Microfinance sector evolving with fintech partnerships, says report

The entry of new-age players such as fintechs has enabled the microfinance sector to fast-track its transition to a more efficient digital model to serve a larger population at lower costs, a report by industry body MFIN and KPMG said on Friday.

“Fintech companies have become significant within the microfinance institution (MFI) ecosystem with different technology stacks enabling the microfinance sector to carry out more than their basic operations through collaboration and development,” it said.

According to the report, fintech companies offering core systems (loan origination and management systems) enable MFIs to manage routine operations, while advanced ones empower them to leverage data from multiple sources and handle complex analytics to facilitate efficient sales and collection.

“Microfinance players are using and exploring new technologies and solutions for improved client outreach, decision-making and operations. Technology is revolutionizing the way financial services are delivered and the same disruptions are affecting the technology landscape of the microfinance sector,” it said.

Several fintech companies, it said, are offering solutions that use machine learning technologies for improved lead identification. A prominent fintech with a track record of disrupting the microfinance lending landscape, claims that the use of their product suite can lead to significant increase in conversion rates and reduction of the cost of customer acquisition, it added.

The report pointed out that fintech companies have been playing an active role in enhancing product awareness of microfinance customers in India by partnering with the incumbent MFI institutions. They are also working on customer onboarding.

“A large Indian small finance bank has implemented a technology solution in partnership with a fintech company through which they have enabled Aadhaar-linked know your customer (KYC), video ID verification, verification of e-documents via Digi Locker and uses artificial intelligence and machine learning technologies for preventing fraud, customer authentication and automating the customer onboarding process,” it added.