a Brief introduction to Microfinance and Technology

Microfinance is the provision of small financial services to poor people. The movement, as we see it today, started with Microcredit, the provision of loans to poor people, in the 1970s, but forerunners have been around since Jonathan Swift started funds to provide loans to poor people in Ireland in the early 1700s (Hollis & Sweetman, 2004). Nevertheless, despite the high marginal productivity of people with little capital, capital did not flow from rich people in rich countries to poor people in poor countries in the form of loans till recently owing to the high transaction costs associated with asym-metric information (Armendariz & Morduch, 2005; Ashta, 2009). Microcredit solved this problem to some extent through various incentives such as group lending, staggered lending, incremental lending, weekly loan repayments, innovative collateral forms and many unique practices. Yunus indicates that such an access to capital was sufficient for large number of poor people to become entrepreneurs and escape dire poverty (Yunus, 2003). The movement has been growing at the pace of about 30% per annum, indicating that unmet demand is huge. New services are being offered including notably microsav-ings, microinsurance, micro-remittances and transfer payments. The cost of microcredit, nevertheless, remains high owing to the need for processing millions of transactions of very small amounts with poor people. A recent study (Rosenberg, Gonzalez, & Narain, 2009) estimates the cost of credit at around an average of 28%, although lending rates may vary from 10% to as high as 100% depending on the country, its inflation rate, customary practices, and other institutional factors. Although these rates are significantly lower than rates charged by informal moneylenders which could vary from (50% to 1000% and higher), they are still high compared to commercial rates charged by bankers to rich people. The key component of the interest rate structure which seems to be difficult to reduce is operating costs. It is hoped that technology may be a solution , especially information and communication technology. This special issue initiated by IGI Global is to draw the attention of the electronic commerce community to help in this task. It is a part of a global project of a book (Ashta, in press) and two special issues of this Journal dedicated to these issues, of which this issue is the first. Very broadly, technology can help at least in three areas. The first is Management Information Systems. By incorporating suitable …