• Dmitry Dolgorukov, Co-Founder and CRO at HES FinTech


• 13.04.2023 09:15 am
#lending

With over 1.7 billion unbanked adults worldwide, microfinance has become a key driver of financial inclusion. Aside from empowering individuals to build a better future for themselves and their families, microloan software provides lenders with the tools to automate loan processing tasks and improve loan origination.

The rising demand for this software among lenders is the best evidence of its efficiency. A recent report by Grand View Research showed that the global microlending software market size is expected to reach USD 2.84 billion by 2027, growing at a CAGR of 16.5% from 2020 to 2027. Let’s dive deeper into the potential profit of microfinance systems and discover their potential to expand financial inclusion and improve operational efficiency.

Microloan processing automation

Any loan processing error can significantly impact the lender’s reputation. That’s why financial institutions use microloan systems to automate loan processing tasks such as loan applications, disbursement, and repayment. 

Adopting algorithmic underwriting means reducing the risk of human error and accelerating loan management processes. According to Consultative Group to Assist the Poor (CGAP), adopting digital technology can reduce the time required for loan processing by up to 80%. 

Both enterprise-level and SME lenders benefit from microlending automation. Scalable microfinance software brings significant time savings, reducing the time required for loan origination. In Kenya, the Kenya Women Microfinance Bank (KWFT) implemented a digital lending platform to reduce loan processing time from 2 weeks to 24 hours, thus minimizing errors and improving customer satisfaction. The use of digital loan processing leads to impressive results by reducing the time and effort required for document verification and loan approval, eliminating the need for manual data entry.

Loan officers optimization

Microloan software is a great choice for those looking for operational cost reduction. Loan officers can focus more on client relationship building and loan portfolio management by automating repetitive tasks such as credit checks and document processing. Increased productivity can merge into higher loan origination volumes, resulting in increased revenue for the lender.

International Finance Corporation (IFC) reports that digital loan origination systems can reduce loan approval time by up to 80% while increasing loan application volumes. For instance, in India, Cash Suvidha, an online lending platform, improved the loan officer's productivity by reducing loan disbursal time from 15 days to 3 days.

Online transactions tracking

Ensuring that loans are being distributed and paid back promptly and accurately secures financial institutions from collapsing. This is the main reason why lenders track loan disbursements and repayments on a daily basis. By automating the process with a microloan system, lenders secure the management of payment schedules, interest rates, and other loan terms.

Automated payment schedules and reminders for borrowers can be set up in order to reduce the risk of missed payments and late fees. The software for microfinance can also provide finance managers with real-time insights into loan performance. Those insights help them make data-driven decisions on loan disbursement and repayment management.

Risk mitigation

Microfinancing software provides lenders with tools to automate the credit analysis process. Companies tend to adopt AI-based credit scoring technology, which uses data analytics algorithms and machine learning to assess the creditworthiness of borrowers. The data sources include credit history, repayment behaviour, and external factors like occupation and utilities payment history. Utilizing the power of AI, lenders make more informed decisions on loan approval, interest rates, and loan terms.

Banks and alternative lenders constantly monitor their loan portfolios using finance management systems. The microfinance software provides lenders with real-time loan portfolio performance insights, making it possible to identify potential risks and take corrective actions before they become significant problems.

Microloan software enhances risk management by enabling lenders to identify and assess potential risks through risk assessment efficiently. The Agricultural Bank of Sudan implemented a risk management system that resulted in a 35% reduction in non-performing loans and a 75% increase in loan approvals, expanding its outreach to underserved populations. The system can detect patterns and trends in borrower behaviour by utilizing data analytics, allowing lenders to predict possible risks and implement necessary measures to mitigate them.

Automated microfinance reports

Microfinance software is a robust tool for acquiring real-time reports on loan performance, portfolio quality, and other key performance indicators. While processing the data of day-to-day operations, the system creates online dashboards for managers to monitor their loan portfolio performance. Empowered with the latest stats, lenders make data-driven decisions to optimize their lending operations.

Micro-lending software generates reports on loan disbursements, repayments, and delinquency rates. The software can also allow users to customize reports based on their specific needs, enabling them to monitor the performance of their loan portfolio in a way tailored to their business requirements.

Wrapping up

Microfinance software has become a vital tool for lenders in the microfinance industry that provides numerous benefits, such as automation of loan processing tasks, streamlined loan origination, improved loan officer productivity, efficient disbursement and repayment tracking, risk mitigation, and automated reporting and analysis. 

By adopting microfinance software, micro-lenders can improve their operational efficiency, expand their outreach to underserved populations, and promote financial inclusion. As the demand for microfinance software continues to grow, the future looks bright for the microfinance industry and its efforts to empower individuals and build a better future for all.