Pitfalls in MFI Digitization : Understanding Your Business Case

by | Feb 3, 2022

There was a time when you needed to actively participate in conversations with MFIs (microfinance institutions) in an effort to successfully convince them that digitizing their business is mission-critical & should be their number one priority. That time is long gone.

In a recent research by PwC, it was revealed that more than 50% of organizations fail to achieve their desired business outcome from digitization & a predominant factor behind it is failing to understand the exact outcomes the business is expecting out of a digital transformation. For instance, successful digitizations of MFIs around the world have displayed a significant reduction in both cost to income ratio by upto 18% as well as reduced cost of customer onboarding by 80%. However, beyond this, there are certain other factors which need to be properly analyzed & outlined & in today’s blog post, we will do just that.

Embracing the Exact Needs of Your Business

Every MFI is different & thus are their rationale for digitizing their business. While for some, it can decrease the customer onboarding time, for others, it can be acquiring a holistic view of their loan portfolio. Irrespective of the motivation your business shares, it is crucial that your executive team analyzes & expertly outlines each of the goals your business wants to achieve through the digitization effort.

Our experience of assisting countless legacy microfinance institutions become digital-ready points out a few.

Scaling to New Heights

Irrespective of the current size of your business, it is imperative that one of your priorities will be to expand your horizon over time. While there is only so much, you can practically scale to by limiting yourself to one geography, digitizing your services will not only open new doors for your business but also allow you to transact & serve customers beyond borders effectively & efficiently while leveraging your existing staff base.

Undertaking Enhanced Credit Decisions

As an established MFI in your region, it goes without saying that you have unhindered access to a significant amount of historical customer data. However, without the proper digital tools at your disposal, you will not be able to tap into the same & derive intelligent insights. By equipping yourself with state of the art digital tools such as advanced data analytics, you can not only arrive at more effective underwritings but also achieve a greater degree of customer segmentation, all of which positively affect your bottom line.

Offering Customized Financial Products

Irrespective of the customer segment you are catering to, chances are they too share the common need of feeling empowered with customized financial products which are intently designed to meet their exact requirements. However, although you have access to historical data to better understand your customer’s preference without the proper analytical tools, you will need to depend on guesswork for most of the time. On the other hand, by going digital & adopting state of the art business intelligence software, you can not only intently design customer-friendly lending products but also increase customer satisfaction in the process.

Leverage Maximized Efficiency

Among the many shortcomings of a high touch model, one which is of paramount significance for an MFI is the efficiency of operations. In a legacy system where multiple stakeholders cannot communicate & collaborate on the same project at a single point in time, the organization ultimately loses out on productivity & thus lacks in efficiently serving customers. On the other hand, by digitizing your MFI, not only do you extend collaboration capabilities to all concerned stakeholders but also tap into unknown efficiency, transforming it into a worthwhile investment.

Faster Market Launch & Customer Engagement

Last but not least, the modern microfinance customer wants their customized financial products delivered fast & to that end, you need to have a system in place which not only actively helps you facilitate a faster market launch but also keep them engaged & loyal to your brand for a longer span of time. Along with this, the modern banking customer expects an array of interactions from your end over & above the financial services you provide, & your capability in meeting will be the deciding factor for the success of your business.

Measuring Your Success

While defining the goals of your digitization efforts is an important first step, you need to have a system in place such that you can appropriately measure the benefits of your successful digitization. Instead of banking on abstract justifications & indirect benefits, we suggest that you transform your digitization goals into SMART ones, such that you can effectively measure them every step of the way.

In Conclusion

More often than not, the investments made towards digitization by organizations are only justified via indirect benefits & not actual measurements & the first step in ensuring the same mishap doesn’t occur for your organization is to clearly understand your business case.

Thank you for reading & I will see you in the next one.

The Reference Shelf

  1. Pitfalls in MFI Digitization: Getting the Business Case Right [Link]
  2. Turning MFI Digital Strategies Into Reality [Link]
  3. When microfinance goes digital: opportunities, challenges and dangers for microfinance institutions and their clients [Link]
  4. Microfinance digitalisation: risk or opportunity? [Link]
  5. Impact & Adaptation Of Digitization In Microfinance Industry [Link]