1. Technological Innovation for Credit Unions and Microfinance Institutions in Africa Page 1
Technological Innovation
for Credit Unions and
Microfinance Institutions
in Africa
Empowering Credit Unions and MFIs in
Africa through Technological Innovation

2. Technological Innovation for Credit Unions and Microfinance Institutions in Africa Page 2
Africa hosts the 3rd highest number of Credit Unions
at 20,4221. With a membership of 18.8 million, loan
asset base of $6.4 billion and penetration of 7%,
Africa presents a great opportunity for banks to tap
into; especially for the likes of Credit Unions and
Microfinance Institutions2.
Known as the land of rise of disrupters in financial
services3, the continent of developing economies,
Africa has welcomed the change brought by
technology and innovation in the lives of their
people. A large portion of the banking market in
Africa is still untapped, fueling the way ahead for
various changes in the manner the financial
institutions do business there.
This paper throws light on how technological
innovation can empower the financial institutions in
Africa (majorly Credit Unions and Microfinance
Institutions) in reaching out to major section of
population and to stay relevant and competitive in
the market while growing their businesses.
1
WOCCU Statistical Report -
http://www.woccu.org/publications/statreport
2
Penetration rate is calculated by dividing the total number of
reported credit union members by the economically active
population of the region (age 15–64 years old).
3
The future shape of financial services in Africa,
PriceWaterCoopers, 2015
Avenues for potential growth for
Credit Unions and Microfinance
Institutions in Africa
Connectivity with customers
Being an unexplored market, Africa is a treasure
trove for financial institutions for getting a large
customer base. This is quite a challenge in itself as
the current penetration levels of financial
institutions, especially Credit Unions or Microfinance
Institutions are very low.
With respect to MFIs in Africa, current market
penetration among low income individuals is less
than 15% for savers and is even lower for
borrowers4. In case of Credit Unions, Kenya, which
continues to be the largest contributor with $4.3
billion in loans and 5.1 million members, has been
barely 20% penetrated through its SACCOs (Savings
and Credit Cooperatives)5.
Improve Operational efficiencies
Another major business challenge / opportunity
prevalent in African financial sector is operational in
nature. Various financial institutions, especially
Credit Unions and Microfinance Institutions have the
trouble of maintaining business operations that are
effective and efficient in nature.
Sub Saharan Africa continues to have by far the
highest expenses worldwide in Microfinance sector
due to operating expenses of 19%, compared to the
global levels of 14%6. In case of Credit Unions, taking
Kenya as an example (Credit Unions are referred
here as SACCOs, Savings and Credit Cooperatives),
the operating expenses were as high as 34.6% with
respect to the total income (as of 2013)7.
4
Microfinance Status Report 2014, Atikus
5
WOCCU Statistical Report -
http://www.woccu.org/publications/statreport
6
MIX Microfinance World: Sub-Saharan Africa Microfinance
Analysis and Benchmarking Report 2010
7
Sacco Supervision Annual Report 2013
With a membership of
18.8 million, loan asset
base of $6.4 billion
and penetration of 7%,
Africa presents a great
opportunity for banks
to tap into; especially
for the likes of Credit
Unions and MFIs.

3. Technological Innovation for Credit Unions and Microfinance Institutions in Africa Page 3
These high operating expenses are due to high staff
expenses common in markets where skilled labour is
scarce, high transaction costs of reaching rural areas,
and high costs of managing savings. Additionally, the
consistently high and increasing risk may lead to high
operating costs as staff spend additional time
following up on outstanding loans.
Move from Legacy to Modern Systems
One more major business opportunity in African
financial sector is the usage of systems by the
financial institutions. Majority of the fund
misappropriation and inefficiencies in operations are
due to usage of manual processes and lack of
systems in financial institutions. Sometimes even the
existing systems need to be replaced as they are not
well-defined to address the business needs of the
financial institutions.
Even if the financial institutions are able to overcome
all of these obstacles and try to obtain a good
system, they lack the large budgets possessed by big
banks to buy one of these. There are a few financial
institutions (CFIs and MFIs of South Africa) that use
legacy systems8, which are facing challenges of
reporting, compliance, operational efficiency,
scalability and not much awareness on the
technological front.
Need for Technological Innovation
The need of the hour for Financial Institutions in
Africa is to find a one-stop solution that can tackle all
these challenges and make financial services,
especially lending services, affordable and available
for the African market. This is where the need of
innovation in Technology plays a major role.
8
“The Microfinance Review 2013: From Microfinance to
Financial Inclusion” – a review of the South African
microfinance sector trends, successes, challenges and policy
issues, University of Pretoria.
Innovation through Mobile based banking
solutions
Mobile based banking solutions are able to address
majorly the challenge of connecting with customers.
With less infrastructure and associated costs, these
services are availed in the hands of the customers
easily.
Shining example is Kenya, where active bank
accounts have grown more than fourfold in a span of
5 years (2007 – 2012) with the aid of M-Pesa. M-
Pesa, a mobile banking service, changed the way
banking transactions worked, creating 17 million
mobile money accounts in the process and the
transactions through them exceeded $375 million
each month (in 2013) and accounted for up to 20%
of nation’s GDP9.
The example of NMB mobile in Tanzania illustrates
the potential that mobile banking holds as a low-cost
distribution channel. Initiated in mid-2009, this
service has already been adopted by more than
400,000 of some 1.2 million account holders by early
2011, and has significantly reduced waiting times at
branches and ATMs. Based on the SMS-like USSD
technology that works on all mobile phones,
registration has been made as easy as possible for
9
ICTs for Financial Services in Africa, “eTransform Africa: The
Transformational Use of ICTs in Africa”, 2012

