The low-income individuals or unemployed people are sometimes in need of financial help but due to weak economic status, have no access to banking services. This is when Microfinance or microcredit comes into action. Microfinance is a type of banking services provided to low-income groups or individuals to support their small-scale business startups or other requirements.
The microcredit firms offer multiple services such as loans, insurance or saving solutions to the small business organisations or the entrepreneurs who do not have stable access to a reliable source of capital.
The concept of microfinance is an age-old approach that has been transformed in the recent year. Not just the definition has changed, but the mode of services, as well as the operational procedures, have changed largely. In the earliest years, the microfinance services were backed by Pigmy deposits, established by Syndicate Banks.
In the recent years, the microcredit services are on the heights of remarkable growth. Technological evolution plays a vital role in the explosive transformation of financial services, and microfinance software is considered the key to success. The technological innovations have taken this approach to the next level, which is advancing continuously.
Microfinance is a fast-changing industry with an extensive rise in the number of customers in the past decade. It is going to expand beyond the traditional finance practices with the growth of technological developments in the banking and finance sectors. Small financial institutions can collaborate with FinTech companies to employ competitive software applications and operate 24×7 for serving global customers.
Increase the Impact of Microfinance in Rural Areas
- To improve and increase the impact of microcredit in poor and rural areas, several steps need to be administered for a positive approach.
- Understand customer’s behaviour particularly the needs and preferences of poor and underprivileged.
- Develop and deliver financial solutions that help to serve the people in the best possible manner in fulfilling their requirements and improving the living standards.
- Ensure customer’s protection by combining the financial services with the insurance, savings and retirement products.
- Educate customers about the best lending services and financial plans that best meet their requirements so that their core purpose is fulfilled.
Financial education programs must be designed with a focus on understanding the interest rates, how finance agreement works, terms and conditions covered under the contract, a concept of cash flow management, theory of savings accounts, etc.
By 2020, there will be an immense growth in the financial organisations, but at the same time, the small business owners have to be extra cautious while applying for loans or other financial services. Without having financial knowledge and a proper business plan, even microloans can turn into unmanageable debt levels. Therefore, microcredits must be utilised wisely with proper planning.
In order to promote microfinance organisations and makes its workflow easier, it is important to automate the overall processes. FinTech organisations can help microcredit firms integrate digital technology and utilise it to retrieve maximum benefits.