MANILA, Philippines -- Technology is allowing banks in countries like India and Indonesia to explore the otherwise risky business of microfinance.
The use of biometrics and smart card technologies is addressing problems like low literacy that limit access to financial services in remote areas, according to a recent report by Financial Insights, a unit of research firm International Data Corp. (IDC).
Abhishek Kumar, senior research analyst for Asia Pacific, noted that banks in India and Indonesia have emerged as leaders when it comes to deploying biometrics and smart cards in targeting underserved populations.
Historically, microfinance has been perceived as risky and unprofitable, especially prone to low defaults.
The report cited Indonesia’s Danamon bank and India’s ICICI bank as users of biometric and smart card technologies to alleviate the high cost of microfinance administration as well as the expansion of microfinance distribution points.
Biometric authentication systems are particularly useful in areas with low literacy rates. Instead of filling out signatures, customers provide their fingerprints to authenticate themselves and access their accounts through specialized biometric teller machines.
In addition, smart cards are used to track customer interactions to build real-time credit histories and bolster “know-your-customer” initiatives. Ultimately, the use of biometric and smart card technology makes it easier for the masses to access financial services.
“The use of such technology is proving to be quite attractive to the unbanked population,” Kumar said.