The India growth story has grabbed headlines across the world and has brought in greater personal wealth to many Indians. However, a vast majority still remain financially excluded with no access to formal financial institutions.
The launch of Bandhan Bank and RBI’s in-principle approval for payments banks and small finance banks are part of the government’s efforts to ensure universal financial inclusion and in the long-run, to transform the landscape of the Indian banking and financial sector. MFIs have been a big source of relief for the poor in the under-banked areas of the country and have played a critical role in promoting livelihood promotion activities in the country.
According to a report by Sa-Dhan, an industry association of community development-focused finance institutions, MFIs’ total loan portfolio has grown by a staggering 46.89%, to Rs 48,882 crore in 2015. The sector has also seen the average loan per borrower go up to Rs 13,162 from the previous year’s Rs 10,079.
Technology has played a crucial role in ensuring financial assistance reaches its target audience. With the simple linkage of the Aadhaar number to the bank account, whether the subsidies are reaching those it is meant for at the grassroot level can be tracked. As more applications with enhanced mobile technology improvements come in, social welfare and government subsidies like those for kerosene, fertilisers, LPG, etc, will flow more efficiently to the poor using mobile technology payments systems.
Aadhaar is also helping micro-lending institutions identify their target audience and offer loans to micro-enterprises. The introduction of Aadhaar has also made it easier for micro-lenders to assess the risk involved with lending to specific individuals.
However, it is not restricted to just Aadhaar. App developers across the country are now actively engaged with social development entities to design new solutions to ensure that the benefits reach those it is meant for and that there is accountability.
Armed with a simple machine, MFIs are tracking transactions on real-time basis and digitalising physical records. This has not only brought in higher levels of transparency but can now allow MFIs to scale-up business as they have a better risk assessment and understanding of their portfolio.
Several MFIs have made a successful foray into mobile technology for their operations and have benefited through better tracking of transactions on real-time basis, digitalisation of huge physical records, bringing higher levels of transparency in operations, time-saving & process efficiency and greater scalability.
Clients have also benefited from much faster turnaround time of loan processing and approval, and a safe and secure way of repayment of loans through mobile wallets, thus minimising physical time and effort at collection and dropping of money and significantly reducing incidence of carrying cash.
MFIs are also benefiting from increased and better use of sophisticated data management tools, to track their operational and financial performance and also analyse their customer complaints. They can drill down to the geographical blocks and PIN codes of their customers to monitor lending and repayment and track the credit history of their clients and link seamlessly with credit bureaus’ own databases.
Add to that PM Narendra Modi’s Digital India dream, whose magnitude is set to scale-up at a fast pace. The programme envisions allowing more entrepreneurs to come up from the remotest part of the country. As a result, these “small business units” will play a significant role in growth and employment generation and MFIs can play a crucial role in making this dream a reality.
A number of changes in the regulatory and operational framework have encouraged MFIs to expand the scope of their product offerings and diversify towards a ‘credit-plus’ approach. However, the road ahead will not be easy. The management and utilisation of data will be only more pronounced for MFIs. Collecting money from scattered, remote clients, cost of service delivery for transactions at the “last mile” and effective growth management are just some of the challenges confronting MFIs.
This is where microfinance institutions can leverage technology to speed up the flow of information and capital, automate transactions, control and analyse data. It will also improve customer experience; reduce transaction costs; and increase efficiency and customer outreach for them. Convergence of digital platform in financial inclusion will be beneficial to MFIs and clients alike.
The author is executive director, Sa-Dhan