Core banking

How can technology support the growth of Microfinance Institutions

How can technology support the growth of Microfinance Institutions?

Banking
How can technology support the growth of Microfinance Institutions

How can technology support the growth of Microfinance Institutions?

In recent years, society has experienced a growing need for Microfinance as a powerful tool for sustainable development. While traditional Microfinance has been serving its purpose for decades, the industry faces the challenge presented by digital technology, which has simply accelerated the shift. As the global economy shrinks and the energy costs have skyrocketed, due to the war between Russia and Ukraine, the Microfinance business digital challengers may now reach the low-income segment of the population with the same kinds of services in every corner of the world.

Microfinance includes lending and sometimes accounts and relates to a category of financial services that help the world’s ‘unbanked’ (from a financing point of view) and most vulnerable segments of the population get the financial access needed, either for personal prosperity and financial inclusion, or for professional financing. The main goal of Microfinance is to provide easy access to financial services, equally, to all layers of social class by helping them to become self-supporting, promoting at the same time social change among certain community segments.

What is a Microfinance Institution?

Like a financial institution (bank), a Microfinance institution is a provider of credit, however the size and the volumes of the provided loans are smaller in comparison with those offered by traditional financial institutions. These small loans are known as Microcredit and target clients that are often micro-entrepreneurs in need of economic support to launch or to help their business grow. The profile of this client is considered too risky by traditional financial institutions because, on the one hand, they cannot provide real collateral and on the other, they tend to work in the ‘informal’ sector of the local economies.

Microfinance institutions have existed in various forms for many years, the popularity though of modern-day Microfinance surged upward in the 1990s and the 2000s, while in 2018 alone, the global Microfinance industry helped 139,9 million clients through savings, loans, insurance, and transfers.

Microfinance institutions empower the retail segment with financial tools, offer more choices, and enable small businesses with great potential to grow, so during the past years, many countries enacted or modernised laws in favour of Microfinancing operations, which led to a significant increase in the licensing of Microfinance institutions.

Microfinance & Small businesses

A Small-to-Medium Enterprise (SME) is defined as any business entity with fewer than 250 employees. In many countries, SMEs usually represent a whopping  90% of all enterprises and it is estimated that they account for more than 60% of jobs in local economies.

The importance of SMEs to local communities is emotionally rooted in buying and selling with friends and neighbours, while in rural areas and big cities, they offer key economic benefits as well. In general, SMEs present new employment opportunities, serve as the building blocks of any country’s operation, and strongly impact/support local economies, because:

  • They are more adaptable to the ever-changing economic climate.
  • They keep national exchange in the country by employing local workers and supporting other businesses.
  • They support the local government through taxation.
  • They do not always stay small; they can grow to corporations.

A major barrier, though, to the rapid development of the SME sector and particularly those that are considered small and very small businesses, is a shortage of both debt and equity financing. Accessing finance has been identified as a key element for small businesses to succeed in their drive to build productive capacity, compete, create jobs and contribute to poverty alleviation in developing countries.

In Western economies, the major reason why small businesses cannot easily access loans, offered by traditional financial institutions and commercial banks, is that they cannot provide collaterals, or that their loan applications are subject to complex and disproportionate evaluation criteria.

In other economies, small businesses in general can rarely meet the conditions set by financial institutions, which see them as a risk, because of poor guarantees and lack of information about their ability to repay loans. Without finance, these entities cannot acquire or absorb new technologies, nor can they grow to compete in global markets or even local markets. Also, they cannot create partnerships with larger firms.

The technology factor

Today, Microfinance tries to bridge the gap between the financial service providers and the ‘unbanked’ population, benefiting from technology, innovation, and analytics that drive knowledge, which are the key factors and the drivers for economic growth.

Digital technologies are rapidly spreading across the world and making significant impact on human life. Digital innovation creates new channels of engagement, expands opportunities, and increases the efficiency for individuals, and businesses.

The Microfinance industry is fast adapting itself to technology changes in the banking and finance sector as well, so smart connectivity, technological innovation, and digital inclusion offer various benefits that relate to growth, new opportunities, improved service delivery, and financial inclusion through micro-financing.

The key features of technology’s contribution to the operation and growth of MFIs are:

Customer Centricity

Digital technology, data, and 360° digitised services allow MFIs to efficiently reach and serve the ‘unbanked’, through a ‘customer-centric’ and friendly approach.

Reduction of Operational Risk

Through digital technology, clients can repay loans through various automated digital services, avoiding the risks of cash-based transactions.

New Business Models

The mobile-first concept supports new business models, by utilising mobile technology and data analytics, credit scoring, decision and underwriting processes.

Partnerships & Collaboration

Partnerships and collaboration among banking and finance institutions, fintechs, and technology providers help to change and evolve the financial services industry.

