The Importance of Micro Lending in BFSI: Micro lending is not just about extending credit; it’s about empowering individuals and small businesses. For BFSI professionals, understanding micro lending products involves knowing their functional aspects, including:
- Loan Structure: Understanding the typical loan amount which is provided in the joint liability group set up, the term, and interest rates.
- Risk Assessment: It involves a lot of criterias and application of external and internal business rule engines for assessments as we are evaluating the creditworthiness of borrowers with limited financial history.
- Regulatory Compliance: Ensuring adherence to lending regulations. Even regulations w.r.t providing Microfinance loans are different than providing individual loans. It involves calculation of household income and obligations and household Fixed Obligations to Income rations (FOIR).
- Customer Relationship Management: Building trust and supporting borrowers throughout the loan lifecycle.
The Importance of Micro Lending in BFSI: Microlending is not just about extending credit; it’s about empowering individuals and small businesses. For BFSI professionals, understanding micro-lending products involves knowing their functional aspects, including:
- Loan Structure: Understanding the typical loan amount which is provided in the joint liability group setup, the term, and interest rates.
- Risk Assessment: It involves a lot of criteria and the application of external and internal business rule engines for assessments as we evaluate the creditworthiness of borrowers with limited financial history.
- Regulatory Compliance: Ensuring adherence to lending regulations. Even regulations regarding providing Microfinance loans are different than providing individual loans. It involves the calculation of household income and obligations and household Fixed Obligations to Income rations (FOIR)
- Customer Relationship Management: Building trust and supporting borrowers throughout the loan lifecycle.
Key Functional Aspects of Micro Lending Products:
- Product Design and Features:
- Loan Amounts and Terms: Microloans usually range from a few thousand to up to two lakh rupees of combined lending to a joint liability group, with terms that can vary from a few weeks to several months.
- Interest Rates: These are often higher than traditional loans due to the increased risk and administrative costs.
- Application and Approval Process:
- Simplified Application: The process is generally streamlined to facilitate quick access for borrowers.
- Risk Assessment: Non-traditional credit scoring models may be used, including social and behavioural factors.
- Repayment Strategies:
- Flexible Payments: Repayment schedules may be adapted to the borrower’s income flow.
- Early Repayment Incentives: Some products offer benefits for early repayment.
- Technology Integration:
- Digital Platforms: Many micro-lending products are supported by robust Loan Origination and Loan Management Systems which are equipped with BREs tailored to assess microlending complexities that streamline the application and management processes.
- Data Analytics: Leveraging data to improve loan offerings and assess borrower behaviour.
Training Tips for BFSI Professionals:
- Deep Dive into Product Features:
- Ensure that employees thoroughly understand the specifics of each micro lending product. This includes loan terms, interest rates, and repayment schedules.
- Emphasize Customer Centricity:
- Train employees on how to communicate effectively with potential borrowers, addressing their concerns and providing clear information about loan terms and conditions.
- Stay Updated on Regulations:
- Regularly update training materials to reflect the latest regulatory changes and compliance requirements.
- Leverage Technology:
- Equip employees with the knowledge to use digital tools and platforms effectively, enhancing their ability to manage micro loans and assess risk.
- Role-Playing and Case Studies:
- Use practical scenarios and role-playing exercises to help employees practice handling different types of borrower interactions and loan situations.
Micro lending is a powerful tool in the BFSI sector, driving financial inclusion and supporting economic growth. By investing in comprehensive training for your team, you ensure that they are well-equipped to manage these products effectively and deliver exceptional service to borrowers.
Stay tuned for more insights and training tips to keep your BFSI team ahead of the game in this dynamic sector!
Author: Aslam Basha | Product Trainer
Aslam Basha holds an M.Com postgraduate degree and has more than 3 years of experience in the banking domain. He is dedicated to empowering individuals and organizations through effective training experiences. Aslam leads dynamic training sessions for internal teams, focusing on making complex product details easy to understand. He enjoys creating engaging training materials, like presentations, video tutorials, and e-learning modules, to ensure everyone learns smoothly.
