Meeting this challenge is a clear priority for you as the micro lender. However, it is also a major profit opportunity for your industry to solve market failures and create real value. A person that is in need of a specific sum of money can utilise personal savings, credit, cash transfers from family and friends, and other financing mechanisms offering promising opportunities to create security and steady employment. The problem is that they require a nuanced understanding of product design and the local market conditions in order to be effective. Therefore, the question becomes: what financial service would unlock the most value for those that are in need? The answer to this question is directed towards you as the micro lender.
Microcredit finances the entrepreneurs of tomorrow
It is important for you to position your industry as the preferable option for loan financing. Your industry ultimately offers people from all walks of life a small loan to fund their dreams. In essence, the microcredit that you offer raises the average income or consumption of households. People that receive microloans also have expanded access to increase their business investments as well as their profits. One of the greatest benefits of microfinance is that it can increase the decision making power of the borrower. Your borrowers are able to become entrepreneurs and start taking control of their lives. Therefore, you need to actively understand the role that you play within your local community and practice that role in a responsible manner. As we all know, with great power comes great responsibility.
Microfinance is mutually beneficial
Microfinance increases low-income individuals’ access to financial services. Banks don’t like talking to people who want to borrow small amounts of money, especially those that have bad credit. People-intensive lending is what it is all about. This means that a borrower has a better chance of obtaining a loan through microfinance. Due to the fact that the interest rate applied to the credit is profitable for your micro lending business, it becomes an agreement that is sustainable for both parties.
Microfinance offers sustainability
Even if your business looks at creating cheaper loans for your borrowers, it won’t make a difference if your services aren’t worthwhile. You need to add value by expanding your offerings to savings, insurance, and other financial products. As with any business, you should aim to be financially sustainable by serving your customers. Due to the fact that your customers have limited means, and because credit can be harmful if misused, you need to take extra care to ensure consumer protection.
Your business should be moving away from being credit-only to a balanced suite of financial services. Your long term goal should be to offer the best prices, by continually searching for more efficient ways to deliver financial services, especially through technology. However, the purpose isn’t just to collect money. You need to actually make a difference, which suggests that your business can be more than just the source of a loan. You need to show your borrowers that you are looking out for them.
Micro lending is digitally accessible
Your micro lending business needs to tap into technology in order to increase your membership and cut operating costs. The cost savings offered by mobile technology lowers your expenses and increases a customer’s access to a loan. Try and make use of technological solutions, such as loan management software. These efforts, plus others like developing algorithm-based credit decision models, can dramatically reduce your operating costs. This ultimately allows your business to reduce its interest rates in a competitive environment. Significantly improving costs also allows you to achieve far greater profits and serve exponentially greater numbers of poor families who are financially excluded.
You can deliver quality loan solutions through mobile loan lending. This is where your borrowers can apply and obtain a loan right from their cell phone, tablet, or computer. Turning to digital application processes requires no infrastructure, so it becomes cost effective from a banking point of view. It makes your micro lending that much more convenient as your borrowers can have access to a loan from the comfort of their home.
Long story short
You may be in the business of small loans but it certainly yields results on the macro scale. Your industry is ultimately a borrower’s greatest financial tool. Having that tool be digitally orientated will allow you to assist even more borrowers quicker and faster. However, the key for your micro lending business is to find the right innovation that will allow you to be the most effective in your day-to-day operations. We here at Delter IT suggest that your micro loans should be done through online loan processing. Your customers will appreciate the fact that they can apply for a loan from anywhere, anytime. On the other hand, you will reap the rewards of having more loan applications being financed through your business.