Top

Published in:

2021 | OriginalPaper | Chapter

4. The Impact of Technology on Microfinance

Author : Roberto Moro-Visconti

Published in: MicroFinTech

Publisher: Springer International Publishing

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

After the microfinance background, examined in Chapter 1, and the microfinance issues, illustrated in Chapter 2, this chapter analyzes the impact of technology on microfinance. Technological instruments include the digital scalability of lending networks, crowdfunding and peer-to-peer lending, or blockchains for data validation.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Technik"

Online-Abonnement

Mit Springer Professional "Technik" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 390 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Maschinenbau + Werkstoffe

Jetzt Wissensvorsprung sichern!

inform now

previous chapter Microfinance Issues

next chapter Fintechs

Mia (2020).

Srinivas and Mahal (2017).

See Zamore et al. (2021).

See Demirguc-kunt et al. (2018).

Source: International Monetary Fund—http://data.imf.org/

See https://blogs.imf.org/2019/02/14/fintech-in-sub-saharan-africa-a-potential-game-changer/.

.https://dataprot.net/statistics/mobile-banking-statistics/#:~:text=Key%20mobile%20banking%20statistics&text=86.5%25%20of%20Americans%20used%20a,billion%20unique%20mobile%20users%20worldwide.

See Dorfleitner et al. (2017).

See Banerjee et al. (2015) and Sundaresan (2009).

Barnett (2011).

See Agrawal and Sen (2017).

See Pedrini et al. (2016).

Pythowska and Korynski (2017).

Collins et al. (2009).

See Collins et al. (2009, p. 14).

http://www.yearofmicrocredit.org/pages/whyayear/whyayear_quotecollection.asp.

See Sect. 6.9.

http://www.cgap.org/blog/6-ways-microfinance-institutions-can-adapt-digital-age.

https://www.ifc.org/wps/wcm/connect/67a1ee9e-9f95-4baa-8430-2a101ca77a9e/MFI+Digital+Strategy+Field+Note_8.pdf?MOD=AJPERES.

https://www.economist.com/briefing/2015/10/31/the-great-chain-of-being-sure-about-things. See also Mattila (2017).

In cryptography and computer science, a hash tree or Merkle tree is a tree in which every leaf node is labeled with the hash of a data block and every non-leaf node is labeled with the cryptographic hash of the labels of its child nodes. Hash trees allow efficient and secure verification of the contents of large data structures. A Merkle tree is recursively defined as a binary tree of hash lists where the parent node is the hash of its children, and the leaf nodes are hashes of the original data blocks (https://en.wikipedia.org/wiki/Merkle_tree).

https://www.henrylab.net/wp-content/uploads/2017/10/blockchain.pdf.

There are different types of blockchain: some are open and public, and some are private and only accessible to people who are permitted to use them. A public blockchain is an open network. Anyone can download the protocol and read, write, or participate in the network. A public blockchain is distributed and decentralized. Transactions are recorded as blocks and linked together to form a chain. Each new block must be timestamped and validated by all the computers connected to the network, known as nodes, before it is written into the blockchain. All transactions are public, and all nodes are equal. This means a public blockchain is immutable: once verified, data cannot be altered. The best-known public blockchains used for cryptocurrency are Bitcoin and Ethereum: open-source, smart contract blockchains. A private blockchain is an invitation-only network governed by a single entity. Entrants to the network require permission to read, write or audit the blockchain. There can be different levels of access and information can be encrypted to protect commercial confidentiality. Private blockchains allow organizations to employ distributed ledger technology without making data public. But this means they lack a defining feature of blockchains: decentralization. Some critics claim private blockchains are not blockchains at all, but centralized databases that use distributed ledger technology. Private blockchains are faster, more efficient and more cost-effective than public blockchains, which require a lot of time and energy to validate transactions (https://www.intheblack.com/articles/2018/09/05/difference-between-private-public-blockchain).

Electronic money transfers made from one person to another through an intermediary, typically referred to as a P2P payment application. P2P payments can be sent and received via mobile device or any home computer with access to the Internet, offering a convenient alternative to traditional payment methods.

https://www.henrylab.net/wp-content/uploads/2017/10/blockchain.pdf.

World Bank (2020).

Davradakis and Santos (2019) and Fosso Wamba et al. (2020).

Kshetri (2017).

https://ripple.com/insights/the-internet-of-value-what-it-means-and-how-it-benefits-everyone/.

https://coincentral.com/sharing-economy-companies-are-set-to-be-disrupted-by-blockchain/.

https://medium.com/trivial-co/lending-and-borrowing-on-the-blockchain-should-banks-be-scared-e0a01c857c43.

