How Could Technology Boost Microcredit in Africa

how can you boost your microcredit in Africa

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The entire African region has a great potential for microfinance organizations due to its untapped market and growth trajectory. Despite having several prospects, African microcredit institutions are struggling to make expected profits. However, technology-based solutions can boost microcredit in Africa by eliminating the existing obstacles.

The microfinance industry in Africa has had very positive growth throughout its existence, and it continues to grow. But it could not grow better in comparison to its Asian counterpart. If we look into the Asian microfinance industry, it has grown enormously with the help of technology.

According to the Microfinance Barometer report,

African microfinance has grown 56% since 2012. In 2018 the total borrowers stood 6.3 million.

The growth and the number could go even further if they could eliminate the existing challenges of microfinance operations. Microcredit in Africa has indeed been working to enable financial inclusion. Though MFIs serve a significant portion of the underprivileged population, they have not been able to reach the majority of the potential clients. But now, African MFIs can put their struggle aside and move further with technology.  

Challenges Of Microfinance in Africa

Traditional Bank loans are certainly not for farmers, labourers and small businesses. Thus, microfinance came into existence to help the poor or small businesses.

Source: Wikimedia Commons

So, think, who is your microfinance dealing with?

You are dealing with underprivileged people who are often unaware of the available financial services. And because of that, the business is usually risky, unlike traditional banking. Therefore, there are many challenges for microcredit in Africa, just like everywhere else.

Among the major challenges, higher operating cost is one. Most organizations also fail to sustain themselves in the market. Besides, poor risk management, access to quality information on borrowers, and lack of awareness are critical challenges of microfinance operations.

Have you ever thought about why you did not overcome those challenges? The answer is usually the same – a lack of technological solutions. Thus if you can employ a good software solution, it can help you boost your profits. Let us describe how technology can boost microcredit in Africa.

How Could Technology Boost Microcredit in Africa

No doubt, technology is pushing the world forward. And African microcredits can also boost their profits by integrating technology solutions. Just think about the financial services back in the 90s; most of them ran their operations on paper. Even today, many microfinance organizations in Africa are running on paper or Excel sheets. But the online-based solution is the present and the future for your business. So seek no alternative, there is none.    

1. Improve Customer Centricity  

There is a strong link between customer satisfaction and business performance. But most microfinance lack customer-centricity, especially in the African region and you should not take this lightly. Take this as an obstacle that can ruin your business in the long run.

Before you can understand your customers’ pain, you have to wear their shoes. Take your fund source as an example; if your source delays lending you money, how would you react? Would you be satisfied? You wouldn’t because your business depends on them.

software improves Customer centricity

Therefore, you need to think from a borrower’s perspective to build your business around better customer service. The right technology helps make your organization more customer-centric. But How?

A microfinance software makes your operations faster, manageable and futureproof. For example, loan disbursement takes a long time due to the evaluation of the risk. But did you know software can reduce it to few minutes? Now you can disburse loans quickly, and this will eventually make the borrowers happy. Therefore take no risk and automate your business before your competitors build their reputation.

2. Operational Risk Management

We have already addressed the challenges, and risk management is one of them for microcredit in Africa. Risk management becomes a crucial part of microfinance operations due to the lack of proper debt management. More than 95% of microfinance organizations fail due to bad debt. But don’t worry, technology have a better solution for this problem.

Borrower evaluation, future business projections and access to all the data reduce risk significantly. It is obvious that If you have all the data on the borrowers, it will help you make necessary decisions quickly. Do you still think there is anything better than this?  

3. Effective Business Model

Microfinance is an idea for financial inclusion. But keep in mind that not all microfinance operates on the same business model. There are many microlending business models, and they are created to streamline the profits.

Photo: Frank Van Der Vleuten

MFI organisations create different models depending on geolocation and financial condition. But it is tough to determine which business model will work fine in your business area. Even, it can take years to build a suitable model with manual work. There is a high chance, you may end up with a staggering loss before you find one.

A comprehensive and intelligent microfinance software can create a business model. As microcredit in Africa has huge potentials, you just need to unlock it. Establish your business model with the help of technology by simply evaluating your target group and area. Eventually, an effective business model will boost your business and the microcredit industry in Africa.

4. Build Trust with Technology

Like customer centricity, technology helps you build trust among borrowers.

For financial service providers like MFIs, trust-building is very important. Microfinance organizations often struggle to build trust due to bad operational transparency. The low literacy and numeracy rate also affect the trust issue.

But in today’s world, a backdated paper-based solution make things even harder. Miscalculation and improper loan collection records are also two of the issues that ruin trust. But you can just make these issues vanish in the thin air with technology.

Trust Building with Technology

People tend to trust financial service providers with digital solutions. The growth of mobile devices triggers the technological instincts among borrowers. Therefore, a technological solution for your organization might work as a blessing. And it is for sure that if you can improve trust among borrowers, it will boost your microfinance.    

5. Future-Proofing the Operation

Papers, printed sheets, and manual reporting are extinct!

Paper-based microfinance operation is not for the future. So, don’t hold on to your backdated information management system, it will ruin your organization. We are living in an era of digitization. As a result, from purchase to sale, we do everything online.

Even calculators are a thing of the past now. So you should invest in something that will run for ages. From paper to paperless is a great leap in history, and it is going to remain. So it’s time to stop living in the shadow of the old and come to light.

On the other hand, with technology integration, you can even use your old data for more quality leads. Though digitizing all the old data is tough, but it is worth the effort. Don’t forget information is the greatest currency today, and you are just a little behind in achieving that.

6. Cost Reduction

The last point and benefit that we want to address for microcredit in Africa is perhaps the most important for you. Yes, it’s cost reduction and increasing the bottom line. If nothing was convincing enough till now, this point must definitely make you reflect and consider.

Microfinance organizations often fail due to their high operating costs. Compared to the loan size, the outreach cost is really high. And the high cost can push your organization to end up in significant loss or even disappear.

Therefore, cost minimization is everybody’s business. Advanced technology can help you keep your business and cut a significant amount of operational costs. You already know that for microfinance, the customer number is huge, and the old paper-based management requires loads of man-hour and a lot of paper works.

On the other hand, microfinance software helps you to run your organization without the need for such paper works. Besides, it also reduces the number of people your old operation required. Eventually, the software reduces a substantial amount of money wasted on manpower and paper costs.  

To conclude, technology can ease the struggles of microcredit operations by reducing operational costs. In addition, it boosts your business by digitizing the information management system, increasing customer satisfaction and futureproofing the entire process. With this, we hope you have a better knowledge of how technology can boost microcredit in Africa.

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