Digital financial services have the potential to speed up financial inclusion in developing countries and trigger real benefits for both customers (convenience, faster transactions, diversified financial services, last-mile solutions) and providers (competitive market advantage, better risk mitigation, increased operational efficiency, rural outreach at lower cost). It is not if microfinance providers (MFP) like microfinance institutions, SACCOs and Credit Unions want to embark on the digital transformation journey but when.
MFPs unable to perform the demanded speed and simplicity of borrowing processes will lose their competitiveness in the market. On top of that, they are usually less efficient and face a higher cost of acquisition than their ‘digital counterparties’. And whilst microfinance providers are taking progressive steps to embrace digital finance, it often comes with unforeseen challenges when there is not adequate experience on board to lead the digital transformation journey.
Digital channels, as part of digital financial services, make it much easier for microfinance institution providers to collect data. Data plays a crucial role in determining risk profiles for financially excluded customers. Using digital solutions also increases staff productivity as data can be put into the system immediately without the use of paperwork. Data collection, better risk mitigation and increased operational efficiency are just a few advantages of the digitization of MFPs.
Digital financial services offer customers access to a broader range of financial services such as credit, savings, insurance and payments that they can access even in remote areas. Simultaneously, it allows the MFPs to reach rural areas at a lower cost.