Microfinance based on Smartcard

BGS Smartcard

Microfinance based on Smart Cards

Business Context
The United Nations International Year of Microcredit 2005 provided an occasion to raise awareness of the importance of microcredit and microfinance in the eradication of poverty by supporting the poor and low-income segment of the population increase and stabilize their incomes, build assets, and strengthen the powerful, but often untapped, entrepreneurial spirit existing in communities around the world.

In many developing countries microfinance scenarios have become a profitable business scheme as microfinance institutions worldwide have shown that poor, unbanked people are creditworthy and that the daily microsavings of a mass population can accumulate into substantial amounts of money generating a profitabel money float for the microfinance institution. In general, microfinance is the provision of a broad range of financial products such as deposits, loans, payment services, money transfers, insurance and others to low-income households and, their micro enterprises which are usually concentrated in rural and thus more underdeveloped areas. Client access and efficient provision of banking products in rural markets, usually fails through missing branch infrastructure which in turn is the result of a low populated environment. One of the core problems for banks is high transaction and service costs. Creating the necessary branch and service infrastructure to reach a large number of small borrowers who require credit frequently and in small quantities, requires large investments in service outlets and personnel.

System Description
The DUET system platform has been geared to offer financial institutions, operating in rural and urban cash dominated mass markets, the means to provide a flexible and profitable financial card based solution. In order to achieve the necessary outreach and functionality in areas lacking telecom and branch infrastructure, microprocessor smart cards utilizing the offline card to card transaction conception are the basis of the solution. The establishment of a full-coverage, low cost agent network will enable Banks and Microfinance Institutions (MFI) to successfully tap into the microfinance market, using one common system platform.

MF Product 1: Remote Savings book
The Microfinance Host Center provides the field agent with client specific account information prepared for this day. This information, such as client current account balances and amounts to be collected, could be prepared based on the predefined route taken by the agent reflecting his periodic customer visits schedule. At the point of interaction in the field, the client enters his card into the hand held terminal of the agent, the two cards establish a secure session in an offline mode during which any updates for this specific client, available on the agent card as described above, are transferred to the client card. If we assume a further savings transaction, cash against savings, the value of the respective amount collected in cash is written to the client card (savings certificate). This savings data transaction is signed by the agent using the agent PIN and the transaction is stored on the agent card from where it is transferred to the host at the end-of-day upload. The host then uses this transaction information to perform the necessary updates to the client savings account, making this information available at the next agent download for this client’s visit.

MF Product 2: Remote Microcredit Operations
The Microfinance Host Center approves and issues a Microcredit against prior client application delivered through a field agent. The approved value is transferred to the clients microcredit account and is made available as a secure certificate for the agent download prior to the client visit. As part of the secure offline communication between agent and client cards, the credit value is transferred onto the client’s card. Now the client card has spending power which can be used for the purchase of goods and services at a merchant terminal. At future agent visits to the respective client, the agreed repayment amount would be paid in cash to the agent and recorded on the agent card as a repayment transaction, ultimately being uploaded to the host for microcredit settlement and account update. With every repayment, the outstanding loan value would be decreased on the client card, offering the client a reference to his account’s status. The cash repayments would also always be performed against the agent’s available cash collection limit maintained on his card.

Benefits

• Provision of customized financial services to low-income households in rural markets that would otherwise remain unbanked
• Establishment of a low-cost agent-host network in areas lacking the necessary infrastructure through the use of smart card technology
• Provision of mobile, manageable and transparent “last mile” delivery channels through field agents
• Architecture soundness guaranteeing secure, uninterrupted and fault tolerant system operation
• Improved system reliability due to usage of distributed server resources and a combination of online and offline transaction processing
• Lowest total cost of ownership consisting of costs of infrastructure, transactions and operations
• Reduction of all manual procedure generating immense paper work and manual error
• Increased speed of operations: Transactions that usually take a couple of minutes each can now be done in just a fragment of time
• Reduced administration costs due to automation of process flows
• Easy and convenient monitoring of financial operations viewable with a pocket sized Value checker, at ATMs or banks as often as required
  
• Dynamic information on customer behavior and habits