Microfinance institutions (MFIs) would need to brace themselves up for the onslaught of digital disruption that is currently underway and threatening their very existence, SIDBI Chairman and Managing Director S Ramann said on Wednesday. 

“My fear is that payment aggregators will tomorrow pull the rug from below your (MFI’s) feet by offering rates of interest that today is completely not viable for you,” Ramann said at the Sa-Dhan National Conference on Inclusive Growth in the capital. 

“You need to look into the future and not rest on past laurels,” he said. 

On the occasion, the Bharat Microfinance Report was released. The report is intended to be a one-stop point regarding all information on microfinance sector in India. Sa-Dhan this year is celebrating its 25th year of existence.

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Ramann highlighted that payment aggregators today hold absolutely amazing sets of data and they have gone into analytics of customer behaviour like nobody has done before. “The entire set of data is now captured by payment aggregators. We need to ask ourselves what do we need to do to collect that data and share it among ourselves so that we continue to have the power of lending to our customers,” Ramann said. 

MFIs need to realise that the data of their customers are with payment aggregators, who can use it to the disadvantage of these institutions and start lending to the MFI customers through other (third party) outfits, Ramann said. 

Industry-wide databases

Ramann urged self-regulatory organisations Sa Dhan and MFIN to come together to create an industry-wide database of customers and capture information respectively held.

• Also read: RBI unhappy with rate transmission in MFI loans

“The more you have information about your customers, the more you would be able to lend them at lower rates. We cannot assume that the current set of customers to the MFI industry will remain with MFIs. There is so much disruption. For instance, Google has gone into small loans. Think about it that Google or other big tech could tomorrow be the bank that caters to the MFI industry in the country,” he said. 

Ramann also said that MFIs need to ask themselves certain harsh questions in light of the changed business environment. 

Leveraging ML

Ramann said that he was in the process of taking SIDBI towards machine learning. “We lean heavily on the MFI Industry. MFIs have the power of knowledge of the customers. We are trying to harness that”.

Later, asked as to what can MFIs do to protect themselves on the data front, Ramann told businessline that they could pre-negotiate with payment aggregators and say to them that they cannot be using this data which rightfully belongs to the MFI customers. 

• Also read: Microfinance sector logs 21 per cent portfolio growth as of June-end 2023: Sa-Dhan

As per the Equifax data on the microfinance sector as of March 31, 2023, the combined loan outstanding of 235 institutions was ₹3,51,521 crore, outstanding against 1,363 loan accounts. 

The share of different institutions in loan outstanding is as follows: NBFC-MFIs: ₹1,39,632 crore (40 per cent); banks: ₹1,20,016 crore (34 per cent); SFBs ₹58,431 crore (17 per cent); NBFCs ₹29,664 crore (8 per cent) and non-profit MFIs ₹3,778 crore (1 per cent).

At the same time, SHG Bank linkage also showed good growth with the overall outstanding reaching ₹1.88-lakh crore and the total SHG linked to banks increased to 134 lakh and SHG membership touching 16.2 crore. The repayment performance under both the modes recorded great improvement and reached the pre-Covid-19 level.