IBS Journal - Lending Supplement

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IBS's supplements give us the opportunity to dig around our chosen subject areas and, before we start, it isn't always predictable what we will find. When looking for interesting lending system stories, for instance, we weren't expecting cloud computing to be prominent. However, when scrutinising at the low end of the market, it seems clear that this model is starting to have an impact.

Three case studies on microfinance institutions (MFIs) revealed cloud computing advocates, comprising Compartamos Banco in Mexico, Renaissance Credit in Nigeria and Fountain Credit Services in Kenya. While there is a debate to be had about the definition of cloud, with the term often used to describe long-standing hosted models rather than the vanilla virtualisation form, there is no doubt that these organisations see advantages in moving away from onsite implementations. The benefits are clear in two of the cases, with rapid implementations at the MFIs in Africa, both with Temenos' T24. However, as a counter-balance, it is clear that a hosted model is not a guarantee of success, with Compartamos failing with the same supplier and now trying again with SAP.

The low-end of the market has also become populated by payday loan companies. It could be argued that these are at the other end of the ethical spectrum to the MFIs, but things are never black and white. After all, not all MFIs have proved to be shining examples of ethical banking. Nevertheless, many of the payday lenders look to have dubious models, and are understandably incurring the attention of national and international regulators and politicians. One thing that at least some of the payday lenders have in common with MFIs is that they are adopting hosted solutions, with one of these being LendFusion.

One perhaps predictable finding when looking at the lending space is the extent to which the financial crisis has deflected attention from operational efficiency. The timing wasn't great for Euroclear and DTCC when they launched their syndicated lending utilities on the eve of the crisis, but things often come full circle and the attention is now on adapting these to ease the use of loans as collateral, so perhaps their time has finally come.

The business of lending is relatively simple but the dynamics change significantly when times are tough. The demand often increases, at least at the consumer level, but the supply heads the other way, further contributing to the lack of economic growth. It creates opportunities for new players and new models, including peer-to-peer, and focuses attention on risk and regulation. But, while perhaps side-lined for a time, improved efficiency and flexibility are important for long-term sustainability in a world of reduced margins.

Supplement Editor

Other articles in this Lending Supplement (please register free to read these articles):

Analysis: Syndicated lending – What goes around comes around
Case study: Compartamos Banco – Cloud on the horizon
Vendor spotlight: SAP – What's the verdict?
Product spotlight: LendFusion – To tide you over
Case studies: Renaissance Credit & Fountain Credit – A path to the cloud (subscription required)

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