Big Data

New sources of data and new ways to evaluate and process data for credit scoring can level the field for borrowers, by lowering the cost for borrowers to assess creditworthiness.

 

The next day in technology for MFIs

 

Invest in flexible solutions

Most MFIs have IT systems that are cobbled together, with no efficient integration among them, as well as no capabilities to easily get connected with external systems and applications. MFIs should invest in modern IT systems that have the flexibility to grow with the business into the future, embracing key technology concepts such as cloudification, containerisation, microservices, data analysis, prediction models, etc.

Access digital infrastructure through Partnerships

MFIs are probably not going to be prominent banking and finance players like the traditional financial institutions (banks). However, this reality cannot prevent them from leveraging their digital infrastructure through partnerships. The most critical assets of MFIs, their license and dedicated customer base can assure efficient partnerships with alternative technology providers and orchestrators, to build strong and innovative microfinancing ecosystems, assuring that these initiatives will, always, be driven by technological and business trends.

How Profile Software can help

With Finuevo Suite, our dedicated solution for banking and finance institutions of any size, we can address efficiently the needs of MFIs. Finuevo Suite is an end-to-end plug n play solution for MFIs that fuses the robust capabilities of Finuevo Core and the unique digital experience of Finuevo Digital. The Suite delivers innovative functionality that follows international banking standards, while offering intuitive usability for organisations and their digital clients, paired with state-of-the-art tools for exceptional day-to-day operations.

MFIs can benefit from:

  • Rich, out of the box and robust cross-channels functionality
  • Themeable capabilities for more powerful branding
  • Complete front-to-back offering
  • Highly-automated operations
  • Modular and scalable platform
  • Flexible delivery and deployment models
  • Cloud enabled cost-effective operations, resulting in low TCO & quick ROI.

 

References

1 10 years already! A look bacilo.org/…es/en-GB/Stories/Employment/SMEsk at the trends in Microfinance [Microfinance Barometer, 2019]

2 The power of small: Unlocking the potential of SMEs [International Labour Organisation, 2019]

3 Small businesses, job creation and growth: Facts, obstacles and best practices [OECD]

Create your own digital bank

How to create your own Digital Bank?

Banking
Create your own digital bank

How to create your own Digital Bank?

 

Overview

Banking services are rapidly switching from physical distribution in stores and branches to digital distribution through software and servers. Between 2017 and 2021, 9% of all bank branches in the US have been closed, to minimise cost and drive efficiency. The same occurs in Europe, where major banks close their branches at a rapid pace.

At the same time, accelerated by the pandemic, the use of digital banking increases in a steadily high pace reaching 58% in 2021, while penetration of digital banking services is higher than 60%. To capitalize on this trend, India launches 75 digital banking units across the rural areas of the country to include and help the unbanked population, with their day to day banking transactions. These units, although from brick-and-mortar, are equipped with tablets and internet services, as a short-term solution of building trust through a more familiar “traditional” structure and onboard new clients who, in normal circumstances wouldn’t have the means to engage with the local banks via technology.

Consequently, digital banks and their provided benefits for both clients and the banking industry, have attracted the attention, and dominated the go-to market strategies over the last years.

If not now, then when?

Actions should be swift. The majority of traditional banks are slow adopters of true digital transformation, mainly due to heavy legacy systems, inflexible and time-consuming processes. Fintechs on the other hand are flexible, they run on low costs and since they are not attached to the physical space, they can move fast and exploit momentum.

NeoBanks, Digital Banks, Electronic Money Institutions (EMI), Microfinance Institutions (MFI) and digitally native financial organisations popup every minute, gaining significant market share and loyal customers. At the same time, even non-banking businesses, like retailers and telecom providers, reconfigure the banking value chain and enable new propositions by utilising Banking-as-a-service (BaaS) technologies and embedding financial services into their offered experience.

Whether startups or technology unicorns, the fintech industry sets the pace and gather large rounds of funding, as it was evident from the $137.5 billion that was invested in fintech businesses, in 2019. According to Forbes, fintech industry’s estimated value is currently at $5 trillion, while over the next five years a further growth of 23% is anticipated.

 

Read our latest Whitepaper Digital Banking; Why is it becoming so important to financial organisations?

 
 

Which Banking Platform to choose?

So, the time is now, but which are the right banking tools to go live fast with minimum risk?

There are several banking platforms in the market today, created by established firms with years of experience in the industry. But most of them fail to keep up with a single truth; time is money! And while implementation time can take months, running costs and competition rise.

At the same time, a banking platform should be flexible and grow as the new business grows, providing all the latest features and functionalities a competitive digital bank needs end-to-end. Thus, a modular design and an open architecture are essential to meet the current and future needs of the business.

For a comprehensive Front-to-Back banking, a combination of both Digital and Core Banking functions is necessary, according to the specific priorities of the business.

