Microfinance is a fragmented but have become huge industry in Pakistan, cross to 152 billion in terms of gross loan portfolio, serving about 4.9 million people in 105 districts of the country, consisting of 51 micro finance services providers including MFBs, MFIs, RSPs & others with 3422 branches/units . It has also 22.5M savers with 120.5 Billion amount, 6.2M policy holders with sum insured of 165.9 Billion. with quarterly growth recorded in first quarter of 2017 is outreach 9%, and GLP 13% (figures are as of 31st March 2017). These are indeed impressive figures, but ground realities are much less healthy, and the industry facing some fundamental problem and challenges.
Microfinance industry suffers from certain client related problems such as flavoring new clients, retaining existing clients, lack of information about existing and potential clients. Then there are staff related problems such as transparency, educational level and skill development of staff. However, the more fundamental problems faced by the industry are the system related problems such as high cost loans, profit performance and interest rate. Microfinance institutions have to lend out small loans so they have to keep balance between interest rate and loan repayment. To ensure 100% recovery of loans they need to employ lot of field staff to work in the field, disburse loans, follow-up and collection. But this is very costly which increase interest rate that borrowers have to pay. Whether organizations want to keep interest rate as low as market competitive.
This is where the digital solutions have the potential to revolutionize the industry. MFIs can reduce cost with a big margin if they take everything digitize. There would be no or less offices, lowest staff with all the information available online and in their mobile phones reinforced by a robust mobile app.
With this digital technology MFIs can meet challenges & overcome problems they are facing in Pakistan. They can; increase outreach digitally with lowest one time cost, Improve customer service to current and potential customers by providing safe and convenient ways to disburse and repay loans, cut cost, gathered information make data base of existing and potential customers, make sure that appraisal process takes place at the clients door step with using GPS and take geo location of customers house as well, Empower customers to choose the best suit interest rate, loan amount, loan tenure, repayment mode from available product line and many other. The issue of cost, time and transparency would also be resolved.
Digital technology is changing various traditional industry sectors in dazzling ways. Today when technology is affecting almost everything making it more convenient and efficient, micro finance industry cannot remain untouched for long. According to the Pakistan Economic and Social Review, the potential customers of the microfinance credit range between 25 to 30 million borrowers, it means there are still 20 to 25 million borrowers could be marketed, which cannot be reached with traditional ways. So we need to digitization microfinance industry, it will not only boost the industry but also provide smart solutions of all problems and challenges facing microfinance institutions in Pakistan.
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