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one of the relizations i have come to working in the fringes of the international development community for the past 3 years is that if pressed to name one semi-“mythical” success of international development , many people will start talking about micro-finance.

Micro Finance is the practice of giving small (even tiny) loans to individuals and small busineses, letting them invest in a small business of their own, and later repaying the loan. It is in effect a bank that specializes in handing out loans to entrepreneurs that are so small, no traditional bank would touch them. The definition of small varies from community to community, but might start with money enough to buy a chicken, and start selling the eggs, and go all the way up to a few thousand dollars to start a small telecenter. The bottom-line is that most people seem to consider this form of development, a good example of sustainable, scalable aid which reaches some of the hardest hit orners of a society. It is also a type of project that has proven it’s worth in many different forms, in many countries around the world.

And for people like me who work with ICT’s (Information and Communication Technologies) for development it is fascinating because it is an obvious place to target for implementation of computer systems. After all keeping tabs on thousands of tiny loans is a daunting task without a computer system. One of the problems has long been that most software packages fro Micro Finance come from the traditional banking and finance software market, and are most often prohibitively expensive, or have been hacked together by a smal ngo somewher in the world as they gradually expanded their own microfinance services, and is hence anything but stable, adaptable and well documented.

This has lead me, and many others to the inevitable conclusion that there would be a interesting market for an Open Source, Free (as in beer and probably also as in speech) microfinance package with a well-designed, stable architecture, and good documentation. The problem, which is also the reason why good Open Source financial packages in general have been few and far between, is that most geeks like to work on software that interests them, especially when doing this work in their spare time. And few real geeks (at least ones that I know) supplement their interest in computers with an intense fascination of finance and bookkeeping.

So while I have spent some time agreeing ith other people in the ict4d space that a good open source microfinance package would eb a great boon, a serious development effort has yet to emerge.
But, acting either as yet another confirmation that the idea is sound, or (hopefully) as a starting place for actually developing this package, a project has showed up on Sourceforge.

From the Microbanking Open Architecture Project website:
The Mo-Ap Project is conceived as an open source effort to develop standards, tools, libraries and solutions for the international micro-finance and micro-credit communities. We are just getting started, please click on the links below to read our documentation and subscribe to our mailing list to find out how you can get involved.

6 thoughts on “Micro Finance & Open Source

  1. This may not be very interesting to a empirical development practitioner like yourself, but I recently attended my microeconomics teacher’s PhD defense (viva). He did his PhD work on a theoretical and empirical framework for looking at subsidised lending in markets that are previously dominated by a moneylender — defined as a lender who has higher costs of finance than an official lender, but who has better information about credit risks and can enforce repayment (presumably because he can credibly issue the threat of physical violence).

    Many microfinance institutions, such as Grameen Bank, are heralded as a form of sustainable development, but in reality they do not make any profits and require large subsidies every year to remain afloat and sustain their activities.

    It turns out that the introduction of a subsidized lender disturbs the equilibrium in the market because it leads the official lender to attempt to lend to everyone, even people who should not receive credit (because of inability to repay or unsustainable business models). This again results in both the official lender and the unofficial moneylender going bankrupt.

  2. Microcredit does not have to be subsidised to work. There are examples of informal micro-credit schemes that are organised by the participants themselves. Good practice in this industry should follow their examples.

  3. Tomas — how very interesting that you are mentioning this. I just had a very interesting conversation at an international dev conference in Washington DC about the very topic. Among other people, I was talking to the guy who is putting on one of the key training sessions for microenterprise practitioners next month in my neck of the woods – see http://www.mdi-nh.org/ There are a couple of tracks on applications that I hoping to check out. I love to talk with you more — especially about the ‘poverty assessment’ tools that are needed in the new schema of focusing microfinance on those living in absolute poverty. It’s a complex field and I am by no means a domain expert here, but I think you are on to something pretty interesting — certainly something we here at Aspiration are looking at as well. Let me know whether you want to talk more — would be nice to reconnect anyway. I am on skypes, if that helps… 🙂

    Katrin

  4. Guan,

    You are very wrong if you think this has no interest, merely because I
    am a dabbling practitioner. I am extremely interested in this sort of
    argument, just like I am extremely interested in any other constructive
    critique of development work, especially when it relates to my direct
    work.

    I can follow the argument of a skewed market as a result of subsidized
    lending, and was wondering whether your teacher’s work had any
    discussion of microlending in markets where there is no official lender,
    or at best the official lender is over-cautious? Unfortunately in many
    of the places where I work, all talk of market equilibrium is a little
    forced, since there often is no finance to be had, even if you will
    accept the risk of physical violence. In those cases, it seems to me
    that the existence of a microlender, subsidized or not, might be one of
    the catalysts that is needed to force the official lender to take the
    local market into consideration.

    I don’t pretend to be an economist, or to fully understand the
    intricacies of subsidies, and in fact, i can’t even quote statistics
    about how many microlenders, and under what circumstances, actually
    become self-sustainable. I do know however that there are large areas
    where the market simply fails to provide even the most basic
    necessities, and to take a pure free-market perspective in those areas
    is naive at best, and pretty dangerous at worst. The macro-economic
    reasons for the failure of local markets are probably clearly
    understandably, and could be understood in terms of finite cash-flow
    being focused on those organisations that have the greatest chance of
    success and growth rates. But in those cases, perhaps spreading the cash
    to other parts of a country is not such a bad idea?

    In any case, I am always interested in other perspectives on these
    issues. thanks.

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