Microfinance is a great tool for lending money to the poor, but almost all microfinance institutions struggle with collecting repayments. If you are running a small microfinance institution, this may not be a problem, but it could be if you are looking to grow your business. So, it is important to have a proven collection efficiency in Microfinance operations for ultimate growth.
You might be thinking, how would you increase collection efficiency in Microfinance? Don’t worry; we are going to discuss four of the proven ways.
Undoubtedly, the efficient collection is challenging in any financial institution, but it’s especially for big or growing microfinance. However, you can easily increase efficiency if you have the proper tool and strategies. The four actions outlined below are great ways to begin your game-changing efficiency journey.
But before that, let’s discuss why MFIs often struggle in the collection process.
Why MFIs Struggle in the Collection Process?
Among many challenges of microfinance operation, the collection process is the most challenging one. If we are not wrong, till loan disbursement, things are a bit smooth because, in this process, borrowers are very cooperative. But once you have disbursed the loans, things change drastically.
Throughout the year, your employees run behind borrowers to get the repayments. Sometimes, they need to search for borrowers. Among the hassles, borrowers’ excuses, paper-works, and lack of information are notable.
However, If your loan officers are well-trained, have access to technology solutions and are well-informed, the collection process becomes easier. And we are going to talk about those methods and tools to increase collection efficiency in Microfinance now!
4 Proven Ways to Increase Collection Efficiency in Microfinance
To be true, nothing is guaranteed 100%. But proper ways and tools can improve the condition for sure. And we are going to discuss the most important of them all one by one. If you implement them, I hope it will increase your collection efficiency in Microfine operation.
Set Up Automated Systems
Cutting down the time takes many win-win strategies for lenders and borrowers. However, technology can do that simply and effortlessly possible. With a technology solution, lenders are able to increase their collection efficiency and reduce costs as well.
In one-way, smart collection tools or software can increase collection efficiency in microfinance operations. And on the other hand, it can help you increase your lending capacity by collecting more loans per day. As a result, your next borrowers get their loans faster.
If you do everything right, automation can significantly reduce the staff required, decreasing overhead costs while increasing efficiency. It’s a win-win situation!
Moreover, if automation is widely implemented across microfinance, it can improve all aspects of your operation. However, when it comes to the collection process, automation can be very helpful.
Today repayments can take many forms, including fully automated web-enabled systems, biometric authentication, and paperless automation on mobile devices.
Train Staff on The Basics
Collecting loans is hard regardless of who does the collecting. But it’s particularly challenging for microfinance organizations who, for the most part, deal with many complex customer relationships.
Therefore, training your staff on basic principles of good customer service – including empathy, communication, and respect – can be a great place to start.
Along with a technology solution, training all staff on basic customer service principles is a great place to start to increase collection efficiency in microfinance operations.
Even if you are a small organization, your MFI must have a character in the way it deals with customer relations. And according to that character, you need to train your staff. It will help them have a little more experience in managing customer relationships.
On the other hand, training staff on basic customer service principles can help decrease the number of complaints, increase customer retention, and generally make life easier for both your team and your customers.
Form Partnerships for a Diverse Collection Process
While an individual microfinance institution can collect loans door-to-door, finding partnerships for digital collection is often more efficient.
It is no more a fancy thing to do. There are many benefits to partnering to collect and disburse loans, considering the fact that each partner can diversify your collection process.
You might be thinking, what are the forms of partnerships here?
There are a few to name, such as agent banking, mobile banking, or other local partnerships.
Mobile banking is a blessing for everyone. Similarly, a mobile repayment system can help you boost your organization as well.
We can assure you that collecting loans in pairs can allow you to expand your skillset, diversify your organization and increase repayments. Besides, the partnership can help you grow beyond your reach in a particular area. Therefore, it is a good practice for your organization which can help you increase collection efficiency in microfinance operations.
Establish A Culture of Efficient Collection Processes
Randomness does not set anyone’s character or build your brand’s corporate identity. Thus, you must be consistent with the set methods, standards, and vision. This is what helps your organization stand out in the crowd.
The same goes for microfinance organizations. The best way to establish a culture of collection efficiency in Microfinance is to diversify. As we discussed earlier, you must keep a few options open for your borrowers to make repayments.
Be mindful of the time and effort you put into tasks, including your employees’ communication skills. Besides, you should invest in creating awareness of digital or agent-based collection processes. If you spend more time on this, one day, it will become your MFI’s character. As a result, your organization will be more recognized among people.
This can be done by adopting an agile approach or Core Banking Solution to all aspects of work. And soon, you will have the kind of collection efficiency in microfinance that you have been longing for.
The key to successful microfinance is to make your service highly accessible to borrowers. And your collection process surely defines your accessibility. Though many microfinance institutions fail to achieve this goal, it is not impossible. You just need to follow the action plan discussed above. In short, to increase collection efficiency in microfinance, use technological solutions, diversify your collection process, train your employees and create a digital culture for maximum efficiency.
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