Technology supporting new normal for MFIs

Krishna Devi (name changed), a daily farm worker from a small village in Haryana had taken a small loan of Rs 20,000 from the MFI, a few months back to start her small grocery shop and support her family of four.

Rapid outbreak of COVID-19 has accentuated cash flow problem not only in India but across the world. This Corona virus crisis has disrupted the operations of every sector. Joint liability Group (JLG) / Self Help Group (SHG) are one of the worst hit segments among many, like small merchants, shop keepers etc.

Relaxation in lockdown 4.0 has raised some hopes for these segment who were completely relying on cash. With start of economic activities, situation of cash flow will improve and they will be able to repay their debts.

But there is another challenge i.e. of social distancing staring at them, which has become new normal. People like her are worried about their repayment date / time to microfinance company/companies along with the scheduled meetings not taking place for record upkeep, affecting their credit score. These people understand the importance of timely repayment of loans as this would not only help them only building and improving their credit score (which is currently manual) but also increase their chances of getting repeat loans.

Not only Krishna Devi who is facing challenge in her repayment but the micro lenders like MFIs are also facing the heat of Corona pandemic, there are around 10.11 crores of active loans with an outstanding worth 2.11 lakh crore (Ref: — Micrometer Synopsis: Q3 FY 19–20). These institutes face high distribution cost and slow turnaround times. Social distancing has created another mammoth challenge of collection from dispersed customer base for these MFI / FI / NBFCs as these collections were done in cash only.

These micro lenders now need to plan digital transformation of their business and be prepared with robust business continuity process for any such crisis in future. These micro lenders play a critical role supporting the income generating activities of this segment. There is now a greater need for these micro lenders / MFIs to shift to digital platforms and resources that allows them to offer digital financial services.

We believe that there will be pent-up demand of loans hence collection in micro-finance sector from small and medium merchants like Krishna Devi for meeting their working capital requirements and recommence businesses and to support such demand, there is a need of a system that can digitally support both disbursement and collection while maintaining the social distance norms.

Digitization of payments and collections in the wake of challenges imposed by lockdown and social distancing will play a major role in overcoming these challenges ensuring confidence and credit at grassroots level.

PaySe a digital transformation solution can help MFIs or Bank / NBFC engaged in micro-lending to digitize their existing long, manual, paper-based, error prone processes of lending. This digital transformation would help them not only digitize collection and disbursement transaction while managing complete loan life cycle along with keeping accurate books of records. PaySe™ can enable banking access to citizens at bottom of pyramid with lack of digital infrastructure while building credit history for these masses.

MFIs and other FIs need to prioritize these digital transformation when everything is a priority.

PaySe™, payment solution initiative of Nucleus Software is an offline and online digital cash solution designed to democratize money