The financial sector is no stranger to innovation. With the rise of new technologies, banks and microfinance institutions (MFBs) can now offer credit more efficiently, securely, and cost-effectively. This article will explore why enabling credit through technology is a game changer for banks and MFBs, and how it can help reduce non-performing loans (NPLs), increase margins, and provide better security in loan origination and evaluation.
Reducing NPLs
Non-performing loans (NPLs) are a major concern for lenders. They occur when borrowers fail to repay their loans as agreed, resulting in losses for the lenders. According to the World Bank, the global average NPL ratio was 4.4% in 2019, posing a significant risk to financial stability.
Enabling credit through technology can help reduce NPLs in several ways. For example, advanced technologies like AI and machine learning algorithms can analyze large amounts of data to predict a borrower’s default likelihood. This helps lenders identify risky borrowers and either reject their applications or offer loans with higher interest rates to compensate for the increased risk.
Increasing Margins
Margins are a critical aspect of lending. Banks and MFBs aim to maximize their margins to generate profits. Technology can help lenders increase their margins by reducing their costs of operations.
Digital channels can automate loan origination, reduce paperwork, and speed up loan processing, resulting in significant cost savings. This can lead to lower interest rates or higher loan amounts for borrowers.
Security on Loan Origination and Evaluation
Loan origination and evaluation are sensitive functions that involve collecting borrowers’ financial and personal information.
Enabling credit through technology can help ensure the security of loan origination and evaluation. Digital platforms can encrypt borrowers’ data, and lenders can use digital identity verification tools to prevent fraud. This can build trust between lenders and borrowers, strengthening customer relationships and increased business.
Here are some additional points on how enabling credit through technology can benefit banks and MFBs that are often ignored:
- Improved Customer Experience: Technology can enable banks and MFBs to offer personalized loan products, customized repayment schedules, and quick loan disbursals. This can lead to higher customer satisfaction and loyalty.
- Better Risk Management: By analyzing borrowers’ credit history, income, and other financial parameters, banks and MFBs can evaluate credit risk more accurately. This can help them make informed decisions and reduce the probability of loan defaults.
- Increased Financial Inclusion: Technology can enable banks and MFBs to reach underserved and unbanked populations who may not have access to traditional banking channels. Mobile banking and digital lending platforms can give these populations easy access to credit and other financial services.
- Enhanced Operational Efficiency: Digital lending platforms can automate repetitive tasks, such as data entry, document processing, and loan disbursal, reducing employee workload. This can result in faster loan processing times, lower costs, and higher productivity.
- Better Regulatory Compliance: Technology can help banks and MFBs comply with regulatory requirements, such as KYC (know your customer) and AML (anti-money laundering) regulations. Digital identity verification tools can ensure that borrowers are whom they claim to be and that their transactions are legitimate.
Conclusion
Enabling credit through technology is transforming the lending landscape. With technology, lenders can offer credit more efficiently, securely, and cost-effectively than ever. As technology evolves, we expect to see more innovative solutions emerge, enabling lenders to serve their customers better and drive economic growth.
Want to digitize your lending business? Join our Waitlist, now.
