Microfinance Focus, September 7, 2011: Musoni is this year’s winner of the Global Microfinance Achievement Award for the Most Innovative Use of Technology at the Microfinance Summit in Geneva, Switzerland.

It is the world’s first microfinance institution to exclusively use mobile money. All loans aare disbursed and repaid using the mobile phone and as such Musoni is entirely cash free. It clients receive and repay loans anytime, anywhere, saving transport costs and transaction time.

A conversation with its Founder, Lukas Wellen

Microfinance Focus: Tell us how Musoni is different from traditional microfinance institutions?

Lukas Wellen: Musoni wants to be very client focused. All outgoing and incoming transactions at Musoni are performed using mobile payments. The well-known advantages of mobile payments are that clients receive their money rapidly and without time-consuming hassle. For our MFIs the advantage is that we greatly diminish the administrational efforts of handling transactions, diminish control difficulties and the possibility to make mistakes.

The other advantage is that we know instantly when someone is not repaying, rather than within days or even weeks for more paper-oriented MFIs. Finally, we can present our stakeholders clean figures, as there is no difference between the data at transaction origination and at data recording.

We set-up our own service centre that deals with traditional headaches for MFIs including dealing with IT, funding and concept development. Hence, our field staff can concentrate on what is most important- the clients.

We set-up our approach with the expectation to be large. This means that all structures are designed for growth. This not only applies to our IT-architecture, but for instance also to our manuals and HR-systems.

Most importantly, the result is that clients and credit officers like our hassle-free and timesaving approach.

Microfinance Focus: With the use of mobile technology, what is the effective reduction in the cost of a microloan lent out by Musoni?

Lukas Wellen: We believe that we save costs and, notwithstanding the fact that we are still small compared to our main competitors, we are already among the more affordable MFIs in the region. However, it is difficult to compare our costs to other MFIs as, obviously, none of them wants to share precise costs with a competitor.

However, the biggest advantage of our approach for clients is outside costs. It is that our loan officers can promise clients that they will receive their credit within 72 working hours after loan approval, while we usually deliver within 24 hours. This compares well with more traditional MFIs where it sometimes takes weeks, if not months before the money is actually at the disposal of the client, which is often too late for the intended purpose.

Furthermore, repayment can be done whenever it suits clients and about 66% of all incoming transactions are performed outside traditional banking working hours.

Microfinance Focus: What in your opinion are some of the essential elements of running a successful mobile MFI?

Lukas Wellen: First, a focus on client needs. It is no use to deploy fancy technology without knowing its advantages to clients. Second, operational excellence. New technology is no substitute to good and motivated staff, clear procedures and appropriate control.

Third, a long-term view regarding technology. This should translate into a proper IT-set-up, allowing for repairable error and change in the MIS.

Microfinance Focus: Tell us something about the strengths of your IT system, which supports Musoni’s model.

Lukas Wellen: The main strength is its initial design. It has been set-up taking into account basic administrational needs such as traceability of transaction originators and no time lags between administration and transaction.

The IT-set-up consists of components like the reporting and accounting system that can be changed with some effort. Rather than having a massive IT-block that can only be dealt with as a whole.

Furthermore, each new feature is tested using a fixed protocol in a test environment, rather than in the live IT-environment.

Microfinance Focus: What are some of the risks and challenges of a 100% mobile model? How have you dealt with them?

Lukas Wellen: Obviously, the main risk is that mobile payments are not accepted by clients. Secondly, there should be enough point of sales, where clients can swap their money from mobile to cash and vise-versa.

Hence, market research should take these elements into account.

A big challenge is that we had to build the mobile payments part of our MFI from scratch. A challenge was, for instance, that our field staff didn’t realise the advantages of mobile payments. Some of them had worked in traditional MFIs where data quality can be weak. Hence, they would not act if our clients where in arrears as they didn’t trust the data. Nowadays, they know that our data is clean and they can tackle arrears when they start.

A more technical challenge was that we had to design our own IT-middleware. We were only able to work out the proper approach once we had clients and could see in reality how the middleware worked with, unfortunately, frequent non-standard transactions. This cost the team quite a few sleepless nights. But we tackled every permutation one-by-one and almost all transactions go automatically nowadays.

Microfinance Focus: Is Musoni working on any new product/service?

Lukas Wellen: Musoni wants to expand to rural areas and also offer saving products, once the financial authorities accept our license request.

Microfinance Focus: How do you see the future of Musoni?

Lukas Wellen: Although market conditions are getting more difficult in East Africa, we see that clients, employees and other stakeholders like our approach. Hence, we think that we have an interesting future ahead. In terms of growth we also want to move to other countries. Our shared services concept allows us to do so with relatively limited efforts as our back office has been designed to allow operations in multiple markets.