The world is moving towards Digitalisation in true sense and it is having an influence in all of human aspects. The rapidly increasing use of digital tools has had an impact on all sectors of the economy. The financial sector has also seen itself driven into this new era of technology and microfinance is not an exception. While digitalisation of back-end operations has been underway in the microfinance industry, there has been a rise in technology adoption in other aspects of operation as well. Digitalising services is no longer an option for most Microfinance Providers, it is now considered compulsory to stay competitive and reach the last mile.
Microfinance institutions (MFIs) evolved out of efforts to eradicate poverty. They are essentially financial intermediaries that provide small-unsecured loans to low-income clients who are primarily engaged in income generating activities in the informal economy. Nevertheless, with the growing popularity of microfinance institutions, people are rushing to benefit from this service, hence putting pressure on microfinance institutions to modernise their traditional structures and increase productivity to serve more people in lesser time. Fintech, the entry of new age players, has accelerated the micro finance sector to a more efficient digital model, allowing it to serve a larger population at lower costs.
Based on a report by MFIN, the role being played by Fintech companies are seemed to be very prominent within the MFIs ecosystem, with various technology stacks allowing the microfinance sector to do more than their basic operations through collaboration and development. Digitalisation offers an opportunity to microfinance providers to leverage their licence, customer base, outreach to rural and low-income clients, which are of interest to Fintech companies. Through these Digital Financial service providers, MFIs have been able to move beyond the traditional banking system towards efficiency. Numerous digital payment methods are being used to carry out transactions on the same day. Digital technologies are making it more easier for MFIs to collect data and data analytics to identify risk profiles. As data is being gathered, stored, collected, retrieved, analysed and cleaned digitally, the burden of data management is also being alleviated. This helps microfinance institutions to cut costs, provide customer-centric products, reduce fraud, as well as expanding their customer base.
Some of the best features and benefits that Fintech provides to microfinance are as follows:
- Convenience and Proximity- Fintech companies offer more convenience to clients as they provide access to a broader range of financial services such as micro credit, savings, insurance, payments, that customers can access them from remote areas. Hence, eliminating the need to travel to physical branches. This can be done via:
- Mobile Banking, which allows clients for loan payments, deposit money in their mobile wallet for regular savings and money transfers.
- POS terminal/Biometrics, which will help in reducing risk of handling cash for clients and merchants as well as allowing the clients to access their MFIs account, providing them with security and control over their finances while eliminating the risk of theft.
- Faster Transactions- through Fintech services, MFIs will be able to allow its customers to transact, save, take out, and repay loans without having to travel.
The microfinance industry is on the cusp of a transformation. This evolution has transformed access to financial services for low-income populations globally. Hence, becoming one of the most talked- about innovations in global development in the recent decades.