Data is the new oil and data-driven insights are the helping hand of modern-day businesses. Financial services are no exception, robust development in technology, new entrants, mobile phone penetration are redefining the whole landscape.

Microfinance sector amounts to a huge number of client accounts and is the center for unstructured, web and big data.

This data set contains customer details including age, income, expenses, loan purpose, occupation, attendance at meeting centers, etc leading to the increased demand for analytics to extract actionable insights.

Let’s understand the types of analytics currently being offered by the industry

Geospatial Analytics

Demographic data of the customers of a particular area or region helps to map them with viable products. This data helps to target potential customers residing in that area or region. This requirement is fulfilled by Geospatial analytics.

It helps to display customers’ location on a map of the MFI branch. Moreover, it forecasts the human population by filtering out relevant data and applying it to provide trend analysis, modeling and predictions. It analyzes and monitors the performance of the MFI branches and reviews by defining a trade area and figuring out nearby competitors.

Behavioral Analytics

It plays a vital role in determining behavioral patterns to identify whether the customer is likely to default. Accurate collection models can be a driving factor behind a product’s collection rate and efficiency. Simple classification models or scorecards can be developed on the past data to assist the collection team to pin down the group of customers in the current portfolio who exhibit a similar pattern to the ones who defaulted earlier.

The collection team can focus more on the customers with a high probability of default and align their efforts accordingly to reduce the delinquencies. This model runs at the beginning of every collection cycle, and it’s frequency will be the same as the repayment frequency (weekly, monthly or fortnightly).

Predictive Analytics

Predictive analytics delivers capabilities to mine insight from historical data and optimize solutions to reduce variability and improve operations.

It helps MFIs to reduce costs by converting raw data into business insights for better decision-making. It enables combining data across industrial sources and quickly discovering problems, identifying fundamental reasons, and determining future performance.

MFIs are using it to make better decisions for continual improvement of quality, productivity, and operations delivery. Branch-wise data is churned to determine the performance of each branch, and the executives take corrective measures to fix the laggards.

It can pinpoint the root cause of low performance and suggest the required course of action well in advance.

Dashboards offer a bird’ eye view of KPIs (Key Performance Indicators) relevant to the MFI business process through constructive use of visual charts and graphs.

Analytical reporting is the most important element in presenting the desired information in different forms to the top management. This tool enables multi-dimensional analysis, what-if analysis, and data drill-down analysis.

A scorecard helps to measure and monitor the KPIs concerning the defined strategic goals and performance milestones, through effective use of traffic light indicators.

The comprehensive console provides exhaustive details to top management helping them understand trends, patterns in their business growth. With this console, executives can track, decide, and on various aspects of the business for eg. detailed analytics of expenses and revenue that helps to determine the level and cause for change in ROE

Customer Analytics

MFIs use analytics to identify the profitable customers who could also become target customers for other products and individual loans.

Customer Lifetime Value or CLTV is a measure used for calculating the value of a customer relationship, based on the NPV or Net Present Value of the projected future cash flows from the customer. Those with negative NPV should not be considered in this respect while consistent effort should be made to improve recoveries from such customers. Profitability and the lifetime value of the customers facilitate comparison with peer groups and indicate customer sentiment and the probability of attrition.

Analytics can also assist to determine a customer’s SOW or Share of the Wallet, which is the amount of the customer’s total spending on the products and services offered by the MFI. SOW can be enhanced by up selling and cross-selling other products or services thereby creating loyalty.

Conclusion

Through the assistance of predictive analytics and profitability-based customer analytics, MFIs can improve the quality of loans and reduce delinquencies. Moreover, mobile and cloud-Based analytics enable access from anywhere on any mobile device to the senior executives of the organization.

Big Data will help the Microfinance industry to reach a milestone where they will have the facility to provide products that customers exactly need. MFIs will be capable of serving customers with just-in-time financial needs, with the best-suited loan ticket size and insurance schemes.

As the famous saying goes “work smart don’t work hard”. Big data works on the same mechanism to structure the unstructured data and deliver useful insights.

