Microfinance seeks to bring financial services to the segment of the population that is largely underbanked and does not have ready access to formal financial services. Microfinance institutions have two goals: to make a social impact by providing microlending solutions and bringing financial inclusion.

Microlending creates enormous prospects for lending companies that can utilise their prior lending knowledge and market products to individuals and SMEs seeking quicker and more transparent loans.

MFIs, NBFCs, and online lending platforms are deploying technologies to automate end-to-end customer acquisition, the credit assessment, and loan disbursals. Platforms that integrate CIBIL/CRIF, KYC databases, and various new age data points to profile prospects are in high demand. There is an immediate need for real-time disbursements and cashless transactions from banks along with seamless integrations that can service customers and provide them with on-demand credit when needed.

Microlending platforms will motivate borrowers to self-onboard themselves by subscribing to mobile apps and capturing digital footprints to avail a smooth credit lending experience. The digital transformation will result in better debt collections and e-payment channels like direct debit, eNACH, and e-wallets will generate greater profitability, improve repayments, and enhance customer engagement.

Digitisation and automation are the two biggest trends companies are investing in today. Lenders are focusing on improving credit decisioning processes and reaching more businesses. 

The global microlending market is forecasted to reach a valuation of USD 343.84 billion by 2027 and grow at a CAGR of 12.6% from 2020-27. Microlending helps underprivileged individuals gain access to financial services, acquire capital, and improve their lifestyles. Small loans with shorter repayment cycles bring lucrative opportunities to small business owners and help solo entrepreneurs kickstart new ventures. The key players in this segment are BlueVine, Inc., Fundera, Accion International, Kabbage, Inc., StreetShares, Inc., and many others. FiveStar raised USD 234 million in funding rounds and global investors are getting interested in startups that are investing in advanced micro-financing systems. Various organic and inorganic growth strategies are being used by market players to strengthen their positioning and increase the number of shares. Digital technology is also more reliable, improves transaction efficiency, and reduces costs related to taking loans by cash.

Artificial Intelligence in Micro Lending

Challenges with not following compliance requirements can spell trouble for organizations. Companies are implementing end-of-the-line Ai workflows into their compliance and benefiting from saving on expenses. The cost of running these technologies is expensive but cheaper than getting sued or fined for a lack of compliance. AI ensures compliance with specific jurisdictions, and differences in laws, and adapts to universal standards.

Tracking and monitoring compliance, stress testing systems, borrower identification, and identity fraud prevention are some of its leading applications. Data security in the cybersecurity world regularly requires updates and self-teaching Ai algorithms are an important innovation. A good example of this is the case of JPMorgan Chase’s technology that uses accurate image recognition to automate over 360,000 hours of work. Security processes that benefit from implementing AI models are spam filters, botnet detection, network intrusion prevention, user authentication, credit scoring, and finding the best credit offers for consumers.

Conclusion

The micro-lending market experienced a significant downfall during the onset of the COVID-19 pandemic with various small businesses and institutions being forced to shut down operations. However, things are changing now as there is an increase in its adoption by various citizens in Asia-Pacific and LAMEA regions. Government initiatives in various countries are also driving the growth of this segment, eradicating poverty, and improving the standards of living for poor people. 

To create a successful business, Automation and digitization are the two most crucial concepts that any lender or micro-lending institution should invest in today.