Oracles (https://www.mycryptopedia.com/blockchain-oracles-explained/) provide additional functionality to smart contracts by providing a means for them to communicate outside of a decentralized blockchain network. Blockchain oracles can take on numerous forms, some of those forms include but are not limited to:

• Software oracles;

• Hardware oracles;

• Inbound oracles;

• Outbound oracles;

• Consensus-based oracles.

AFI. (2018). Digital transformation of microfinance and digitization of microfinance services to deepen financial inclusion in Africa. Available at https://www.afi-global.org/publications/2830/Digital-Transformation-of-Microfinance-Digitization-of-Microfinance-Services-to-Deepen-Financial-Inclusion-in-Africa.

Agrawal, P., & Sen, S. (2017). Digital economy and microfinance. The MIBM Research Journal, 5(1), 27–35.

Altinok, A. (2018). Group lending, sorting, and risk sharing. Available at https://www.researchgate.net/publication/324953074_Group_Lending_Sorting_and_Risk_Sharing.

Armendariz De Aghion, B. A., & Morduch, J. (2010). The economics of microfinance. MIT press.

Ashta, A. (Eds.). (2011). Advanced technologies for microfinance. IGI Global.

Ashta, A. (2012). Co-creation for impact investment in microfinance. Strategic Change, 21, 71–81.CrossRef

Banerjee, A., Duflo, E., Glennerster, R., & Kinnan, C. (2015). The miracle of microfinance? Evidence from a randomized valuation. American Economic Journal: Applied Economics, 7(1), 22–53.

Barabási, A. (2016). Network science. Cambridge University Press.

Barnett, B. (2011, October). Cloud computing & financial services for the poor. Usaid. Available at https://Www.Microfinancegateway.Org/Sites/Default/Files/Mfg-En-Toolkit-Cloud-Computing-Financial-Services-For-The-Poor-Primer-Procurement-Guidance-Oct-2011.Pdf.

Bazarbash, M. (2019). FinTech in financial inclusion: Machine learning applications in assessing credit risk (IMF Working Papers, Wp/19/109). Available at https://www.imf.org/en/Publications/WP/Issues/2019/05/17/FinTech-in-Financial-Inclusion-Machine-Learning-Applications-in-Assessing-Credit-Risk-46883.

Budampati, S. (2018). Impact of Information technology on microfinance industry. Advanced Science and Technology Letters, 150, 116–121.

Collins, D., Murdoch, J., Rutherford, S., & Ruthven, O. (2009). Portfolios of the poor: How the world’s poor live on $2 a day. Princeton University Press.

Cong, L. W., & He, Z. (2018, April). Blockchain disruption and smart contracts (NBER Working Paper no. 24399).

CSFI. (2011). Microfinance banana skins 2011. Available at www.cgap.org/p/site/c/template.rc/1.9.49643/.

Davradakis, E., & Santos, R. (2019). Blockchain, FinTechs and their relevance for international financial institutions (EIB Working Papers no. 2019/01). European Investment Bank.

de Oliveira Leite, R., dos Santos Mendes, L., & Sacramento, L. C. (2019). To profit or not to profit? Assessing financial sustainability outcomes of microfinance institutions. International Journal of Finance & Economics, 24(3), 1287–1299.CrossRef

Demirguc-Kunt, A., Klapper, L., Singer, D., Ansar, S., & Hess, J. (2018). The Global Findex Database 2017: Measuring financial inclusion and the FinTech revolution. Available at http://documents1.worldbank.org/curated/en/332881525873182837/pdf/126033-PUB-PUBLIC-pubdate-4-19-2018.pdf.

Dorfleitner, G., Hornuf, L., Schmitt, M., & Weber, M. (2017). FinTech in Germany. Springer Verlag.

Dujak, D,. & Sajter, D. (2019). Blockchain applications in supply chain. Springer Verlag.

Ernst & Young. (2019). FinTech ecosystem playbook. Available at https://www.ey.com/Publication/vwLUAssets/EY-fintech-ecosystem-playbook/$FILE/EY-fintech-ecosystem-playbook.pdf.

European Commission. (2020). Microfinance in the European Union: Market analysis and recommendations for delivery options in 2021–2027. Available at https://ec.europa.eu/social/main.jsp?catId=738&langId=en&pubId=8347&furtherPubs=yes.

Fanconi, P., & Scheurle, P. (2017). Small money—Big impact: Fighting poverty with microfinance. Wiley.

