Microfinance Industry: Technology Powered Growth Story

Microfinance industry with its agile strategies and able support of technology has come a long way in the last three decades. Many challenges faced by the industry before 2010 viz voluminous and delayed loan application & disbursement process, lack of data regarding over-indebtedness of the clients, minimal awareness of Client Protection Principles (CPP), adhoc communication activities etc were addressed through the technological innovations since then.

The business of unsecured loans given by the microfinance industry was saddled with huge documentation and paperwork which not only made the process slower but also resulted in delay in disbursements to needy customers. Staff of one of the major MFIs at that time, filled as many as 30 registers in their branches. This challenge is now a story of the past as the industry moved on to digital documentation and paperless transactions. Client data is now collected and processed through digital devices like tablets and mobile phones by the loan officers of the companies and banks. These data collection forms are customized with drop downs of pre-set responses and visual questionnaires, to help field staff understand the requirement and provide accurate data.

RBI approved Credit Information Bureaus (CIB) have developed algorithms to capture the exact data on number of loans and loan outstanding for each client. MFIs developed IT infrastructure & capabilities and have started uploading client-wise data on a daily basis to these CIBs which enabled MFIs to obtain a CIB report for each client regarding their indebtedness. This process also helped MFIs to provide loans within the RBI stipulated regulations thus ensuring that clients willingly or unwillingly do not fall into a debt trap. The shift from a self-declaration-based assessment to an instant digital CIB report to check the credit worthiness has paved way for easy identification of worthy customers, eliminated any margin of error and most importantly shortened the turnaround time for loan approvals and disbursements.

The benefits of technological innovations have also reached the clients by way of transparency, accuracy and by removing the information asymmetry that prevailed in a paper-based system. Now many MFIs have moved to digital communication such as SMS and receipts printed through hand held devices. Every client now knows the status of her loan application, sanction/rejection and disbursement. Even in case of rejection, the reasons for the same are communicated through digital communication on her mobile phone. MFIs train the clients on CPP and also reach out to them through e-newsletters, videos on mobile phones or tablets to enhance their awareness on loan right sizing, disadvantages of default and risk involved in engaging middlemen for loan sanctions.

The active involvement of industry self-regulatory organizations (SROs) such as MFIN paved the way in enhancing the credibility of the industry in the eyes of the public and the regulators. They help in regulating and standardizing the fundamental principles of microfinance in every organization and ensured signing of Code for Responsible Lending (CRL) by majority of the Microfinance players which is a step in the right direction.

Another key area that the microfinance industry has embraced and enhanced is data management & analytics. As the major business of MFIs is that of unsecured loans and humongous amount of data is being collected on a regular basis, the same is now digitally captured on mobiles & tabs and is enabling the companies to analyze and digitally forecast the pattern of repayments and client behavior. This in turn led to new product development and process innovations and is also helping the senior management to accurately strategize their next business moves. Selection of geography for operation is now based on data driven objective assessment and rational decision making. Most of the MFIs are able to respond to the data requirements of the regulators, lenders and investors with accuracy and speed.

It is an accepted fact that the success of any microfinance company is largely based on the quality of manpower in the field. Being a people intensive business with millions of clients and hundreds of thousands of employees requiring frequent interactions, quality of service becomes a critical component for client satisfaction. The HR practices in microfinance industry have undergone tremendous change with HRMS systems, which take care of the entire life cycle of the employee from recruitment to full & final settlement, becoming a common feature in the MFIs. These systems keep all the HR services like attendance, leave management, payroll and performance appraisals literally on the finger tips. Training applications with animated audiovisual content in regional language are enabling consistent and continuous learning for the employees on the field.

Vaya Finserv Pvt. Ltd along with many other MFIs implements all of these technological innovations resulting in faster turnaround of business, better productivity of staff and higher client satisfaction.

Overall, the intervention of technology has positively impacted the microfinance business and helped speed up expansion and service quality delivery. As more and more technologies like geo-mapping, process automations & big data analytics get accessible and affordable, microfinance industry is poised to leverage them and further enhance the quality and reach to the unserved and underserved rural areas thus contributing to the economic empowerment of the rural people, one client at a time.