#3 Things MFIs Should Know Before Embracing Technology
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With about 10 microfinance institutions (MFI) upgrading themselves to small finance banks, the segment is at a turning point where they have the choice to either embrace technology and diversify their portfolio or shut shops.
According to a recent PriceWaterCoopers (PWC) MFI report, companies should perceive technology has a long-term investment as it gets far more benefits than just reduced costs.
The report quoted Stephen Rassmussen, Global Head – Inclusive Market, C-Gap (Asian and Africa) saying that “ Technology is going to improve efficiency and create new business models. Unbundling will take place where MFIs will specialize in part of the process like on-boarding, loan disbursal, collection, and underwriting.”
Following are few areas that an MFI should understand while looking at technology adoption:
Open API Platform
It is true that hardware damages, software updates and anti-virus systems can make technology expensive. As a solution to these problems, PWC suggests MFIs to use common platforms through API.
“An industry body such as Microfinance Institutions Network (MFIN) can be the enabler and bring together MFIs to create common technology infrastructure and provide open APIs, which can be used by various MFIs on a cost-sharing basis. Open source architecture will be the key for MFIs in adopting technology at low costs,” the report said.
Additionally, MFIs can also look into investing Cloud-based Computing Systems (CBS), which allows regulators to pull sectors related data further reducing reporting time and cost of the institution.
Accept technology with human touch
By moving to a digital platform, MFIs are more likely to improve their efficiency, however, they should never forget their strength lies in the institution's loan officers’ network.
MFIs generally deal with an economically backward section of the society and to explain their debt products to the subscribers, they will need a human face to represent the institutions.
They can help MFI to go beyond group loans but expand into adjacent customer segments. Additionally, with time, the officer can also build a rapport with the people and focus on consumer education or get anecdotal data.
With the advent of small banks and payment banks, MFI needs to diversify to stay relevant. And one the easiest way to do so is to club technology with data can help to create innovative products line, the report suggested.
Data is important for companies that looking to diversify, especially to individual loans, where the risk assessment management is much more different than that of microlending.
Moreover, in case of risk management, MFI can partner with local assessment firms. For example, Janalakshmi Financial Services has collaborated with EFL for its credit scoring mechanism, which uses psychometric data, mobile phone data and social data to create an individual’s credit scores.
Apart from selling new products, MFIs can leverage their existing data to cross-sell products to financial institutions.