The Microfinance Review

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Efficacy of Digital Repayment Systems in MFIs: An Assessment


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1 Research Officer CRFIM, BIRD, Lucknow, Uttar Pradesh, India
     

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Traditionally the Indian microfinance industry has relied on cash transactions. However, in the post demonetisation era, microfinance institutions (MFIs) started shifting towards cashless transactions and began to improve their existing operations with innovative and user-friendly technology. The need for digitised channels further exacerbated during the COVID– 19 induced lockdown period. This study attempts to examine the various models of digital repayment systems offered by MFIs and adoption of digital mode of repayment by their clients. The study measures the efficacy of digital repayment systems at both the MFI and client level, and also diagnose the factors hindering the adoption of digital repayment systems, based on data collected from 50 micro borrowers of 10 branches of 2 MFIs - Muthoot Microfin in Kerala and Satya MicroCapital Ltd. in Uttar Pradesh. The study finds that the MFIs adopted multi-pronged digital approaches, viz., Aadhaar Enabled Payment System (AePS), payment through Customer Service Points (CSP), Unified Payments Interface (UPI) such as Google Pay, PhonePay and Paytm, and National Automated Clearing House (NACH) to serve the comprehensive needs of their clients. The study further finds that at the MFI level, digitisation eased their operational process and brought about positive changes in the system; and at client level, it reduced the risk of carrying cash, improved speed of addressing clients’ complaints and resulted in improvement of clients’ satisfaction. Digitisation also built confidence among clients in adopting digital financial services (DFS) at their own business and in their day-to-day lives.

Keywords

Digital Repayment, Microfinance, Banking Sector
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  • Centre for Monitoring Indian Economy, States of India, Accessed at https://statesofindia.cmie.com

  • Consultative Group to Assist the Poor (2020): Global Pulse Survey of Microfinance Institutions, CGAP, Washington DC.

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  • Efficacy of Digital Repayment Systems in MFIs: An Assessment

Abstract Views: 307  |  PDF Views: 0

Authors

Tamanud Ghosh
Research Officer CRFIM, BIRD, Lucknow, Uttar Pradesh, India

Abstract


Traditionally the Indian microfinance industry has relied on cash transactions. However, in the post demonetisation era, microfinance institutions (MFIs) started shifting towards cashless transactions and began to improve their existing operations with innovative and user-friendly technology. The need for digitised channels further exacerbated during the COVID– 19 induced lockdown period. This study attempts to examine the various models of digital repayment systems offered by MFIs and adoption of digital mode of repayment by their clients. The study measures the efficacy of digital repayment systems at both the MFI and client level, and also diagnose the factors hindering the adoption of digital repayment systems, based on data collected from 50 micro borrowers of 10 branches of 2 MFIs - Muthoot Microfin in Kerala and Satya MicroCapital Ltd. in Uttar Pradesh. The study finds that the MFIs adopted multi-pronged digital approaches, viz., Aadhaar Enabled Payment System (AePS), payment through Customer Service Points (CSP), Unified Payments Interface (UPI) such as Google Pay, PhonePay and Paytm, and National Automated Clearing House (NACH) to serve the comprehensive needs of their clients. The study further finds that at the MFI level, digitisation eased their operational process and brought about positive changes in the system; and at client level, it reduced the risk of carrying cash, improved speed of addressing clients’ complaints and resulted in improvement of clients’ satisfaction. Digitisation also built confidence among clients in adopting digital financial services (DFS) at their own business and in their day-to-day lives.

Keywords


Digital Repayment, Microfinance, Banking Sector

References