Microfinance institutions: Digital technology as the key driver for growth

MFIs need to embrace digital technology as a key driver for market growth, promoting financial inclusion and meeting the increasing demand for microloans through online platforms and advanced technologies ultimately aiming to create a resilient, modern, and innovative microfinance ecosystem

In recent years, microfinance – whose main aim has been to offer microloans to the world’s unbanked population and reach the poor and the financially marginalised customers – has witnessed significant growth, which skyrocketed with the Covid-19 pandemic.

The rise in the number of microfinance institutions (MFIs) has helped developing countries to improve the standard of living of the poor and low-income people by providing easy access to financial services, equally, to all layers of social class.

But to continue offering their services in the long run, and serving the scope that were initially founded for, they need to enter the digital age and embrace new technologies that will offer added value to the community.  

MFIs seem to be the decisive tool that will fulfil the growing need for microlending of a large percentage of the population, either for personal prosperity, financial inclusion or business purposes, which will significantly drive market growth.

In this context, the evolution of digital technology shall play a catalytic role in transforming the landscape of financial services.

It is evident that the shift from traditional lending to digital microfinance is not just a trend but a digital revolution that totally changes the way people receive finance, online through smartphones and the internet, instantly and at affordable prices.

Therefore, to achieve market growth, digital technology becomes the key driver to support the growth of MFIs.

MFIs need to focus on the entire digital transformation journey of their clients including the digitisation of traditional distribution channels, the increased connectivity with all stakeholders, and the digitisation of all processes to remain competitive and better serve them.

The challenges that lie ahead reflect the speed of transactions with less or no intermediaries, cost reduction using more efficient operating models, and the ability to provide access through every channel, traditional or digital, to enable users of every social class reap the benefits of the service.

Moreover, they need to focus on catering for their customers by offering tailor-made solutions using technologies such as big data analytics, artificial intelligence (AI), machine learning (ML), and mobile and internet services.      

On the other end of the spectrum, MFIs need to embrace the new digital technologies by adopting online platforms that can be accessed through mobile or web applications, enabling users to apply directly for a loan from their mobile or PC with just a few “clicks”.

The embedded technology shall be able to provide the approval and disbursement of the loan in a couple of hours, if not instantly, regarding the financing of investment needs, working capital or settlement of outstanding debts.

To address these challenges, trends and issues, MFIs now can select among a wide range of solutions available in the market. However, it is crucial to adopt a front-to-back banking solution that integrates both core and digital banking applications, combining leading technological and banking expertise.

In addition, the selected platform should support digital onboarding as well as the entire financial management of lending products in a digital and agile way, significantly reducing time implementation, operating costs and service time.

Personalisation for users and customers should be part of the offering to differentiate the solution from the competition by offering a friendly and frictionless customer journey and enhancing their digital engagement.   

MFIs should monitor the evolving customer needs and align their strategies and business models to meet their expectations. It is a challenge to automate and streamline processes, so they should consider investing in more flexible, robust, and fully integrated platforms.

At the same time, by adopting technology solutions, they can achieve regulatory compliance regarding capital and liquidity requirements in a natively integrated, yet modular environment.

Deploying a mobile-first, cloud-native digital platform is essential for all MFIs to offer a rich experience to their customers. The automated digital onboarding for new customers and seamless credit origination and detailed information on application status and active loans leverages the full omnichannel capabilities through a fresh, modern, and intuitive user experience.

All in all, MFIs need to prepare themselves for the present and the evolving challenges by turning them into opportunities of meaningful digital transformation.

Adopting an end-to-end solution like Profile Software’s Finuevo Suite that fuses the robust and flexible lending capabilities of a core platform blended with a unique digital experience for end clients shall leverage their digital infrastructure and contribute to building a resilient, modern, and innovative microfinance ecosystem.

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