanisms such as g-cash and rural transaction systems Integration of biometric identity technology

Flexible Data Model Mifos will ship with a data model that can be expanded, as MFIs needs grow, to support new functionality without affecting the core functionality or requiring code to be re-written As MFIs grow they may eventually need to move to a larger database system. The advantage of Mifos is that the data model is not tied to a particular database. It can be changed without affecting the large majority of the application code. Web-based, user interface (UI) The web interface for Mifos will be highly intuitive and easy to use. Exposure to the web- paradigm is relatively widespread in the microfinance sector, therefore Mifos is introducing an environment many users are already comfortable with The UI layer is separate from business logic, allowing developers to easily modify it. There is a delivery advantage in the web-based user interface in that users only require a web browser on their computer Security Data security is a critical component of the Mifos system to minimize fraud and error. The database level security of the Mifos system will ensure that transactions cannot be compromised. Connectivity Modes Unlike many of the applications in the market today, Mifos will support different connectivity modes, recognizing that these can vary considerably across countries and within countries. Remote Server Mode (RSM) assumes that there is a central server located at the Head Office (HO) or hosted by an ASP. This server will be accessed via web interface. In Local Server Mode (LSM) HO acts only as a data aggregation point and all branches will have separate installations of Mifos on their local computers In Mix Mode an MFI can opt to operate with some branches in the remote server mode and others operating in local server mode.

Localization Support Mifos is designed with Internationalization and Localization support to ensure a truly global applicability. The initial release will ship with English and Spanish language support, however because of the underlying architecture other languages can easily be added and we anticipate Chinese and Arabic will be next Mifos will support the display and math calculations for several currencies. Thus, an MFI can select one of these languages, time zones and a currency for their installation. A user can still select a different language for their user interface; however, all inputs will be stored in the official language and currency selected by the MFI. Multiple instances of Mifos can co-exist that have been setup in different language and/or currency. If the market demands, the open source community can adjust the Mifos user interface and code to support multiple languages and multiple currency in the same installation Data Standards Incorporating data standards into the implementations of Mifos, we will expand the MFIs’ flexibility in operations and reporting, such as: Sharing data with a centralized Credit Bureau (currently being piloted by GFUSA in Morocco) Enable asynchronous transactions in remote locations, by integrating with Rural Transaction Systems, ATMs and mobile phone payment systems Provide full visibility of transactions over a segment of the portfolio sold as security

Multiple Lending and Savings Methodologies From the instigation of the data model, GFUSA has had numerous microfinance models at the forefront of the design. This includes Grameen style group lending, revolving fund lending/savings and individual lending. GFUSA recognizes that methodologies are evolving and hybrids are being adopted, therefore the data model gives Mifos the capacity for MFIs to create an unlimited number of highly flexible loan, savings and insurance products, regardless of their service delivery model.

Features Client Management Data input and processing of new and existing clients, client groups and field officer relationships. Mifos tracks client interactions and provides baseline data on customer outreach Client & Impact Surveys Mifos will provide a set of defined surveys for impact assessment, monitoring and evaluation of microfinance programs. This will include GFUSA’s ‘poverty scorecard’, which will enable a more comprehensive social performance measurement. Loan Portfolio Management Creates loan terms for an unlimited number of loan products. Records data on loan applications, approvals, disbursements and user can input transactional data including repayments. Will track individual and group loans, including individual transactions for group accounts. There will be a bulk entry tool for group lending methodologies. Savings Management Creates terms for unlimited number of savings products including voluntary, mandatory and loan insurance for individual and group savings accounts. Insurance Creates terms for unlimited number of insurance products including insurance against loans, group insurance, insurance against death or injury Tracks collections of premiums for third-party insurance products Accounting Support The Mifos platform will be designed to allow integration with third party accounting applications. This will allow MFIs to continue to utilize full-featured accounting software, which is often specific to the regulatory environment of their country. General Ledger codes for all product, account and transactional data will be captured in the Mifos system for a seamless interface. Reporting Mifos will include a set of defined formatted reports for analysis of financial, operational and general client portfolio data. It will provide a flexible report infrastructure to enable the addition of reports as needed.

What is the development strategy? Initial release of Mifos platform The initial release is being built using an experienced and compensated development team to accelerate progress and ensure the highest possible quality for the core system. GFUSA has contracted a development firm in India, Aditi Technologies, to develop the initial beta version. To meet the complex challenge of developing a solution that addresses the diversity in methodology, geography and operational environments, GFUSA has complimented the efforts of Aditi with expert volunteers. The initial release of the software will be implemented and tested at four MFIs. Not all of these practice Grameen-style microfinance. This diversity reflects an intentional strategy to mitigate the risk of homogeneity and ensure the Mifos design addresses the needs of a broad spectrum of MFIs. Following the beta testing period the product will be released for broader adoption. Build ongoing development and support infrastructure While initial development of the Mifos product will be completed under the direction of GFUSA, ultimately Mifos will belong to the microfinance industry, with the source code and accompanying documentation available to the public under the Apache 2.0 license. To cultivate a sustainable, global Mifos development and support network, GFUSA has identified three parallel tracks: Develop the technical infrastructure and governance framework to facilitate global contributions Build a network of local IT service providers and developers – “Mifos Specialists” Establish a network of volunteer contributors, motivated by information and communication technology for development (ICT4D^?) Why isn’t Mifos available as Open Source code now? Mifos will be a fully free open source system. Its core value is being open source and thereby easily adaptable to the individual MFI operations, local language, currency and regulatory environments. The timing of when to make the code base available to the entire open source community is continually being evaluated. In most open source projects, the initiator(s) generates a basic architecture and initial code before posting it to the open community. Mifos is in this first stage. Grameen is also in the process of establishing the technical infrastructure and governance practices. Therefore, we are currently seeking program contributors that are willing to work under these conditions and help us get the product ready for both the initial betas and for full open source release. When will the Mifos code be released as full Open Source? Later this year. Grameen would like to have certain things in place before releasing the code to the general community. We are currently seeking to hire a full time Software Development Manager that will work with the community and manage the official releases of the product. We are putting in place the infrastructure and that can support the open source developers. And, finally, the development team and core initial program contributors are working to complete the initial release of the code. When will Mifos be released for use by the Microfinance institutions? The Mifos program includes testing and beta phases through the mid-part of 2006. Product release and official announcement is targeted for November 2006 at the Microcredit Summit in Halifax.

-- Main.krissowolla - 22 Mar 2006