On Growth Trail Of A Microfinancing Entity

Microfinance has been globally recognised as a key enabler for financial inclusion. Anushree Jindal, founder of Svamaan Financial Services, talks about five factors that determine the success of a microfinance company

Published a year ago on Jan 01, 2023 1 minute Read

01. Strong governance

Invest time and efforts at inception to define the corporate governance framework. Strong corporate governance starts right at the board level and, together with a risk management culture, can ensure clear operating principles for the company during business scale-up.

02. Robust Risk Management

Microfinance sector has been extremely vulnerable to event-based risks like demonetisation, Covid-19 pandemic, etc. Hence, it is important to have a robust risk management system in place, supported by a combination of rigorous geographic selection with good credit culture, high touch weekly approach and low overall indebtedness of customers.

03. Leveraging technology

India’s payment technology stack of UPI, NEFT, IMPS and RTGS is rated as one of the best in the world. These technology-enabled building blocks can be used to drive financial inclusion goals. Investing early in scalable and robust technology is instrumental to making the company future-ready.

4. Product Diversification

In addition to geographic diversification, product diversification can help reach out to a wider customer base in rural areas; for example, vehicle, MSME and housing loans. Tailored product offerings can support customers with limited credit history and in need of financial backing, and also help the company grow with them.

5. Investing in the right team

A good team is the biggest strength of a microfinance company, as also the key differentiator. It is important to invest in building a good leadership team. One can consider having a strong mix of members with rich experience in financial services from both microfinance and non-microfinance backgrounds.