The microfinance sector in many emerging economies is benefitting immensely from the technology inculcation- especially in terms of its key inhibitor: the accessibility and outreach. Those seeking micro loans now benefit from the interlacing of technology and financial services as the original model of Grameen Bank is now being transformed with the availability of digital tools. These digital tools are not just for making payments such as those offered by branchless banking; innovation in the space called Fintech is creating more and more opportunities for disbursement of micro credits or loans, savings, insurance, remittances, pension etc.
As the financial services become more digital, financial technology or fintech is becoming critical for broader financial inclusion – and the microfinance sector in particular. The trends in the emerging markets where fintech is creating opportunities for the unbanked as well as underbanked show that not only are the microfinance institutions are setting up their own mobile payment systems, mobile banking and agency banking such as those offered by cash wallets in Pakistan, but are also using technology to make loan disbursement as well as using data for credit scoring and loan application process for clients. The latest push towards digital adoption has come from COVID-19 pandemic, which has brought fintech into limelight as it not only reduces transaction cost and time but also reduces the need for direct human interaction.
The access to financial services and holding a bank account is still not ideal by any stretch in Pakistan – more so for the people at the bottom of the pyramid. But the opportunities offered by fintech to serve the underserved are tremendous because of significantly high teledensity and rising internet penetration. Financial inclusion of women is also bleak in Pakistan. Fintech is proving to be a gamechanger for the low-income women as emerging financial technologies aim to transform access to credit for women with loan disbursement through their mobile phones. The key lies in collaborative partnerships between stakeholders including the telcos, banks, MFIs and the fintech firms.
Amid all the benefits that are shining out of fintech in helping poor people, there is one criticism to the emerging model in microfinance – it underscores the need for high-touch business model that has been the foundation of microfinance. Whereas the new model of using innovative financial technologies is based on low-touch model, which essentially reduces cost. Maybe its time that MFIs adopt the change to address challenges that have thwarted the sector’s growth such an outreach, scalability and cost.