The advent of Microfinance in the 1970s drew a lot of attention to the Indian subcontinent. It was hailed for its simplicity, effectiveness, and most importantly, its impact on entire unbanked communities that helped them rise from their underprivileged and underdeveloped conditions.
The financial inclusion of the unbanked was made possible through microfinancing albeit in a disorderly fashion. It helped entrepreneurs in the economically backward regions accrue enough funds to start a business and support themselves while enabling growth in the hyperlocal economy.
However, Microfinance has been facing a lot of flak lately, and it’s partly because of Microfinance institutions becoming more profit-oriented sidelining the entire “helping-the-unbanked” philosophy.
Not all MFIs are going down that path. Having said that, there’s no denying that some MFIs are out there, resorting to extreme measures if borrowers fail to pay their repayments on time. Heavy penalties and extremely high-interest rates are making people vary of microlending. It has made microfinance more of a roadblock rather than a bridge in aiding the poor.
So, in the midst of all this, will microfinance still be relevant in 2020?
In all likelihood, it will be. There will still be unbanked people in 2020, people who have no credit history and to whom banks do not provide loans. These people will eventually end up relying on Microfinance institutions and other microlenders to take care of their financial needs.
For this, MFIs would need to make changes in its operations to pace up to the changing times and become more relevant to the recent market requirements. Here are a few things that MFIs need to implement right now.
Digital Payments have seen exponential growth in recent years owing to the ever-growing ownership of smartphones even in the remotest areas of the country. The far-reaching nature of smartphones and people’s acceptance of it as a medium of money transfer has opened doors to all kinds of business through smart phones.
Microlending is no exception. Microlenders can get customized loan management software or applications that enable the transfer of funds directly to the borrower and make repayments convenient just the same.
Focusing on Digital Security
Digital Security instils trust in the customer for digital payments. The more secure the transactions are, more likely are consumers willing to use it. Microlenders need to focus on developing effective digital security or partnering up with technology firms. It can help them avoid the risks of a security breach and protect the funds.
Providing Flexibility on Repayments
A major reason for borrowers being wary of Microfinance is because of the strict and restricting repayment schedule that puts them in a tight spot when they are unable to pay on time.
Microfinance has always been about empowering the needy which is why putting them through this condition doesn’t make sense. However, repayments cannot be completely forgotten as well. Rather, it requires a repayment pattern that allows a flexible yet assured repayment cycle.
Volksoft has such features enabled in their loan management software, which makes the burden of repayment less on the borrowers.
VolkSoft is a FinTech company that has developed intelligent loan management solutions for various microfinance institutions, private banks, and business correspondents. It has helped countless microlenders in bringing down the duration of a loan cycle using mobility solutions while allowing deeper penetration into wider markets by integrating regional languages and offline mode. Find out more about their solutions here.