Microfinance in the Digital World: Seven Questions for the Future

Technology is taking over every critical aspect of our day-to-day life, with artificial intelligence, Internet of things, and voice assistant. In recent times, the finance industry is also beginning to witness the prowess of technology, in the form of virtual currency and neobanks. The waves of transformation are fast penetrating the microfinance sector, which is thereby gaining momentum to emerge as the novel digital system by rising over the traditional time-consuming loan processing procedures.

Microfinance institutions are thriving on the back of their competency to complete the loan quest for low-income yet aspiring business people. However, they still lack the touch of digitalisation to offer ‘at a tap’ service. In order to explore a 360-degree round convenience and technological advancement, we have compiled seven questions that would answer your dilemmas on the capabilities of digital microfinance solutions.

Is Digital Microfinance the Next Big Leap of FinTech?

A large number of fintech stakeholders are ready to disrupt the conventional means to finance; however, customer acquisition and capital investments are the two dilemmas that are holding them back. While issues encircling customer acquisition is likely to become redundant in the coming future as consumers are more receptive of technology, a leap from conventional to digital, is a point of concern for many.

If perceived as long-term payback opportunity, the potential of digital microfinance solutions is enormous. So, looking at the benefits such as convenience and safety that it offers to lenders and loan-seekers, digital microfinance is a significant yet effective move to unlocking lucrative prospects.

What are the Key Technologies that Would Fuel the Digital Shift of Microfinance?

Machine learning and big data will turn out as critical technologies for microfinance to understand the lending cycle and predict crucial parameters such as repayments.

Algorithm-based lending will help lenders do away with their current diary-oriented data and shift towards digital records, which will have complete details regarding loan-seeker, interest rate, due payments, etc. The technological leap will make lending and seeking more accessible and transparent and add a layer of security to microfinancing.

Are Digital Microfinance Solutions Going to Boost the Customer Base?

If there is one thing that separates differentiates between offline and online mode of operation, it is a convenience and easy accessibility from even the remotest of the region. Besides this, the rapid growth of the smartphone user base will, in turn, play a pivotal role.

With the help of information gathering and dissemination just a click away, customers will find it easy to recognise your microfinancing brand when it is placed in the app store. Numerous digital platforms of exposure, such as social media will also offer microfinance institutions the leeway to distinguish their businesses from competitors and acquire a more extensive customer base.

Can a Microfinance Mobile App Do More with Fewer Resources?

The core theme of digital microfinance solutions is to boost the productivity of an institute by offering advanced features. With the convergence of big data and lending landscape, microfinance institutes can analyse the data of an aspiring entrepreneur thoroughly.

A microfinance mobile app can bring home the services directly to entrepreneurs, who can fill in all the required information from their remote locations and avoid frequent visits to the institute. By already having access to the data of entrepreneurs, microfinance officials can cater to their best interest and offer an ideal product, thereby improving chances of customer retention.

What are the Risk Factors Associated with Digital Solutions?

Frankly, with Blockchain being the future of the finance world, there is very little to null risk associated with digital microfinance solutions. Technology leaves an extremely narrow passage for cybercriminals.

Cash-based systems are more prone to the prying eyes of robbers and cases regarding fraud cash further increase the vulnerability of the microfinance ecosystem. Storage, deposition, and withdrawal of money also engage several resources, which can otherwise be handled with the help of a handful of resources.

Can GDPR be a Hurdle to Micro Finance Solutions?

In the data-centric world, central agencies evince a deep concern regarding the protection of data mounting up every single day. In such a scenario, data policies like GDPR can act as a barrier, to some extent.

However, on the other side of this hurdle is a lucrative ground for microfinance institutions, which they should focus on. In order to mitigate risk associated with data, it is vital to invest in utmost cybersecurity measures that will save not only these institutes but also customers lending loans.

Can Traditional Microfinance Institutes Also Join the Digital Movement?

Though the shift from a conventional operational system to a digital one may seem overwhelming at first, microfinance institutes can jump into the bandwagon of digital solutions at any instance of time. However, it is better to be embrace digitalisation to leverage and consume as much data as possible.

The switch from tradition system would mean handing over the data to your tech-partner and expecting a well-organised system in return. Besides, your resources need to have in-depth information regarding the transformation, and proper training sessions should be conducted to have a seamless work environment, once you go digital with microfinance solutions.

A Quick Glance into the Future of Microfinance

Once the microfinance sector gets the slice of digitalisation, there is no going back. Consistent involvement of technology will only bring better business outcomes, customer convenience, and transparency. Though big data is the big aspect of the microfinance solutions in today’s time, artificial intelligence and cryptocurrency will be its future and the days aren’t far enough when robots bring in utmost precision to your lending business.

With a growing number of microfinance stakeholders striving to embrace digital solutions, these are exciting times to opt for a custom microfinance app and set a new USP of your business.

By Nikunj Gundaniya, who is Product manager Digipay.guru, one of the leading Digital wallet solutions, which provides mobile finance application development services. 

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