About Craft Silicon

Craft Silicon is a leading financial technology solution provider and recognized as one of the most tech-savvy software groups globally. Craft Silicon supports 300+ financial Institutions by delivering value in over 30 countries.  Craft Silicon provides robust solutions that include Core Banking, Loan Management, Channel Banking etc. –   Managing over $5.6Bn of Loan Portfolio, 57Mn customers & 1Bn transactions per year in Asia region.

BR Analytics –

BR Analytics, using inbuilt deep domain knowledge, provides analytical solutions to improve business decisions & optimize performance. An intuitive system, it allows for interactive /visualizations of business insights & predictive analytics capabilities, converting raw data to actionable insights –

• Reads multiple sources – big data, web data & unstructured data
• Convenient plug & play system with core BR.NET allowing quick deployment
• Real-time data analytics for business insights across industries
• Detailed reporting includes KPIs, dashboards

India witnessed a shift in the microlending landscape in the last decade. Approx. 60 million women across the nation have a massive outstanding loan portfolio of INR 2,59,377 crore in March 2021, says a report (Micrometer by MFIN) .

To meet the evolving consumer demands, the industry has transformed their entire lending process which includes a faster, secured, scalable and streamlined borrowing experience to the end customers. Increase in mobile penetration across rural markets has paved the path for digital emergence. The major factors which have led to a spur in growth are – increased digital connectivity and innovation.

Tech driven solutions are disrupting microfinance lending from loan origination to disbursement. Digitized loan origination automates and manages every step of the lending cycle such as loan application, documentation, verification, credit bureau check etc. It speeds up processing and approval of loans faster. It further streamlines lending operations and minimizes the credit risk with business rules & CB report.

Tech driven solutions are disrupting microfinance lending from loan origination to disbursement. Digitized loan origination automates and manages every step of the lending cycle such as loan application, documentation, verification, credit bureau check etc. It speeds up processing and approval of loans faster. It further streamlines lending operations and minimizes the credit risk with business rules & CB report.

Amidst the thrive of microfinance institutions, Group Loan Origination used to be a cumbersome and document intensive process by which a borrower applies for the loan. Nowadays, with the increased use of automation & digitization this process is becoming easy and quick.

Let’s understand the whole process of loan origination in a brief manner.

Loan Origination Process

 

Village Survey

It is conducted to extract the basic information of the village like population structure, business activity, financial dependencies, social dynamics, law, and order scenario etc. It is used to assess the viability of the residents of the village from a bird’s eye view to begin with the credit operations.

 

 

Lead Generation

It refers to the action of identifying the potential clients through village surveys and briefing them about the company and its products. It helps to stimulate the interest of the borrowers and increase their awareness about the loan product.

Pre-Qualification

It helps to check the eligibility and authenticity of the borrower for a particular loan product. Borrowers must provide ID and other documents to establish their eligibility. Following documents are demanded by the lenders

• Voter Id or Aadhar card
• Address Proof
• Bank Account details
• Consent for e-KYC with biometrics or OTP

These documents are verified by the lender and the credit score of the borrower is also checked. Once the screening out of ineligible candidates is done the borrowers are allowed to proceed with the loan application.

Loan Application

Borrower provides all the relevant information in a detailed manner to the officer. The application is intensive and requires all the information like financial history, monthly income and expenses, bank account, insurance, loan purpose etc.

Loan Underwriting

It is a due diligence process where the lender does deep scrutiny of the applications and the Credit Bureau report can be reviewed, if required, to check the authenticity of the details provided by the borrower. Applications are sent back for correction if any error is found at this stage.

Customer Onboarding

Finally, the customer receives the decision on approval of their loan application and a loan card is provided to them. Within 7 days of onboarding the disbursement is done in the customer’s bank account.

Traditionally, loan origination was an intensive, time-consuming and complicated process as it involved manual underwriting and paperwork which is where digitization offers the chance to deliver rapid and responsive services to the borrowers in a manner that has never been done earlier.

Benefits of Digitization

Reduced TAT (Turnaround time)

It promoted speed and efficiency as the verification process can be done digitally through eKYC, Video KYC, eSign, etc. therefore, reducing the turnaround time by almost 50 %.

