Some of the top microfinance institutions (MFIs) are looking to boost digital loan repayment among their clients. Digital loan repayment, which can be done through the mobile applications or websites of the MFIs, is currently used by only about 10-15 percent of the customers. These MFIs are targeting to grow the number to 70-80 percent in the next 3-5 years.
"While 90-95 percent of disbursements are done digitally, only about 10-15 percent is repaid that way. The plan is to increase this number," said Baskar Babu Ramachandran, managing director and chief executive officer (MD and CEO), Suryoday Small Finance Bank.
Similarly, Vineet Chattree, CEO, Svatantra Finance, said that the top MFIs are targeting 70-80 percent digital repayment in the next 3-5 years. MFIs will encourage customers to repay digitally, Chattree said.
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"The MFI sector has about 7 crore customers, hence, it will take time to inform and educate them about digital repayment," Chattree added.
Incentivise digital repayment
Among microfinance customers, digital repayment usually happens with the assistance of an employee of the MFI. Additionally, experts said that family members who know how to repay digitally also help facilitate the same.
Sadaf Sayeed, CEO, Muthoot Microfin, said that workers help customers to repay digitally as it saves them time.
"The group meetings, which MFIs have with customers, are a good way to build awareness about the advantages of digital repayment. Hence, we are planning to work on a physical and digital model, where digital and financial literacy will be a key focus," Sayeed added.
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Chattree further said that institutions are ready to incentivise customers monetarily to repay digitally.
"Customers can simply repay their loans by pressing a button. MFIs could work on incentivising them for the same," Chattree said.
How is the sector performing?
According to a June 2023 report by Microfinance Institutions Network (MFIN), a Reserve Bank of India-recognised self-regulatory organisation, assets managed by MFIs increased 22 percent to Rs 3.48 lakh crore in FY22-23.
Microfinance institutions reported robust profit and healthy asset quality, driven by growth in disbursements in the April-June FY23-24 quarter of 30 percent. Additionally, MFIs reported increased digital usage by 22 percent.
It’s been a roller-coaster ride for the MFI sector since the 2010 crisis in the erstwhile state of Andhra Pradesh. The then state government had introduced severe curbs on MFIs after reports of suicides by customers. This resulted in loan recovery rates dropping to 10 percent, from 99 percent earlier.
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