Fosso Wamba, S., Kala Kamdjoug, J. R., Bawack, R., & Keogh, J. (2020), Bitcoin, blockchain, and FinTech: A systematic review and case studies in the supply chain. Production Planning and Control, 31(2–3), 115–142.

Gander, J. (2015). Designing digital business models. Kingston University.

GSMA. (2019). Mobile money: Key success factors of a National Financial Inclusion Strategy. Available at https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2019/03/GSMA_Key-Success-Factors-of-a-National-Financial-Inclusion-Strategy-1.pdf.

Gupta, A., Christie, R., & Manjula, R. (2017). Scalability in internet of things: Features, techniques and research challenges. International Journal of Computational Intelligence Research, 13(7), 1617–1627.

Gutiérrez-Nieto, B., & Serrano-Cinca, C. (2019). 20 years of research in microfinance: An information management approach. International Journal of Information Management, 47, 183–197.CrossRef

Jin, X., Wah, B. W., Cheng, X., & Wang, Y. (2015). Significance and challenges of big data research. Big Data Research, 2(2), 59–64.CrossRef

Kaicer, M. (2020). Information technology performance management by artificial intelligence in microfinance institutions: An overview. International Journal of Computational Intelligence Studies, 9(3), 186–189.CrossRef

Kauffman, R. J., & Riggins, F. J. (2012). Information and communication technology and the sustainability of microfinance. Electronic Commerce Research and Applications, 11(5), 450–468.CrossRef

Korpela, K., Hallikas, J., & Dahlber, T. (2017). Digital supply chain transformation toward blockchain integration. Paper presented at the 50th Hawaii International conference on system sciences (p. 4182).

Kshetri, N. (2017). Potential roles of blockchain in fighting poverty and reducing financial exclusion in the global South. Journal of Global Information Technology Management, 20(4), 201–204.CrossRef

Kumar, K., McKay, C., & Rotman, S. (2010). Microfinance and mobile banking: The story so far. Available at https://www.cgap.org/sites/default/files/CGAP-Focus-Note-Microfinance-and-Mobile-Banking-The-Story-So-Far-Jul-2010.pdf.

Lui, P. T., (2016). Medical record system using blockchain, big data and tokenization. Paper presented at the Information and Communications security: 18th International Conference (pp. 254–261).

Mann, L. (2017). Left to other peoples’ devices? A political economy perspective on the big data revolution in development. Development and Change, 49(1), 3–36.CrossRef

Mattila, J. (2017). The blockchain phenomenon. The disruptive potential of distributed consensus architectures. Available at https://brie.berkeley.edu/sites/default/files/juri-mattila-.pdf.

Mia, M. A. (2020). Technological change and innovations in microfinance institutions: What matters? Global Business Review, 17(5), 1179–1195.

Moro Visconti, R. (2020). The valuation of digital intangibles. Technology, marketing and internet. Palgrave Macmillan.

Moro Visconti, R. (2021). Startup valuation. Palgrave Macmillan.

Moro Visconti, R., Larocca, A., & Marconi, M. (2017). Big data-driven value chains and digital platforms: From value co-creation to monetization. In A. K. Somani & G. Deka (Eds.), Bigdata analytics: Tools, technology for effective planning. CRC Press.

Mushtaq, R., & Bruneau, C. (2019). Microfinance, financial inclusion and ICT: Implications for poverty and inequality. Technology in Society, 59, 663–686.CrossRef

Mwashiuya, H. T., & Mbamba, U. O. L. (2018). Relationship between information communication technology adoption in microfinance institutions and access to financial services. International Journal of Research, 5(4), 264–280.

Norman, M. D., Karavas, Y. G., & Reed, H. (2018, June 4). The emergence of trust and value in public blockchain networks (Working Paper). http://s3.amazonaws.com/arenaattachments/2332393/536b3b1208a6debfa6eaf5b9c9c9187a.pdf?1529445044.

Nourani, M., Malim, M., & Mia, M. A. (2020). Revisiting efficiency of microfinance institutions (MFIs): An application of network data envelopment analysis. Economic Research—Ekonomska Istraživanja, 34, 1146–1169.

Paul, E., et al. (2018). Performance-based financing in low-income and middle-income countries: Isn’t it time for a rethink? BMJ Global Health, 3(1).

