NPCI begins pilot project to digitize transactions in microfinance sector

Under the project, RBL Bank will disburse loans and HDFC Bank will receive loan repayments for the transactions of Svatantra Microfinance using Aadhaar and USSD based facilities


Digitizing cash based operations has the potential to bring a host of benefits to MFIs as it mitigates cash carrying risks and improves operational efficiency, NPCI said.
Digitizing cash based operations has the potential to bring a host of benefits to MFIs as it mitigates cash carrying risks and improves operational efficiency, NPCI said.

Mumbai: The National Payments Corporation of India (NPCI) Wednesday said it has begun a pilot project to digitize transactions in microfinance institutions (MFIs).

Under the program, RBL Bank will be disbursing loans and HDFC Bank will be receiving the loan repayments for the transactions of Svatantra Microfinance using Aadhaar payment bridge system and unstructured supplementary service data (USSD) based *99#. MFIs will ensure that Aadhaar number is properly noted and share the same with the lending bank for validation.

Once the microfinance borrower’s Aadhaar number is validated by the lending bank, loan amount will be directly credited into the Aadhaar-seeded account. Aadhaar-seeded accounts are those where the number is linked with the bank account.

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“In numbers, over 80 million disbursements and 1,000 million repayments transactions take place every year in cash mode…Digitizing cash based operations has the potential to bring a host of benefits to MFIs as it mitigates cash carrying risks and improves operational efficiency by saving time for frontline staff,” an NPCI statement noted.

On repayment front, there is an option of push and pull transaction. Under push transactions, repayment will be initiated by the customers whereas under pull transactions, MFI has to send a bulk pull request to the customer in coordination with sponsor bank, which is HDFC Bank in this case.

“If it is a collect request (pull transaction) MFIs will bear the charges. If it is a push transaction, it will be treated as person to person transfer. The real hindrance will be bank where microfinance customers maintain account, that is part of the system or not,” said A.P. Hota, managing director & chief executive officer of NPCI.

Mostly, microfinance borrowers have bank accounts with either regional rural banks or district cooperative central banks (DCCB’s), which are not the part of immediate payment service (IMPS) system.

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