Agri-commodity |
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Digital
Disruption of Microfinance
In its Bharat Microfinance Report – 2016,
Sa-Dhan, the Association of Community Development Finance
Institutions in India, suggests that the Indian microfinance industry is pegged
at Rs. 63,853 crores (~ US$ 10 billion). Yet
a majority of our population still depends largely on informal
and expensive sources of credit (NSS data, 2013). But micro-financing is at a
point of inflection today due to the fortunate culmination of two trends - the
policy environment for financial inclusion has become more facilitating and
technology is able to make everything from application to disbursements and
collections easier to administer and more transparent.
Policy
perspective
The incumbent government has given
financial inclusion a top priority on its agenda. With a series of initiatives,
including Aadhaar identification numbers, the Prime Minister's Jan Dhan Yojana
(PMJDY), the introduction of e-wallets, payment banks and Business Correspondents
(BC), etc., it has become far more convenient for those in the hinterlands to
access the formal financial sector.
Technology
drivers
The application of technology solutions to
microfinance has culminated in the following benefits:
Paperless applications and approvals: Paper loan applications are finally losing their relevance in the
era of mobile-enabled devices, such as laptops and computer tablets. The
lender’s executives can now complete an application with a client, in a remote
village, using a handheld device. Having an Aadhar number facilitates
personal identification and the client’s data can be captured digitally and uploaded
directly into the IT system of the lender, eradicating the need to manually
type it into a computer back at the branch. This translates into lower
operating costs, quicker loan approvals, more transparency and increase in the
productivity of loan executives.
Direct transfers: In
regions that have internet and mobile connectivity, microfinance institutions
are able to use e-payment networks to disburse loans and receive repayments via
net banking and mobile wallets. Once again, this means lower expenses for
the lender, as it pre-empts all the costs associated with maintaining a
physical branch, such as bank tellers, security guards, cash-counting machines,
etc. It also saves time and money for the borrower, who does not have to wait
in line at the branch.
Big data analytics: Creditworthiness has
got a whole new meaning with big data analytics. The traditional method of assessing
customer credit soundness is based on business cash flows, household
expenditures and ‘good credit behaviour’. But sometimes, these numbers do not
tell the whole story. As a result, thousands of customers, who may not be as
risky as their credit scores suggest, are rejected; the lender loses an
opportunity while the potential borrower is unfairly denied credit. Analysis of
behavioural patterns and circumstances, which can be culled out from alternative
data – like how often the client tops up a mobile phone balance or social media
accounts or whether she is married and how many children she has – can be used
to determine creditworthiness through algorithm-based lending models. This
considerably expands the scope of lending for microfinance institutions and the
chance of access to funding for small borrowers without a conventional credit
history.
Inditrade
Micro-finance Model
In April 2017, Inditrade became the first
funding institution in the industry to completely digitize its loan
disbursement and collection process…

This has resulted in ease of access and
faster transaction turnaround times, which are the cornerstones for the success
of any micro finance initiative.
On
the horizon
The ultimate test of success for a microfinance
institution is its ability to create social impact and still be commercially
sustainable. Technology appears to be the key to achieving both these, as it
not only results in lower costs per transaction but facilitates an increase in
breadth (number of clients in un-served areas) of outreach too.