Fintech In Microfinance: A New Direction to Ultimate Growth

Fintech in Microfinance a new direction for growth

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The microfinance industry has grown, and Fintech in microfinance is the new direction to that growth opportunity. Fintech solutions unlocked a number of options for all those microfinance institutions struggling to operate in challenging conditions. Since microfinance institutions deal with the underprivileged segment of the population, it usually faces challenges. Financial technology reduces the distance between lenders and borrowers and helps your microfinance work on the fly and increase revenue.  

What is Fintech?

Simply put, Fintech refers to financial technology. The word Fintech is a compound word created from finance and technology. It simply refers to software, website and mobile application that provide automation of financial services. Providing ease to the financial institutions with managing their financial matters is the primary reason Fintech came into existence.

According to Investopedia,

“Financial technology (Fintech) is used to describe new tech that seeks to improve and automate the delivery and use of financial services. ​​​At its core, Fintech is utilised to help companies, business owners and consumers better manage their financial operations, processes, and lives by utilising specialised software and algorithms that are used on computers and, increasingly, smartphones.”

The formal banking system adopted financial technology very early. With the help of Fintech, traditional banks have grown exponentially. Similarly, mobile banking has become popular among all.

What is fintech

On top of everything, the microfinance industry is another financial entity that hugely benefited from Fintech. Since it deals with low-income people, operating a microfinance institution is way more challenging than any other financial organisation. Thus, Fintech in Microfinance is a new hope to unlock the ultimate growth potentials.     

Growth of Fintech in Microfinance Industry

The overall growth of the Fintech market size is phenomenal. The industry is adding the latest technology every moment to revolutionise the financial sector. And Fintech in microfinance covers a significant portion of that growth. The emerging technology has already taken financial lenders to a new height while operations are easier than ever.

Because financial institutions like banks and microfinance are moving more and more into the digitised process, the global fintech industry is booming.  

According to Research and Markets,

“The Global Fintech Market was valued USD 5504.13 Billion in 2019 and is expected to grow at CAGR of 23.58% till 2025.”

The microfinance industry is an excellent example of financial inclusion worldwide. And technology made it faster and more accessible for low-income people and small businesses.  

Due to the pandemic, the Fintech industry hits its nexus. End users are putting traditional financial services aside and moving towards technology-based financial services.

Therefore, there is a huge demand for Core Banking solutions. Microfinance and development banks, two of the important segments of the banking system, are also adapting to technology rapidly.

The global Core Banking Software market had an all-time high of 15.1% growth last year, and the market value reached USD 9.40 billion. Furthermore, the market is projected to hit $34.48 billion in 2028 at a CAGR of 18.0%. (Source: Fortune Business Insights)

So, what is the reason behind the rapid growth of CBS in financial services?

Fintech in microfinance or other traditional banking system remains a tool for cutting operational costs. Besides, it increases the efficiency of the workforce, which combinedly help increasing revenue.

According to a report from Mckinsey,

“Digital laggards could see up to 35% of net profit eroded, while winners may realise a profit upside of 40% or more.”

So, the growth of Fintech in microfinance is indicating the high profitability of institutions as well.  

How Fintech in Microfinance is Driving Growth?

Indeed, Fintech ensures the growth trajectory for microfinance institutions more than anything else in today’s world. Because of the pandemic, financial organisations understood that Core Banking software is the need of the hour. Let’s see how Fintech in microfinance drives growth.

Fintech in Microfinance Driving Growth

1. Digital Path to Financial Inclusion

Financial inclusion is a driving factor behind the creation of a microfinance lending system. The largest segment of the population, the low-income people, did not have access to the banking system. And Fintech is the digital path to that financial inclusion making micro borrowing faster.  

According to Microfinance Barometer, till 2018, the global microfinance industry has served around 140 million people. Compared to the pre-digitised microfinance lending period, the loan profile and customer segment have increased many folds. Automation of microfinance helped organisations to overcome the challenges of microfinance operations significantly.

2. Fintech in Microfinance Allows Work on the Fly

Organisational growth is highly dependent on remote access to information. However, the pandemic made remote work environments even mandatory. With Fintech, the microfinance workforce can access data from anywhere. Furthermore, mobile accessibility made microfinance operations easier for both borrowers and lenders.  

On the other hand, the manual and paper-based operations were not enough to tackle the growing market. Thus, there was an utmost need for automation that would make the industry work on the fly. Eventually, Fintech in microfinance ensures uninterrupted growth potential.  

Management and decision-makers need to check the status of the field operation as well. With microfinance software, they can have a quick online status check which made the operation even more convincing.  

3. Reducing Distance Between Lenders and Borrowers

In both traditional and microfinance lending systems, there was a considerable distance between the lenders and borrowers. With the conventional method, borrowers had to wait for a long time to get their loans.

A big microfinance company needs to take care of millions of customers and thousands of employees. Given the number, the manual operation process was time-consuming, which dissatisfies customers. In this condition, only Fintech was the only hope to reduce the distance between lenders and borrowers.

4. Sustainable data security

At this moment, more data means more business growth.

According to reports, the average loan size in microfinance per borrower is $100.

On the other hand, the number of borrowers is enormous compared to traditional banks. Keeping data on a paper-based system of that amount is a challenging job. The data collection process also takes time and needs extra effort on securing that data.

data security

With Fintech, data security becomes sustainable and hassle-free. Accessing data means few clicks, while data evaluation takes no time. With the help of CBS, your information is more secured than ever.

5. Reducing operational cost and time

Microfinance is for unprivileged people and small businesses. As a result, the individual loan profile is very low, yet there is a high fixed cost and risk of lending.

On the other hand, data collection, evaluation and decision making are time-consuming work that prevents the organisation’s growth.  

According to World Bank data,

“The median unit cost was $14 in operating expenses for each $100 of loans outstanding back in 2005.”

Before a comprehensive fintech solution, microfinance had to spend a significant amount on paper and operation costs.

A better Core Banking Solution makes microfinance operations paperless. Moreover, it requires less workforce, which significantly contributes to reducing operational costs. So, Fintech helps to increase the bottom-line for microfinance institutions.

Many mid-range MFIs miss the opportunity to amplify their true potentials due to the high operating cost. Eventually, Fintech in microfinance can help organisations to boost their potentials.   

In conclusion, Fintech is the new direction for microfinance. Along with the rapid growth of the microfinance industry, the fintech industry is also growing. With the right automation, microfinance institutions can unlock their true potential, which can lead them to ultimate growth.

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