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Microfinance software is designed to handle financial systems that have very low value transactions. These systems are often aimed at people whose incomes or credit records make them unsuitable for mainstream financial services. Such systems are also used in geographic areas not served by mainstream finance. The main selling point of specialist microfinance software is that it greatly reduces administrative costs, particularly on a per-transaction basis.
There are two main situations where microfinance plays a role. One is for low-income people in developed countries. Because such people often struggle to get suitable services from major financial institutions, they may instead be served by specialist projects. These include community-based projects such as credit unions that offer loans at higher rates than in mainstream banking but considerably lower rates than so-called loan sharks.
The second outlet for microfinance is in developing nations. In many cases, major banks will not spend money to set up service provision in such areas, as they do not consider the investment profitable. Another drawback for mainstream banks is that many people do not own property or land that can be offered as collateral.
Technology can play a major role in keeping costs down. This is vital in two respects. First, it can mean lower interest rates, making credit facilities more affordable to customers. Second, it means there is a better chance of projects reaching the point where they are entirely self-funding and thus sustainable.
While microfinance software is similar to mainstream financial software in many respects, there are some specialist features in many applications. These can include user interfaces written in multiple languages, removing the need to rely on automated translation services. Another is a scalable pricing system, meaning that organizers can gradually increase the number of accounts they handle without suddenly facing major price increases. It can also be important that even though the finance projects may be small-scale and relatively simple, the software still has the flexibility to deal with situations such as writing off a loan or freezing interest and extending repayment periods without penalty.
There are also forms of microfinance software that go beyond a single market or project. These include online lending schemes. These are web-based applications that bring together lenders and borrowers across the world, acting as an intermediary. The idea is that using the web increases the size of the market and thus makes it accessible even to people who want to lend or borrow small amounts of money.
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