The news story in Mint suggested alarm bells over the rapid growth of microfinance industry in the last three years, not taking into consideration the vital impact of technology on widening the client base and serving them instantly.
The rapid IT modernisation has yielded in higher operational efficiency and doubling the number of customers served by each field officer, compared to five years ago. But the bias from the unfortunate 2010 delinquency situation is vividly influencing the perception of the microfinance sector still, bereft of the RBI shield being provided now to regulate the sector. None of the RBI guidelines have been overlooked or crossed by any of the NBFC-MFIs which have essentially doubled their customer base riding on the confidence people have in RBI-registered NBFC-MFIs.
In addition, self-regulatory bodies MFIN (Microfinance Institutions Network) and Sa-Dhan have been extended recognition by RBI and they are aware of every activity of the member MFIs. It was precisely this compliance which has led to RBI’s recognition of the sector by granting 8 MFIs the Small Finance Bank licences out of 10.
The latest criticism on widening customer base could also have stemmed from the fact that all the large banks, including the SBI, have shown their displeasure at the SFBs making inroads into the banking sector. Moreover, these MFIs have shown what the operational efficiency means by extending personal touch to the bottom of the pyramid customers with motivation and dedication, not merely cost considerations.
The figures of the industry speak for themselves. The Portfolio at Risk (PAR) figures remained under 1% for FY2015-16 and the increase in average loan amount disbursed per account was Rs 17,805, which is just slightly over Rs.3,000 per person from 2014-15 figure of Rs.14,731. It is not alarming.
The RBI has doubled the ceiling on per person indebtedness to Rs.1 lakh, which gave the effect of doubling the loan disbursals, an opportunity that no MFI wanted to miss. But all the major MFIs have brought down their interest rates much lower than the RBI cap, within 20 to 21% range, essentially due to the operational cost and efficiency achieved in the sector owing to digitalization.
IT or the software backup for large MFIs has undergone sea change with dedicated core banking solutions such as T24 making inroads into the microfinance sector in 2015-16 and helping them centralize the data processing, and in turn, relieving field officers and branches with more time to focus on core business. Unlike the 2010 delinquency situation, keeping a tab on every individual customer and the group is as easy as pressing a button at the head office or branch office now. It has also replaced the prolonged administrative procedure to process loans to few minutes.
Some large MFIs like Ujjivan have even introduced spot clerance for loan applications, thanks to the IT devices given to field officers. These hand-held devices, connected to credit bureau, could instantly provide the customer data, making the loan processing almost instant that was never possible in the past.
Modern technology and operational efficiency achieved by these MFIs should deserve pat on the back any day and partial analysis lead to undervaluing their services and an apparent bias for major banks.
By Sridhar N.