As world grappling through a global pandemic, microfinance sector which relies on high touch model, our qualitative assessment sheds light on technological challenges in the MFI sector
When COVID-19 pandemic upping the ante across the globe during early 2020, we were initially working on bringing AI to the microfinance sector. Since the situation and overall macro factor changed. Pandemic has given us time to stop and reflect on current challenges and think how better we can work with other stakeholders to bring solutions to help and compliments the efforts of the ecosystem. Since pandemic started, we analysed close to 22 tech microfinance solution providers, conducted qualitative research with 25+ MFIs spread across India, and 10+ calls with the sector experts were conducted. These helped us to gauge and identify immediate pain-points and what value-addition needed to MFIs and their borrowers.
Our internal assessment and discussion with market experts threw some-light on current tech requirements.
Backend and Loan Management System (LMS): Last two decades for MFIs to offer financial services to the mass helped to provide micro-credit services to millions of underserved population and current having more than 150Mn borrowers globally. The multiple LMS offerings are available in the market. Ranging from vintage players such as Jayam, Force Ten and CraftSilicon, we have seen a few new emerging players. This assessment tells us that the market is having a satisfactory backend/LMS solution available. However, data generated through the system could be used effectively to offer more value-added services to borrowers.
Plug and Play: API-led solution which provides customised services such as eKYC, customer-onboarding, cKYC and alternative credit score. These solutions are focused on addressing pain-points related to MFIs operation. We found that API-led solutions have seen significant traction in the last several years but, integrating with backend LMS remains challenging. Besides, the cost of using these services are relatively higher specifically for smaller MFIs as they are unable to derive unit economy.
New Age-tech and focus: We believe that any solution/services are focussed towards paying customers. Similarly, tech innovation in the microfinance sector is heavily focused on the institutional side of operation and management problems. This is natural as MFIs are ready to pay for tech solution providers based on their use case and utilities. There are more than 120,000 MFI field staff and 100Mn+ borrowers are availing MFI services in India (MFI Association latest report). Conventionally, MFI borrowers’ base is low-literate customers and the feeling of MFIs is that these borrowers are less-tech savvy and any tech solution directly reaching them might not bring enough uptake. This primary somewhat practical assumption keeping low demand for high-tech solution for the borrowers and thus, less investment into borrowers side tech development. Even some of the LMS or tech solutions provides front-end borrowers interface, but somehow these solutions are not engaging/customized to bring MFI borrowers on a tech platform. As per a recent report by Kantar, research cited that India is having more than 547Mn internet users and 46% of them belong to rural India with 24% CAGR. As one of the cheapest internet data markets, user understanding and engagement will significantly be changing in the coming 2–3 years including enabling factors such as pandemic and government policy changes like demonetization. These have compelled some changes in human behaviour and an interesting fact is that few of the changes are going to become permanent habits. “Video, Voice and Vernacular will drive higher engagement and frequency of usage, thereby, helping the users mature in their internet journey” the report cites.
As a tech company, microfinance.ai is committed to bringing deep-tech technology tools to MFI borrowers and services providers. We are intrigued by a recent blog by CGAP “worth investing in the digital transformation of traditional microfinance” and cement our thought process of bringing a deep-tech solution to the microfinance sector by focussing on research and innovation. As conventionally, MFIs are high-touch low/no-tech model, we’re bridging the gap to bring aspirational MFI clients at a fractional cost. In a series of findings, we’ll be sharing the second part of our blog to share further key insights. We’d love to hear your view and can share your comments with us through the below-provided tools.