In the modern era, the integration of cutting-edge technologies is completely being adopted by several Indian industries. Among these, the microfinance industry (MFIs) is going through a substantial technology adoption. Formerly, MFIs have focused on providing financial services to underserved communities living in suburban areas using various technologies. However, as the world becomes more connected, MFIs are adopting more emerging technologies such as the Internet of Things (IoT), Artificial Intelligence (AI), and Data Analytics to remain more adaptable and serve their mission of financial inclusion. These technologies also provide MFIs with new potential to boost efficiency, broaden outreach, and provide personalized financial solutions to individuals in this segment.
Here’s a look at some of the technology-driven trends shaping the trajectory of the Indian Microfinance Sector:
Data Analytics and Personalisation
In today’s time, AI and Data Analytics are altering the way MFIs function. AI-powered algorithms offer significant insights in a variety of areas, including enhancing consumer experiences and optimising corporate procedures. Personalised banking services that cater to individual needs are now setting standards, retaining consumers and their loyalty. Moreover, these technologies assist MFIs with risk assessment and ethical lending procedures.
Digital-First Banking
By offering unparalleled convenience and engagement, digital-first banks are transforming consumer experiences. Customers are now capable of accessing banking services from anytime anywhere. Digital platforms have enabled them to rapidly access their fund transfers, request loans, check account balances and make quick and secure digital payments. Moreover, Digital-first banks may offer personalized financial advice and product recommendations by leveraging data analytics and AI.
UPIs Integration
MFIs are promoting the Unified Payments Interface (UPI) to enable rapid and secure transactions. This not only complements the Indian government’s drive for a cashless economy but also caters to the evolving preferences of modern-day consumers. Additionally, by adding UPIs into their systems, these entities enhance financial accessibility while letting customers make cashless payments, transfers, and repayments, in addition it also helps them skip any scheduled payments using UPI auto pay. According to the National Payments Corporation of India (NPCI), around 1330 crore transactions were reported in May 2024, exhibiting a 50 percent increase from 2023.
Rise of Pay Later Market
The burgeoning ‘Pay Later’ market is transforming the way microfinance transactions are carried out. The convenience of contactless payments caters to the preferences of a diverse customer base. Today, MFIs are following this trend by adopting contactless payment options, enhancing accessibility and simplifying financial transactions for their customers.
Facilitating Cybersecurity
As digital banking becomes prevalent, ensuring the security of financial transactions is vital for MFIs. These entities have actively started making investments in advanced cybersecurity measures, two-factor authentication, biometric authentication, and AI-enabled threat detection systems for safeguarding customer data and preventing fraudulent activities. As a result, cybersecurity is increased and the microfinance industry is further prevented from potential threats.
The convergence of the aforementioned trends in IoT, data analytics and AI marks the beginning of a new era in microfinance. Consequently, the ‘Techsiresearch’ report has predicted that the Indian microfinance industry will grow at a CAGR of 7.20 percent by 2029. Furthermore, the future of the microfinance industry will continue to rely on these technologies to deliver personalized, accessible & efficient, and secured financial services to marginalized communities.