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Overview
The importance and relevance of enabling data interchange between commercial sources of capital and the microfinance sector has been underscored in recent microfinance industry forums. While Microfinance Institutions (MFIs) have long understood the need for auditable accounting practices for both funders and regulatory agencies, the depth and breadth of information required by commercial sources of capital requires a closer look at the ability to segment and analyze portfolio information.
For the commercial banking sector and other sources of capital, the format and type of data needed is dictated by its use. Whereas in equity investments, only summary data validating the strength of the organization and transparency about weaknesses is necessary, for portfolio securitizations, more complex data is required. As the industry grows in terms of the capital requirements, the ability to communicate effectively and in the terms expected by the commercial sector will also grow in sophistication.
There is a need, therefore, to enable standardized reporting from multiple MFIs to multiple sources of capital. IT professionals and Managers of microfinance institutions will need to recognize this need and push vendors and industry associations to coalesce around specific standards of data elements, quality, and transmission protocols.
This Paper, Data Standards for Connecting to Commercial Sources of Capital by Mifos system architect, James Dailey, aims to provide the reader with a grasp of the issues involved and to recommend a sample set of data standards for those in the industry currently considering how to achieve high growth through conversation with commercial sources of capital.
Data Standards and Interoperability
The Mifos platform is intended to promote data standards within the industry by providing a point of reference to existing vendors and other market participants.
"Data standards should cover the following areas :
- Financial reporting, such as those embodied in the Mi x Market platform.
- Connections to commercial capital markets (e.g., the securitization of portfolio) .
- The information needs of credit bureaus and regulatory players .
- Remittances and external payment systems.
- Remote transactions and third - party transactions.
Reporting standards
Leveraging the work by the Mix Market and SEEP Network to develop reporting standards for the microfinance industry and relating these to financial sector norms. This is functionality needed in the Mifos system for
Securitization and Portfolio Segmentation
Deeper histories of transactions, as called for in Data Standards for Connecting to Commercial Sources of Capital . Meta Data must support Pedigree, Quality, and Detailed protocols of data transmission.
Credit Bureaus and Regulatory Players
There are growing Know Your Customer (KYC) laws on the books in countries, and microfinance organizations by dealing with the most marginalized people on the planet, often have problems successfully documenting customers. Biometrics is one way in which this could be solved, absence better governmental identification. Mifos would need to develop a common interface for whichever biometric device and link to customer records.
Credit Bureaus are also important to the industry, as more and more MFis compete for the same customer. In addition, portable credit histories can have a salutory effect on the economy of a country - allowing the labor force more flexibility in entrepreneurial location and growth. Mifos would need to develop a set of methods and data upload transactions - perhaps to the US Standard Metro2.
Remittances and external payment systems.
Remittances are a global business, covering flows well in excess of 100 Billion USD per year. Microfinance organizations by virtue of their physical presence in poor villages and towns are often times well positioned to be the termination point for micro-remittance payments. Also, family members sending remittances would often prefer for the funds to go into a secure savings account, that is accessible as needed, but that is not in a cash form.
Front End to Mifos : Remote transactions and third - party transactions.
End of the dusty road technologies, such as point of sale devices or cell phones, make ideal front end intefaces for third party agents. The Mifos team has articulated a need for integration with something like the RTS system, currently undergoing trials in Uganda. Or, with front end systems proposed by vendors in South Africa and the Philippines, which leverage the SMS (text messaging) built into every cell phone.
Inter-operability with accounting system
Developing a set of protocols for intefacing with multiple accounting systems in an event driven manner. Initially Mifos is designed to work via manual data uploads to an accounting system and via specific configuration work by MifosSpecialists. XBRL-GL has been proposed for this type of functionality, although this does not confine the standards process much.
-- Main.jdailey - 22 April 2006
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