Increased Scalability

Robust technology helps to scale up the business operations in a swift manner. It takes less time for the whole process, so more customers can be onboarded as data and ID images are available across the organization to scrutinize it

Lower Cost

Digital software streamline the operations and result in more accuracy thereby reducing the cost per transaction. Features like integration with credit bureaus and other third parties, automated reporting to the branch helps in making the right decision that saves on cost.

Enhanced Accountability

Digital sourcing, data driven processes and the correct use of tech-enabled services have helped to reduce human intervention making the processes more accountable and accurate. It becomes easier to mold the process according to the dynamic regulatory environment.

Robust Analytics

Analytics helps financial firms to yield instant, automating the KPIs (Key Performance Indicators) of the business operations. It offers flexible features like highly customizable applications, and extensive third-party integrations. Moreover, predictive analytics are transforming the industry while inducing decisive promptness.

Road Ahead

 

Educating Customers

Low digital and financial literacy of the customers poses a challenge for the MFIs, it requires customer education and spreading awareness to build trust and establish reliability.

 

Digital Adoption

MFIs handle employees and business correspondent partners with limited formal education and financial training of the field staff. This limited understanding of the banking infrastructure and digital services available leads to limited adoption in the ecosystem.

Advanced Data Security

Ensuring a secure and encrypted database for storing personal data is essential. Data protection and cybersecurity is of utmost concern for a successful digital adoption while ensuring business continuity.

Self-Onboarding 

Having acknowledged the requirements of today’s customers, MFIs are transforming their processes to offer an experience that is comfortable and easily accessible. The whole process of onboarding is completely digitized, and customers do not require to go to an office or branch. Documentation is done through APIs and video KYC helps in real-time customer verification. It is possible with the advent of the digital onboarding to apply for a loan remotely with the same security and trust.

Digital loan origination will ensure streamlining of operations and ease of entering data quickly for the field officers. It will be cost effective and add value across the chain to make a considerable impact.

MFIs success depends on their ability and agility to adapt to the digital services for loan origination and management. MFIs are embracing digital transformation by harnessing the potential of their business network and partnering with fintechs to deliver personalized, digitally enabled services.

About Craft Silicon

Craft Silicon is a leading financial technology solution provider and recognized as one of the most tech-savvy software groups globally. Craft Silicon supports 300+ financial Institutions by delivering value in over 30 countries.  Craft Silicon provides robust solutions that include Core Banking, Loan Management, Channel Banking etc. –   Managing over $5.6Bn of Loan Portfolio, 57Mn customers & 1Bn transactions per year in Asia region.

GLOW – Group Loan Origination Workflow is a customized software with capability to capture the entire loan portfolio data in one place from the initial village survey, loan origination and to the final disbursal stage. It has Comprehensive loan tracking mechanism from origination to disbursement

• Digital KYC
• Centralized data management
• Real-time access with authorization controls

Trucell – Field Operations made easy –  A mobile application specifically designed to support and empower Microfinance field operations. Key modules include Loan Collection, Loan Disbursement, Loan Utilization, Fees Collection and Repeat Loan Processing.  Trucell hosts a range of functions and activities to make work easier, quicker, and efficient for field officers.

As the pandemic relief, RBI introduced the loan moratorium from 1^st March 2020 to 31^st Aug 2020 to help businesses and individuals. Interest on the loans will keep getting accrued, but a borrower will not be tagged as a defaulter for non-payment.

“All Urban Cooperative Banks/ State SCoperative Banks/ District Cooperative Banks, All All India Financial Institutes, and All Non-Banking Financial Companies to be guided by provisions of the scheme take necessary actions within the stipulated timeline “- RBI

Challenges

Bankers Realm Core Microlending solution (BR.NET) works on account by account restructuring with interest due as on the date of capitalization.

Based on the first circular, a blanket moratorium for April/May and RBI Moratorium (1^st March 2020 to 31^st May 2020) was to be provided for all standard Loan Accounts – for this, a process needed to be established in bulk which was not feasible to execute for each account.

