How Has Fintech Changed Microfinance and Increased Financial Inclusivity?

In recent years, digitization has become an increasing trend across numerous industrial sectors, particularly the finance industry. Innovative technologies have created massive opportunities for modernization, with digital payments rapidly becoming the global go-to method for consumers and businesses to manage their finances and pay bills online.

Statistics published by Mordor Intelligence suggest that by 2024, the fintech industry will be expanding at a compound annual growth rate of 13 percent. Today, mobile payments and digital commerce companies are already being valued in the millions, suggesting an exponential uptick in the adoption of fintech, particularly as consumers are rapidly shifting from traditional banking solutions to those developed by fintech companies.

Like fintech, microfinance is also a relatively new arena. Also known as microcredit, microfinance enables people who are unemployed or earn a low income—typically individuals who would struggle to access credit from a traditional lender—to obtain a microloan.

In a relatively short space of time, demand for microloans has skyrocketed, placing microfinance companies under more pressure to improve their infrastructure to serve more customers. Microfinance companies are increasingly taking advantage of innovative technologies, such as digital payment systems that allow them to execute same-day transactions. Industrywide, companies are adopting the same models used by fintech startups to optimize operations and improve customer experience.

Useful features that microfinance companies are “borrowing” from fintech include:

  • Online status checks: These enable borrowers to check the status of their application online, benefiting from real-time updates and explanations if their loan is declined.
  • Faster processing: With most of today’s microfinance companies operating online, application processing has become faster and more efficient. Clients can fulfill all the necessary procedures via mobile device, and the entire process only takes a couple of business days.
  • Mobile apps: By leveraging the power of mobile devices, microlending companies have increased their reach, onboarding more clients than traditional financial institutions and issuing loans to people with limited access to banking services.

Microloans in Developing Countries

Millions of people in developing nations depend on microloans to start a business. Thanks to free-moving global capital, microlending platforms, and mobile devices, millions of people who would otherwise struggle to secure investment in their new venture can create new businesses, lifting themselves, their families, and potentially entire communities out of poverty.

Kiva is a Silicon Valley-based microfinance institution serving the 1.7 billion unbanked people around the world. It was created to help this population access the financial services they need, which in turn, allows their communities to thrive. The company relies on crowdfunding loans to unlock capital for the underserved, enhancing the quality of financial services while driving down cost and addressing barriers to financial access experienced by people on a low income. Thanks to Kiva, students can pay their tuition fees, farmers can invest in equipment, women can start their own businesses, and families can afford to pay for emergency care.

With investors lending as little as $25, 100 percent of every dollar goes towards funding loans. To date, Kiva has issued loans from 1.9 million investors to 4 million borrowers in 77 countries worldwide. Of the $1.61 billion in loans issued via the digital microfinance platform, 96.3 percent have been repaid.

Spanish translation volunteer Nora describes Kiva as her “window to the world,” enabling her to learn about cultures and connect with people that she would otherwise never know. This simple concept offers lifechanging potential for people in underserved communities, enabling them to turn their business dream into a reality and building a sustainable source of income for themselves and their families. As an added note, 81 percent of Kiva borrowers are women.

Individuals who lend via the platform can choose where they want to make an impact—whether within their local community or on the other side of the world. Kiva provides a unique opportunity for investors to play a very special part in someone else’s story, where loans are about more than just money but life-changing opportunities.

In 2015 Kiva won the Wall Street Journal’s Financial Inclusion Challenge. Kiva has been praised by the New York Times for empowering people living in poverty and protecting their basic human rights by enabling them to make meaningful choices.

The overlap between microfinance and fintech has spawned the creation of numerous microlenders like Kiva. Fintech is revolutionizing microfinance, and in the process, helping to eliminate poverty by increasing financial inclusion for citizens in underserved communities all over the world.

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