Digital Inclusion and MFIs

By Manoj Kumar Nambiar, Managing Director, Arohan Financial Services (P) Limited

The Challenge

India is home to about 21 percent of the world’s unbanked population. In recent years, the Government and the RBI have focused on financial inclusion and inclusive financing, including the delivery of financial services at affordable costs to sections of disadvantaged and low-income sections of society. This is the space where Micro-Finance Institutions (MFIs) operate. MFIs cater to women primarily in the rural and semi urban areas where mainstream banking is inadequate. In the efforts to mainstream financial inclusion in India, MFIs provide loans and distribute insurance and pension products as well as other non financial products. These small ticket sized loans do not require collateral; prospective customers are identified based on neighbourhoods and needs. However managing microfinance business without using enterprise management systems, automation, measurement and optimization of the day-to-day operational process is both inefficient & resource consuming. MFI’s were thus quick to understand the potential for digitization of operations and have taken the much needed step to facilitate digitization.

The Solution

MFIs are uniquely positioned to go digital to expedite their processes and ensure smooth & efficient operations through the implementation of mobile applications. The purpose of a mobility application is to capture operational transactions in the field on a real time basis, using mobile applications and hardware such as tablets. We have been one of the first NBFC MFIs to move beyond a pilot and in our organization, all our 2000 odd customers service representatives have been equipped with a hand held device in the form of a tab. We have utilized mobile application to onboard members, track their training, disburse loans and use it to collect repayments. All the transactions are routed through the mobile application and get uploaded to the main server on a real time basis. Hence the front end of the loan process has been made fully paperless

Scope of the Solution

This ability to provide financial services via digital channels, improves efficiencies, cuts down expenses, improves credit quality and hence creates new opportunities to reach segment of the population that previously were under-served. With the use of digitization, we have rationalized the use of cash and enhanced operational efficiencies. The prevailing micro-finance model of group lending is highly cash intensive where both loan disbursement and repayment is generally done in cash and generally at the customers’ doorstep.

This is a tedious time- consuming process, requiring meticulous calculations which bear heavily on the MFIs front-line staff. An efficient digital system allows staff to source new clients and helps them provide quality service to their existing customers in a shorter span of time. The scope of digitization encompasses facilitation of various processes in the overall management of loans, including KYC feed, online Credit Bureau checks, immediate approval/rejection of customer’s loan application on the basis of Credit Bureau response, Centre and Group formation, GEO mapping of Centre, Disbursement and collection entry and dashboards for various operational purposes. If locations are remote and experience weak network connectivity, mobile applications capture the transactions offline and upload them when a steady connection is available.

Benefits

The benefits of digitization have been felt throughout our organization where Turn Around Times’s have reduced up to 50 percent across processes and the flexibility of our solution reduces the time to market for customers and new products. Since these solutions are scalable to handle growth an increase in branches, networks, customers or employees can be easily absorbed. Plug-ins with the company’s Loan Management System facilitates Business Correspondents and Partnerships to also help on cashless possibilities on disbursements and collections. The Geo-Tagging facilities also facilitate locating centres which are remotely located.

Since most MFIs depend on the customer’s punctuality and discipline in the loan repayment schedule, our application also records customer attendance at the centre. Overall digitization has empowered the field officers with a tool to expedite the sourcing process.

Conclusion

With the rapid advancement in technology, mobile penetration, new players and massive investments in the development sector, the MFI industry is transforming. The advantage of the current technology will enable MFIs, who have opted for mobility, to expand their services and reach. The concentration of technology which, till a couple of years back, was limited to enterprise applications, has seen a paradigm shift and is now in the hands of field officers, facilitating proactive customer service, communication with stakeholders, thus enabling growth.

The sector which grew by over 80 percent in the last two years will play a key role in the country’s priority of financial inclusion to all.

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