Microfinance is about providing financial services to unemployed or low-income people, as well as to those who do not have access to traditional banking. In 2020, the global microfinance market was estimated at $178.84 billion. It is also expected to reach $496.9 billion by 2030. Among the key factors driving the growth in the popularity of microfinance are flexibility, speed, and convenience. All a borrower needs to do is install an MFI app, provide the required information and apply for a loan.
According to KPMG reports, the advent of MFI solutions has given the microfinance market the ability to conduct significantly more transactions at a lower cost, not to mention the other benefits for both lenders and borrowers. Read on to learn how to develop an efficient MFI app to reduce operating costs, automate and streamline business processes, and improve the borrower experience.
Benefits of a Microfinance Platform
Specialized microfinance software ensures maximum value for micro-credit businesses through the following benefits.
Reduced operating costs
MFI software significantly reduces a financial institution’s costs by automating each loan’s full life cycle – from origination and underwriting to servicing, reporting, collection, and compliance.
A robust, AI-powered lending platform with automated electronic disbursement and payment gateway integration can help you better manage risk and avoid cash transit and storage costs. Compared to traditional lending models, specialized MFI solutions enable the highest standards of risk management through advanced credit scoring, not to mention that we can implement your own scoring criteria in your custom MFI app to reduce risks and grant loans to the right borrowers.
Wider reach of financial products
MFI software allows you to scale your business by expanding your offerings and reaching more borrowers by leveraging the data captured in your system. User data is the greatest source of insights about your target audience, which enables you to identify growth opportunities, boost customer outreach, provide a personalized experience, and simplify customer acquisition.
MFI software simplifies compliance with advanced reporting and analytics. Document audits, KYC and AML checks, and other procedures can be set up based on the specifics of your business and the legal requirements of your target market.
Working with sensitive data and processing payments brings several issues: data privacy, fraud prevention, etc. Appropriate MFI solutions enhance security on multiple levels – from implementing best practices and integrating leading third-party providers during the development phase, to eliminating the human factor on the user side through advanced authorization and verification methods.
Must-Have Features of MFI Software
In the following, we address the basic features of an efficient microfinance solution.
Digital loan origination and underwriting
Since quick loan origination and underwriting is the main feature of any MFI platform, it’s critical that borrowers receive their loans in the most streamlined and convenient way possible – after all, that’s what they are coming for. On the other hand, efficient loan origination and underwriting process brings compelling benefits to your micro-credit business by reducing the error rate and processing time, ensuring process consistency, and increasing the return on investment for each approved application.
Customer analytics enables a better experience for borrowers by collecting, categorizing, and analyzing their data. This gives you actionable insights into borrower needs, pain points, and expectations, allowing you to tailor your offerings and services accordingly. In addition, user data provides you with an overall view of your business processes, helping you discover weak points and areas for improvement.
Your MFI lending software needs to be equipped with an accounting management system to manage charts of accounts, automated or manual journal entries, financial activity mapping, tax configurations, fund source allocation, accrual, and other accounting issues. It saves time and money, increases financial transparency, eliminates errors, provides real-time data, and enables data-driven decision-making.
Reporting & dashboards
Comprehensive reporting functionality highlights areas needing immediate attention and enables microcredit institutions to consolidate key performance indicators and accounting in real time. It also allows data to be more easily digested through visualization, simplifies the demanding loan process, and ensures that all borrower information has been accurately captured.
Just like other financial services companies, MFIs must comply with regulatory requirements relevant to your target market. Typically, borrowers must pass KYC and AML checks. Therefore, your platform needs to be integrated with third-party vendors that can perform the required checks and screenings.
Advanced cybersecurity program
The financial industry places increased demands on software security because it works with sensitive user data. Therefore, it’s important to ensure the highest level of cybersecurity and protect your MFI lending software from potential threats. Common methods include encryption, multi-factor authentication, role-based access control, etc.
A fixed interest rate is easy to understand and implement, but it won’t give you a competitive advantage. In contrast, the pay-as-you-go approach implies a flexible interest rate that depends on the level of spending. This approach brings several benefits – it lowers the cost of acquiring borrowers, allows you to charge more for high consumption, and provides scalability in the long run.
Microfinance platforms can optimize your company’s performance many times over. It offers accurate borrower scoring, customizability across all parameters, flexibility, enhanced cybersecurity, and a better borrower experience. However, MFI lending software development requires solid industry-specific knowledge and deep technical experience. At Itexus, we have both. Since 2013, we’ve been helping financial services companies get closer to their customers with robust, secure, and easy-to-use software solutions. Reach out to get yours.