We had prepared a “Process Note” and circulated it on the 1^st of April to all our clients, explaining the solution to them one by one.

As BR.NET is an Installment Schedule based system, interest Accrual and recovery was depended on it. Any change in the data would have hampered the basic functioning of the system. Interest accrued during this period was receivable in the future, it could not be included in the instalment schedule, and was needed to be capitalized at the end of the moratorium period.

On 23rd May 2020, RBI issued another circular wherein the moratorium was extended by three more months, i.e. up to 31- Aug-2020, Before this circular, moratorium capitalization was scheduled on  31st May 2020, this extension of moratorium period called for a change in strategy for 31st May 2020, and future period i.e. 1st Jun 2020 to 31st Aug 2020.

A new script was prepared for processing moratorium at month-end from Jun-20 onwards. Pre-closure or maturity Loan Account during this period was provided with options for collections before capitalization.

Accommodating customized solutions based on two circulars at two different times compelled us to change strategies, demanding extra time and effort.  Few Customers decided to go ahead with moratorium Interest capitalization on 31st May 2020 and to capitalize on every month-end and if the instalments were unpaid, same would continue till 31st Aug 2020. This called for individual customization based on different decisions by each customer which made moratorium interest calculation a very complex process.

Solutions

1st RBI Circular Solution on 27^th Mar 2020 had the following objectives.

• Providing blanket moratorium for unpaid instalment from 1^st March 2020 and Apr/May 2020 instalment.
• Ensuring March Month interest earnings does not drop, even after unpaid instalment Interest accrual on the due date are reversed after the moratorium.
• Moratorium Interest is included in Instalment Schedule with 20^th June 2020 due
• Month-end broken period interest accrual for March, April & May was taken care with the above
• After moratorium interest capitalization, the following were provided.
• New instalment amount would be calculated on revised POS
• Future instalment interest would be calculated on revised POS
• No Recalculation of Interest – Moratorium would be recovered in Last few instalments
• The Loan tenure would be extended with the same Installment Amount.
• Scripts were developed with the above functionalities within a short period and QA Team started testing the solutions simultaneously.  The solutions were developed with parameterization to take-care of the different moratoriums.
• A task team was formed to coordinate with a set of clients, who would discuss and configure the required functionalities by executing the script in UAT and sharing the output with clients for verification.
• Moratorium Interest would be recalculated on 31st May 2020 and it should be capitalized with the future instalments scheduled to be redrawn based on the configurations (Same EMI and Extend Tenure, Interest Recalculation).
• For Future months, Instalments would be kept on scheduled due dates, with the following action to be taken during the Month-end.
• Unpaid instalment would be pushed to next month due
• Interest Receivable to be
• Excess Installment Amount paid during the month would be adjusted by preponing the Installment (1, 2 or 3 based on the payment amount).
• Calculation of the Moratorium interest for May-20 and keeping Moratorium Interest table for the purpose mentioned above
• Above 3 steps had to be executed on 31^st May 30^th Jun & 31^st Jul 2020.
• Recalculation of the moratorium interest on 31^st Aug 2020 and capitalization to be done.

Learnings

• Flexibility: System should accommodate sudden changes or urgent requirements from Regulatory / Statutory / Nodal Agencies. Moratorium provided during COVID-19 Pandemic period is going to be a regular feature in the future days to come, BR.NET has been added with a feature of providing moratorium and capitalize interest whenever it is required.
• Multiple Moratorium Interest Capitalizations during Loan tenure: Many Operational and Finance Reports were not showing correct Loan Balance after capitalization. Those had to be identified and the script was needed to be modified to include Interest capitalized for one or more time during the Loan Tenure.
• Dependency on Installment Schedule: Instalment schedule is the main component in BR.NET – for DPD, Overdue calculation, calculating Principal and Interest due were recovered for any specific period. The dependency on the Instalment schedule had to be avoided to handle Loan Accounting process in future.

Even after multiple changes in strategies and solutions, the development team kept up with the pace and implemented necessary features in a short period, along with testing, and the release for UAT.