NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

In such a scenario, consumers will become more mindful of large spending, and digital lending will gain momentum with people’s disposable incomes impacted. As consumers cope to maintain their lifestyles, there will be a surge in micro-credit. Microfinance lenders must be equipped to address the credit requirement while offering affordable and convenient repayment solutions to ease the impact of the crisis. Digital disbursement of buy-now-pay-later solutions will gain propulsion as micro-credits help in providing relief during cash-crunch. With a minimal burden on interest, if repaid within a specific timeframe, digitization of short-term credit processes such as eKYC and V-CIP will only aid the upsurge in the trend.

Being seamless and digital in nature, it will offer people the convenience to continue life amid salary or reimbursement delays. Using micro credits, customers can clear their utility bills and even use the solution during medical emergencies. Leveraging technologies such as AI, ML and Big Data Analytics, automated loan offerings and contactless lending services will act as enablers of timely digital disbursements. These micro-credits can be accessed by consumers in less than an hour of virtual e-KYC completion.

Apart from maintaining the current lifestyle, micro-credits will be crucial for low-income groups employed in the informal sector, as they are one of the worst affected by the pandemic. This has put an impetus on financial inclusion now more than ever and made financial institutions rethink their operations. Many customers cannot access traditional credit because the unit economics necessary to serve them, are not accepted by banks. With the economy on a slowdown and credit slated to rise post-Covid-19, it will become more difficult for small merchants and consumers to garner loans. However, digital lending platforms with the principles of financial inclusivity will emerge as the heroes of the financial crisis. By leveraging the right technology such as AI/ML, they will be able to verify creditworthiness and drive financial inclusion – underwriting the risk of providing credit services to people that banks will not.

Lastly, technology will act as an enabler for innovation and risk mitigation as it will be a key priority for digital lending companies. Focus on data science and analytics will remove the risk of fraud and delinquencies. It will also be a driver to navigate consumers through credit complexities created by Covid-19. Once the pandemic is over, it will become extremely important to ensure that fintechs can provide the services the consumers need. Hence, the implementation of automated processes to gain insights into customer’s eligibility and enable rapid origination and processing will become key to their success.

Photo courtesy of USAID.