COVID-19 and Microfinance Institutions: Striking the right note

As the COVID-19 outbreak has hit the world hard, business continuity is the biggest challenge for every organisation. The Coronavirus pandemic has thrown economy and life out of gear.

The microlenders are the ones who face more challenges during such crisis, though the Reserve Bank of India’s three-month moratorium would provide them relief till 31st May, the perils of non-repayment of loans loom large when they resume business. Over the years, Microfinance institutions have reinvented themselves every time a crisis hits them. Also, the Indian credit information system is far superior to what it was a few years ago.

I have listed some points which can be implemented to maintain operations, manage workforce and sustain the organisation during the COVID-19 pandemic and beyond.

Ensure prioritising on staff needs at this point

  • During the coronavirus (COVID-19) pandemic leaders share a common goal: Protect employees first.
  • Many organisations define a set of activities staff can do during the lockdown, arrange various training modules, planning what work they can do.
  • More staff engagement initiatives from the organisation can help in ensuring professional security for them.

Communication is the key to get an agile response

  • You need to be constant in communicating with your staff and clients.
  • Establishing E-communication
  • Communication with staff will help in getting their cooperation in reaching out to clients on the field.
  • You can collect information through phone about the clients affected by the crisis

Concentrate on relationship building than Collections

  • Calculate risks involved and accordingly devise strategy for timely act
  • Come up with Clear guidelines for clients
  • Classify loans as high risk and low risk
  • Enhance credit approval processes
  • Managing financial relief to clients

Digitisation of financial services

  • This majorly depends on the kind of client portfolio you have and how prepared are they to accept a digital change
  • Institutions can plan on how they can have a digital transformation and be prepared with a robust business continuity process for next crisis
  • Digitisation can be done through electronic payments systems, Mobile wallets online cash distributions etc.
  • There is one additional area that needs enhanced focus – risk mitigation tools for the microfinance sector; such as insurance products both for end clients and the MFIs themselves.

Following are some of the short-term strategies which are expected to generate deeper structural changes in long-term

  1. Electronic payments systems providing instant disbursement of financial resources
  2. Online cash distributions to all consumers or businesses of a given country / region
  3. Automatic data exchange on delivery chains and stocks of crucial supplies (through APIs, RegTech and distributed ledger technology) as well as related financial transfers
  4. Invoice factoring, blockchain and crowdfunding to collect resources and unlock trapped capital; and
  5. Digital identification systems allowing for personal health monitoring and verification in addition to serving as the basis of financial infrastructure such as payments and accounts.

Silver Lining

Stakeholders will be better prepared with robust BCP for the next crisis – as this is not the last we are facing!

It is time to one step back, re-think, re-design, restructure, gather energies and fight back again.

In this world disruption is a norm, whether it is human-influenced like; Demonetisation in India or nature made like Coronavirus – Covid19. For now, one cannot predict the new world that will emerge post-crisis, but this issue will require focussed attention going forward as the immediate situation eventually comes under control and recovery begins.

Views expressed in this article are the personal opinion of Ashish Varun, Head Marketing, International Sales, Nelito. 

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