According to experts, microfinancing has been one of the most instrumental factors in facilitating financial inclusion in India. The Bharat Microfinance Report by Sa-dhan highlights that 98% of microfinance institution (MFI) borrowers are women, demonstrating the significant role MFIs play in empowering women entrepreneurs through micro-credits.
This impact is further underscored by data from the Microfinance Institutions Network, which shows a 10% growth in the sector’s gross loan portfolio in India, reaching ₹2.85 trillion by March 31, 2022, with expectations of continued growth in rural markets.
In this scenario, micro loan management software addresses the challenges lenders face in extending credit to MSMEs–high risk, small ticket sizes, and the need to balance profitability with customer satisfaction.
It also enables lenders to automate operations, handle high volumes of paperwork efficiently, and meet the growing demand for loans, ultimately fostering further microfinancing growth in India.
Read on to learn how micro loan management software helps boost lenders’ profitability.
6 Ways Micro Loan Management Software Leads to More Profitability for Lenders
Loan management software (LMS) is an all-inclusive platform that aids banks, lenders, and other financial institutions in effectively managing their loan portfolios while minimising risks and optimising profits.
Below are five ways a micro loan management software boosts profitability for lenders.
Quicker Loan Approval
Manual loan processing can take days and sometimes weeks for loan application approval as credit assessment, documentation, and approval take time using traditional methods. Instead of the legacy screening and vetting processes, lenders leverage automated systems and algorithms that evaluate a borrower’s eligibility within a few minutes.
Lenders can speed up loan approvals using micro loan management software and boost their profitability. Combining specific factors, such as the loan value requested, collateral, and loan-to-value ratio, into the LMS leads to faster loan approvals.
A reduction in the loan approval turnaround benefits borrowers, who can access funds faster and do not miss out on business opportunities. On the other hand, lenders can process more applications in a shorter span, increase their customer base, and improve profitability.
Decrease in Errors
One of the most significant advantages of automation is the reduction in errors that manual processing is prone to. A micro loan management software ensures no room for error at any step of the loan approval process.
The automated recognition and extraction of raw data decrease the chances of errors, duplication, and omissions. The software can also detect inconsistencies in documentation to expose fraudulent documents and identity theft.
Higher data accuracy translates to superior outcomes across the entire lending lifecycle, boosts efficiency for the lender and reinforces borrower trust in the lender’s systems and processes.
Lower Operational Costs
Reduction in operational costs leads to an automatic boost in profitability for lenders. Embracing an automated loan management system results in cost reduction. A streamlined loan approval process reduces personnel requirements while improving accuracy simultaneously.
Lower labour costs, coupled with higher efficiency and productivity, improve lenders’ bottom lines. Automation also enhances overall decision-making and reduces case delays or escalations.
Customised Reporting
Micro loan management software allows lenders to generate customised reports according to their requirements. Lenders can tailor reports to their needs. These reports can give lenders valuable insights into their portfolio composition and performance.
Lenders can make informed decisions by focusing on data and inputs most crucial for their operations. They can also identify areas of improvement, analyse their performance and strategise about designing a portfolio that helps them maximise their profitability.
Flexibility in reporting is instrumental in helping lenders track their performance and optimise their operations.
Finezza offers a unique analytics solution that comes pre-loaded with several function-specific reports that help lenders improve their decision-making.
Decline In Default Rates
Reduction in default rates is one of the most significant benefits of automated micro loan management software. It helps lenders assess an applicant’s creditworthiness more objectively and accurately using AI algorithms, machine learning and alternative data sources.
Improved credit scrutiny allows lenders to offer loans to candidates with a lower likelihood of default. Minimising default rates can help lenders maximise their profitability.
Effective Risk Management
Risk management is critical for micro-lenders to maintain profitable operations. They need to constantly monitor their loan portfolios to identify potential risks and take timely corrective action to avoid problems later.
Also, despite stringent credit checks at the customer onboarding stage, lenders must remain vigilant by continuously monitoring their portfolios throughout the lending lifecycle.
The micro loan management software provides lenders with real-time performance insights using predictive modelling and advanced analytics and helps them mitigate risks.
Analysing financial indicators, market trends, credit history and loan performance allows lenders to implement proactive measures such as loan restructuring, collateral requirements, or targeted interventions if and when required.
To Sum It Up
The micro loan management software benefits all stakeholders. For lenders, the software improves decision-making, enables quick and accurate risk assessments, helps optimise lending strategies and boosts profitability. Borrowers benefit through quicker approvals, simplified documentation, and improved satisfaction and loyalty. Automated systems ensure transparency and help build trust with stakeholders.
Finezza offers robust micro loan management software that enables lenders to overcome concerns associated with legacy systems. The software helps lenders manage their portfolios effortlessly while keeping the borrower’s data secure.
Lenders can get the loan management solution customised to help address the requirements of microfinance institutions, allowing them to maximise their profitability and promote financial inclusion.
Book a demo to know more.
Leave a Reply