Efficient Microfinance Loan Management Boosts Your Revenue

Often said, loan management is the ultimate key to success for MFIs. But people often find it complicated. So we will discuss some points on efficient microfinance loan management to help you out. We will also discuss how you can solve your problem and make your loan management efficient.

Presume, your microfinance organization has 50K borrowers. And to support the entire operation, you have enough stuff to handle your process traditionally.

The traditional way means your employees handle everything manually, including loan management. Without any doubt, despite having the necessary resources, you still struggle to manage everything.

In this situation, your borrowers do not get their money on time. Sometimes, your employees lose track of the loan process. Even in some cases, they can not handle everything efficiently despite having software. Eventually, you end up in a mass and dissatisfy your borrowers.

Therefore, efficient microfinance loan management is necessary. It can decrease your risk, improve customer satisfaction, and boost your revenue.

But the question is, how would you do that? Before we know that, let’s understand how inefficient loan management can cause you damage.

How Inefficient Loan Management Hurts

As we always mention, Microfinance is a risky business because you deal with insolvent people. We also consider MFI a social enterprise that helps people reduce financial inclusion. Therefore, you will have risks. But to sustain in the market you have to deal with the challenges of MFI operations. But the risk becomes double due to the mistakes in Microfinance loan management, which can cause you irreversible damage.

Let’s divide inefficient loan management into two ways – external and internal. But both of them are inseparable.

For example, one of your borrowers has signed up for a loan. And you suppose to provide that on a certain date. But you couldn’t process the loan due to the work pressure and manual processing. Of course, you have a lot of borrowers. But it will damage your company’s goodwill to the borrower and anyone connected to the person.

The external inefficiency happens during the evaluation process. But it is important to verify the person and check his history from the locals. Then you need to process the information manually, which is time-consuming.

In this process, anything can go wrong, and you may need to deal with loan repayment issues. Besides, if you do not have a live monitoring system up and running, you cannot monitor the real-time situation of the problems.

On the other hand, your loan disbursement is highly dependent on the present loan repayment. So, if you cannot get the repayment on time, the evaluation did go well. And it goes on a cycle.  

It is not the end of the story; there is more. Most microfinance organizations run on externals funds. And this is what keeps your company alive. So you are a borrower too. So, loan management gets critical.

How to Increase Efficiency in Microfinance Loan Management

Efficient MFI loan management indicates several aspects of your business. In particular, to finance management, borrower evaluation, loan repayment, monitoring etc. Let’s get down to the business in detail.

Borrower Evaluation

Borrower evaluation is one of the most critical tasks for every MFI. It works like a true risk management process, and it is the first step.

Let’s say your team has reached a new borrower base, which is good for your organization. And a lot of borrowers are interested in taking loans. Would you lend them money without evaluating them?

If your employees are smart enough, they won’t do it without proper evaluation. But a significant number of MFIs around the world make mistakes here.

They often rush in loan disbursement and don’t know what will happen later. Therefore you must evaluate your borrowers thoroughly. Remember, your company’s success mostly depends on timely loan repayments.

So, if you do everything right during the evaluation process, you can reduce the risk of over-indebtedness. Thus, it will help you boost your organization’s revenue.

Timely Loan Disbursement

After the borrower evaluation, MFIs need to pay attention to the loan disbursement. In this process, you can both lose and gain your reputation. And this happens a lot.

The good old days are gone when borrowers would wait for your organization. But today, there are a lot of competitors in the market to snatch your borrowers. So, time management is necessary. Otherwise, you may lose your goodwill which will eventually shake your business.

It also affects your reputation to the people connected to the borrowers you have just disappointed. Therefore you must maintain timely loan disbursement to improve customer satisfaction.

Overall Loan Monitoring

As part of effective loan management, loan monitoring plays a vital role. And there is no better alternative to have a birds-eye view of your loans.

Moreover, you need to monitor your company as a borrower and lender in this process.

Many MFIs often forget that they have also taken loans from other financial institutions which they have to balance in time.

But monitoring your loans, outstanding balance, and company capital are not that easy. You need to employ a better method to keep an eye on your overall financial health, including loans.

Don’t worry. We will tell you how to monitor your overall loan for better loan management.

Finance Management

Efficiency does not only come from borrower evaluation and loan repayments. Rather it depends on how you manage your finance. Therefore, finance management is a very integral part of microfinance loan management.

Finance management refers to your loans taken from big organizations like banks or Microfinance regulatory authorities. And this is a crucial matter that you must not ignore.

If you see yourself as a borrower, you have to pay your lenders back on time. And you can only return on time when you have a steady business. Therefore company finance management can boost your revenue.

But when do you have a steady business? You have a stable company when you have a good repayment flow.  

Repayment Management and Monitoring

Repayment might be the most important part of Microfinance loan management. Your entire company growth depends on it. So, you cannot afford to make any mistakes in this process.

The higher the repayment rates, the more you grow. But how would you ensure a better repayment rate?

You have to learn how to manage borrowers to make repayments on time. Besides, you have to monitor the repayment rates constantly to notify your employees.

On the other hand, a better repayment depends on borrower evaluation. It means everything from the assessment to repayments should be right.

Now the biggest question is how would do all this?

Let’s talk about the solution then.

Automation for Microfinance Loan Management

We have discussed the different points for efficient loan management for MFIs. And we know manual work won’t help much.

But automation can!

Fintech in Microfinance is a new direction for ultimate growth. So, automation is the only solution to keep your business ahead in the game.

A comprehensive microfinance solution can automate your entire loan management process.

You might be thinking about how would software help in borrower evaluation. Well, the manual borrower evaluation is time-consuming and full of complications. But if you have a software solution, you can evaluate borrowers in a very short time with correct information.

A quick borrower evaluation can also help in faster loan disbursement. Moreover, it can prevent any borrower from deceiving you about their condition. On the other hand, the central monitoring system can help you with stopping loan disbursement anytime.

Loan monitoring and finance management get easier with automated solutions. Especially, you can monitor your company’s financial health 24/7 from anywhere. For management, this is a great opportunity. You can take the necessary decision at any time since you don’t have to wait for reports.   

We can easily guess you have a question about how automation can help with repayments.

First of all, the percentage of repayments depend on the borrower evaluation. If you have good borrowers, you will have a consistent and higher repayment rate.  

Moreover, when fully automated, your employees do not need to run behind borrowers. They can easily make payments through mobile platforms at their convenient time within the deadline.

On the other hand, the management can monitor the repayment collection on a live feed right from the software. So, you don’t even need to ask for any reports from branch managers. Depending on this real-time repayment report, you can also make the necessary decision.

To conclude, efficient microfinance loan management can boost your revenue significantly. And for efficient management, there is nothing better than automation. So, get a comprehensive software solution with better loan management features and follow through. You will see significant revenue growth for your MFI.