These Lehigh students collaborated on microfinance projects that included two new technologies.

Over the course of 10 days earlier this year, a team of Lehigh students learned that the worlds of business and technology can intersect in the most unlikely of places.

Like Pueblo Nuevo. And San Pedro Sula. And in countless other town and villages that dot the northwest corner of Honduras.

There, in Central America’s second poorest country, Lehigh students learned how new technology could help spread microfinance to even the most remote communities. Widely regarded as the most promising approach to tackling poverty on a global scale, microfinance loans range from $50-$500 and help the working poor grow their businesses.

It’s a revolutionary concept. Upwards of 10,000 microfinance institutions (MFIs) worldwide already serve more than 100 million clients—mostly women—and provide some of the best tools available today for reducing poverty.

But as with any concept that promotes entrepreneurship—even on such a small scale—its success may hinge on how well the worldwide movement adapts innovative technologies that make it more accessible and, ultimately, profitable.

It’s a challenge the Lehigh team tackled during a semester-long project. Todd Watkins, associate professor of economics and co-director of Lehigh’s Integrated Product Development (IPD) program, led the effort. He was joined by Andrea Wuerth, program director with Lehigh’s Martindale Center for the Study of Private Enterprise.

Where business and technology intersect

This past June, a team of seven Lehigh students started a conversation with technical specialists representing a variety of Honduran microfinance institutions (MFIs). Not only did they meet with officials from such MFIs as FUNED, ODEF and Covelo, but they also discussed data collection and software development opportunities with REDMICROH, a network of 25 MFIs in Honduras.

“Technology will have to play a crucial role if microfinance is to reach the one billion individuals worldwide who are without access to banking or finance services,” explained Watkins. “Unfortunately, most MFIs are tiny, loss-making and charitable organizations that rely on donors. They need to become self-sustaining business models with a focus on becoming for-profit businesses.”

The challenge is that microfinance transactions are labor intensive and rely almost exclusively on paperwork—issues that translate to data inaccuracies and process redundancies that could have otherwise been prevented with technology.

And because loan officers take a personal interest in their clients—traveling from house to house, village to village—the transaction costs are comparatively high. The team of Lehigh students saw an opportunity to streamline the loan transaction process with minimal impact on the client relationships.

Three computer science and business (CSB) students led the charge in developing two customizable technologies. Both prototypes, one is made for Pocket PCs and designed to replace the large amounts of paper forms completed by loan officers in the field. The information collected through this medium can be synchronized with databases back at bank headquarters.

The second technology is a Web interface for branch offices that makes data entry easier and more secure. This could replace a time-intensive process that includes multiple email exchanges and data re-entries.

But there are greater challenges, too. Officials from such leading institutions as the World Bank, ACCION and the Grameen Foundation, for example, have said that a lot of work needs to be done regarding data sharing among MFIs. There also needs to be a more efficient way to track client histories and assess credit histories.

All in due time, says the Lehigh team.

“When you can put a face on poverty, you realize too that so many poor people are so eager to take advantage of any opportunity to improve their lives and their children's lives. To them, the chance to take out a very small loan is their best chance to do this and their commitment is amazing,” said Wuerth, the program coordinator.

“We were so impressed with their motivation, their hospitality, their pride in their businesses, and their commitment to family and community. Above all else, we left Honduras with the impression that microfinance really does work.”

An interdisciplinary approach

The chance to observe microfinance efforts in Honduras caught Watkins’ attention.

Watkins teaches a course on regional economic development and was interested in offering students an opportunity to study microfinance in person, and as a result, he sought and received a grant from the National Collegiate Inventors and Innovators Alliance (NCIIA).

That association is endowed by the Lemelson Foundation, known around the world for supporting innovation and philanthropy initiatives. The microfinance trip to Honduras happened as a result of that award.

“At Lehigh, we integrate our undergraduate programs in such a strong way. This program was a really nice mix of skill sets, and a terrific educational experience,” Watkins said. “Microfinance is a very multidisciplinary problem. There are social and economic issues, business and banking problems, and information management technology questions.”

That predicament provided a unique challenge to the Lehigh team, which consisted of students from international relations, economics, and CSB undergraduate programs.

Joined by Wuerth, Watkins’ team was one of three programs that made up the Lehigh in Honduras program.

Engineers Without Borders, directed by Rick Weisman, professor of civil and environmental engineering, and an archeology group directed by David Small, a professor of sociology and anthropology, were the other two.

--Tom Yencho

Posted on Friday, Dec. 22, 2006