Pedrini, M., Bramanti, V., Minciullo, M., & Ferri, M. L. (2016). Rethinking microfinance for developed countries. Journal of International Development, 28(2), 281–302.CrossRef

Postelnicu, L., Hermes, N., & Szafarz, A. (2014). Defining social collateral in microfinance group lending. In R. Mersland & R. Ø. Strøm (Eds.), Microfinance institutions. Palgrave Studies in Impact Finance. Palgrave Macmillan.

Pythowska, J., & Korynski, P. (2017). Digitalizing microfinance in Europe. Available at https://www.european-microfinance.org/sites/default/files/document/file/Digitalization-research-paper.pdf.

Reinhardt, R., Hietschold, N., & Gurtner, S. (2019). Overcoming consumer resistance to innovations—An analysis of adoption triggers. R&D Management, 49(2), 139–154.CrossRef

Riggins, F., & Weber, D. M. (2016). Exploring the impact of information and communication technology (ICT) on intermediation market structure in the microfinance industry. The African Journal of Information Systems, 8(3).

Russel, J. & Norvig, P. (2015). Artificial intelligence. A modern approach. Pearson.

Saberi, S., Kouhizadeh, M., Sarkis, J., & Shen, L. (2018). Blockchain technology and its relationships to sustainable supply chain management. International Journal of production researching, 2117–2135.

Sarkar, S., & Alvari, H. (2018). Mitigating bias in online microfinance platforms: A case study on Kiva.org. In I. Koprinska et al. (Eds.), ECML PKDD 2020 workshops. Communications in Computer and Information Science (Vol. 1323). Springer Verlag.

Shah, S., Rahman, M., & Khan, J. A. (2019). The mediating role of group lending between poverty and microfinance. NICE Research Journal of Social Science, 12(2).

Sharma, S. K., & Al-Muharrami, S. (2018). Mobile banking adoption: Key challenges and opportunities and implications for a developing country. In Y. Dwivedi et al. (Eds.), Emerging markets from a multidisciplinary perspective. Advances in theory and practice of emerging markets. Springer Verlag.

Sharma, S., Singh, P., Singh, K., & Chauhan, B. (2017). Group lending model—A panacea to reduce transaction cost? Zagreb International Review of Economics and Business, 20(2), 46–63.CrossRef

Srinivas, V., & Mahal, R. (2017, September). Digital transformation: The next big leap in microfinance, PARIDNYA. The MIBM Research Journal, 5(1).

Sun, S. L., & Liang, H. (2021). Globalization and affordability of microfinance. Journal of Business Venturing, 36(1), 1–18.CrossRef

Sundaresan, S. (2009). Microfinance emerging trends and challenges. Edward Elgar.

Tomic, V., & Stojanovic, D. (2018). Trends and innovations in mobile banking. Available at https://www.researchgate.net/publication/330468035.

Usman, G., Tahseen, B. M., & Naseeb, A. (2018). The impact of technology on the sustainable development of microfinance. Global Sci-Tech, 10(1), 22–29.CrossRef

Vandeputte, P., & De Toffol, B. (2017). The rmicrofinance institutions in Western Europe: A qualitative study. Louvain School of Managemole of FinTechs in the business model of ent, Université Catholique de Louvain. Available at http://hdl.handle.net/2078.1/thesis:11338.

World Bank. (2017). The Global Findex Database. Measuring financial inclusion and the FinTech revolution. Available at http://documents.worldbank.org/curated/en/332881525873182837/The-Global-Findex-Database-2017-Measuring-Financial-Inclusion-and-the-Fintech-Revolution.

World Bank. (2020). Smart contract technology and financial inclusion. Available at https://openknowledge.worldbank.org/bitstream/handle/10986/33723/Smart-Contract-Technology-and-Financial-Inclusion.pdf?sequence=1&isAllowed=y.

Yunus, M., & Jolis, A. (1999). Banker to the poor: Micro-lending and the battle against world poverty. PublicAffairs.

Zamore, S., Beisland, L. A., & Mersland, R. (2021). Excessive focus on risk? Non-performing loans and efficiency of microfinance institutions. International Journal of Finance and Economics, 1–18. Available at https://onlinelibrary.wiley.com/doi/full/10.1002/ijfe.2477.

Title: The Impact of Technology on Microfinance
Author: Roberto Moro-Visconti
Publisher: Springer International Publishing
Book: MicroFinTech
Print ISBN: 978-3-030-80393-3

Electronic ISBN: 978-3-030-80394-0

Copyright Year: 2021
DOI: https://doi.org/10.1007/978-3-030-80394-0_4

Springer Professional

Abstract

Please log in to get access to your license.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Springer Professional "Technik"