microReport #114: Microfinance Core MIS Systems - The Business Case for Outsourcing

Core banking management information systems (MIS), information technology (IT) capacity, and infrastructure (reliable electrical power and network connectivity) are critical prerequisites and the foundation for the implementation of new delivery channels and other banking applications, but they continue to be difficult hurdles for microfinance institutions (MFIs), especially the smaller institutions, to overcome.

To address this challenge, a few MFI technology providers have recently developed outsourced core banking solutions. However, MFIs are reticent about adopting outsourcing. The objective of the research documented in this paper is to identify whether outsourced MIS solutions can sufficiently resolve the MIS, IT capacity, and infrastructure challenges of MFIs and enable MFIs to perform more effectively and focus on their business goals. Key research questions included: What would the MFIs gain from outsourcing and what would the trade-offs be? Would they still be able to provide additional services (such as additional delivery channels) by using an outsourced core MIS?

These experiences and lessons learned are summarized in two parts: in this microREPORT #114 as well as a companion “Decision Guide” in microREPORT #115 that provides guidance to MFIs on factors to consider when deciding to outsource or host a solution (either custom developed or bought) in-house.

This Business Case also explores enabling environment issues that may impede the growth of outsourcing in developing countries.