4. Technological Innovation for Credit Unions and Microfinance Institutions in Africa Page 4
clients, who can instantly sign-up via a short-code
text message.10
Innovation through Shared Services
Innovation through shared services could easily
address the challenge of enabling the financial
institutions to move to modern systems.
According to Deloitte, Shared Services operates as
an internal customer service business. It typically
charges the business units for services provided and
uses service level agreements as a contractual
arrangement which specifies cost, time and quality
performance measures. Business unit management
is, therefore, able to focus a greater portion of its
time on external customers and issues of strategic
importance11.
Sharing of CRM, Financial solutions or even IT
infrastructure instead of investing individually
reduces the costs and helps the financial institutions
in achieving their business needs.
12
Through these shared services, technological
innovation can be realized which leads to –
10
Delivering Financial Services in Sub-Saharan Africa, Roland
Berger, Strategy Consultants.
11
Shared Services Handbook – Hit the Road, Deloitte, 2011.
Increased Efficiency
 Best process practices
 Economies of scale
 Lower labour costs
 Maximum ROI from technology investment
 Standardization
Increased Effectiveness
 Enhance customer service focus through
SLAs and service costing.
 Leveraging specialist skills
 Financial institutions to focus on their
business priorities
 Improved control environment
 Easier data warehousing
Innovation through adopting Cloud
Cloud based solution model is one of the most
sought after and the game changers in the
information technology industry today. A modern
cloud based enterprise solution not only addresses
the operational inefficiency issues, but also takes
care of resolving the challenge of moving away from
legacy systems and adopting modern systems.
By adopting cloud based enterprise solutions, the
need of upfront investment in infrastructure
diminishes and brings out affordable and effective
systems within the reach of financial institutions
which have lesser paying capabilities.
According to ‘Cloud and Hosting: Trends, Priorities,
and Insights in Kenya 2013 Survey Results’ report by
IT market intelligence firm International Data
Corporation (IDC), one-third of the enterprises in
Kenya are looking forward to have cloud
implementations or cloud infrastructure expansions
12
IT Shared Services Center – IT SSC - A powerful organization
to achieve cost savings, process efficiency and even business
transformation, Capgemini Consulting

5. Technological Innovation for Credit Unions and Microfinance Institutions in Africa Page 5
as a key priority.13 Supporting this trend, a Nigerian
based consumer finance company has migrated to
cloud platform recently and has witnessed the shift
in customers towards digital banking. Also, newly
started financial service providers in Nigeria, Kenya
and Angola have adopted cloud banking solutions14
to launch their businesses, emphasizing that cloud is
here to stay.
Adopting technology – the way ahead
for Financial Institutions in Africa
There is a need for technological adoption for
financial institutions like Credit Unions and
Microfinance Institutions. This need is stemmed out
of the fact that these institutions are facing major
challenges in the African market and are in search for
a solution that could resolve them. Mobility, Shared
Services and Cloud – these three key technological
means can help Credit Unions and Microfinance
Institutions to solve their objective.
Mobility has already proven its mettle in the market
through the M-Pesa revolution in Kenya and is here
to stay. Shared services and cloud business models
are the future proof mechanisms to deliver
continuous business agility for MFIs and Credit
Unions.
13
http://www.itnewsafrica.com/2014/04/cloud-a-priority-for-
kenyan-enterprises/
14
http://www.prnewswire.com/news-releases/three-african-
financial-startups-launch-on-mambu-259039621.html

6. Technological Innovation for Credit Unions and Microfinance Institutions in Africa Page 6
Contact Details
Arup Das
Lending Product Head (P&L Management), Nucleus Software
Arup is the Vice President and Lending Product Head (P&L Management) at
Nucleus Software where he is responsible to lead the flagship product to the
next level of global leadership. Before joining Nucleus, he has played various
roles in strategy and product management with leading companies like CISCO,
IPValue and Mphasis.
Author e-mail id: arup.das@nucleussoftware.com
Shivendu Shekhar Mishra
Lending Product Manager, Nucleus Software
Shivendu is a Product Manager with Nucleus in Noida office. Shivendu is an
MBA from Great Lakes Institute of Management with dual majors in Marketing
and IT/Operations. His undergraduate degree is Bachelor’s in Computer
Engineering.
Before joining Nucleus, Shivendu worked in Product Development &
Management, Business Consulting roles with companies like Infosys, CSC and
ZS Associates. As Product Manager, Shivendu’s major focus is to understand
latest business needs and opportunities in Lending market. This is in line with
Nucleus’ philosophy of being driven by strong customer insights and
innovation.
Author e-mail id: shivendu.mishra@nucleussoftware.com
Josyula Krishna
Lending Product Analyst, Nucleus Software
Krishna is a Product Analyst at Nucleus Software in the Product Management
Team of its Enterprise Lending Applications. Krishna is a PGDM holder from
IIM Rohtak with dual majors in Finance and Marketing. He pursued Bachelors
in Information Technology.
Prior to post graduation, he worked with Fiserv India Private Limited as a
Software Engineer in the Banking & Financial Services domain. As Product
Analyst, Krishna is currently responsible for Market research, Competitive
Analysis, Product Marketing and Product Requirement analysis to help Nucleus
develop new business and market models to drive next level of growth for its
Lending products.
Author e-mail id: josyula.krishna@nucleussoftware.com