 

Digital Banking platform – Focusing on the client

The front-end of a digital bank is the space where the client interacts remotely with the organisation. This is where the client’s first impression plays a significant role to establish trust and loyalty. That means, it should be attractive and user friendly to support a straightforward customer journey. Moreover, it should be highly customisable to promote the brand’s style and message, differentiate the bank from its competition, while at the same time to be easily implemented and configured so it can be up and running in minimum time.

Competitive features to look for, in a Digital Banking platform

1.    Secure & intuitive customer onboarding

The client onboarding is the most important aspect of the digital banking experience. It should be consistent and seamless across the various digital channels, providing an easy and transparent step by step process, without being overwhelming and stressful for the user.

2.    Automated customer journeys

The interaction in the digital world does not resemble with the interaction in a physical place. Thus, navigating the clients through relevant information and recommending related solutions and products, adds value on the clients’ day-to-day transactions and creates extra revenue streams for the bank.

3.    Eco system banking

As the digital bank grows, it is important to be able to integrate with various internal and external systems to create additional revenue streams and enhance efficiency. With the use of APIs, the organisation can enrich their offering with complementary banking and non-banking products and services (insurance and financial products), all in a single fully integrated banking platform.

 

Discover the next generation Digital Banking platform

 
 

Core Banking platform – Focusing on efficiency

The backbone of the bank is the space where all the core operations and processes are running. Efficiency and optimisation of the bank’s processes are now at the forefront, through flexible workflows and automation. Moreover, Core Banking functions should comply with the latest regulations while covering the full spectrum of banking operations seamlessly.

Innovative features to look for, in a Core Banking platform

1.    Highly automated banking solution

A competitive Core Banking platform should support automation across all functions, increasing the productivity of bank officers through a modern, efficient and seamless user experience, while being easily configurable by the bank.

2.    Infrastructure efficiency and openness

To empower STP operations and seamless flow of data, as well as to provide flexibility on exploiting the supported functionality, the platform should easily integrate bidirectionally with systems the bank already uses or planning to use in the future, as the organisation grows. Moreover, supporting deployment either on Premises, in the Cloud or as SaaS, the platform should provide the necessary cost-efficient options to the newly established business.

3.    Built by established banking experts

Undertaking such a project, requires the highest level of commitment from both the bank and the vendor. The platform vendor should have experience in international fintech projects, deep knowledge of the banking industry and its regulations and should be able to provide full support and consulting at all levels, both during the pre-implementation and the post-implementation phases.

 

Discover your One-Stop shop Core Banking platform

 

Conclusion

Building your own Digital Bank from the ground up is not an easy task. It needs a clear view of the objective, industry knowhow and innovative thinking. Selecting the best vendor and banking platforms to ensure success of the specific project and cost effectiveness for the venture, is of paramount importance.

At Profile Software we deliver market-proven banking solutions, for over 30 years. Being recognised as an established and trusted partner of banking organisations and fintechs at a global scale, we are proud to actively support and empower the banking industry with competitive tools to proactively respond to the ever-changing market conditions.

References

1Digital banking in 2022: Trends and statistics [Bankrate]

2PM Narendra Modi has launched 75 digital banking units. Why? [Business Today]

3Fintech: The History and Future of Financial Technology [The payments association]

4Banking as a Service, Explained [Deloitte]

5The Rise And Evolution Of FinTech Post-Covid [Forbes]

Finuevo Core Banking platform is released!

Banking

Finuevo Core, the evolution of FMS.next, the internationally implemented core banking platform is released by Profile. Finuevo Core incorporates a new logic in Banking and offers a unique user experience through a brand new front-end. FMS.next is an award-winning banking system and with this in mind, the Finuevo Core aims at delivering a more advanced native web, state-of-the-art, cross device and OS functionality through a responsive layout, offering the same look and feel across all devices.

The platform has been redesigned to deliver an optimum user experience, to improve user productivity and provide superior customer service. Through a straightforward and intuitive navigation within a modern interface, users have instant access to information and actions. Combined with high levels of process automation and streamlining, users interact as little as possible with the system, performing more tasks in the same amount of time.

Significant and competitive new features have also been incorporated such as voice activated commands, user alerting, chat and powerful workflow setup and management across all functions. Coupled with personalisation capabilities, such as dashboards, shortcuts and navigation history, the new Finuevo Core is a truly forward-looking platform to cover the needs of the modern Bank.

Finuevo Core is the next generation banking platform developed to meet current and future market trends. It can easily integrate through its API layer with any 3rd party system, and it can be used as the backbone to the bank’s operations offering a unified approach. Finuevo Core is seamlessly integrated with Finuevo Digital, Profile’s new digital banking platform, both part of the Finuevo Suite that delivers front-to-back, cloud- and SaaS enabled, end-to-end banking operations targeted to banks and financial organisations (e.g., EMIs, MFIs, Digital Lenders, etc.) that want to advance their digital transformation and offered services.

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