Find the Best Personal Loan for Your Needs
Many consumers forget that being a sustainable business is the first priority of microfinance institutions (MFIs). With many conveniences, such as bill pay and free checking accounts, a requirement of today’s banking lender, costs can add up quickly.
MFIs are well known for lending to low-income individuals. These are individuals who do not have access to borrowing small amounts of money from traditional lending institutions. Many of these loans average an annual percentage rate of about 35.
This is higher than most traditional loans, which causes a fuss with many consumers. However, many don’t take into account the cost of loaning small amounts of money to many low-income persons. The associated costs are high, which is why traditional banking institutions don’t offer these small personal loans services.
While trying to reframe the minds of millions of consumers is not an easy feat, there are some other tips that microfinance institutions can employ now to keep a sustainable business model.
Use Technological Advancements To Reduce Costs
The advantage of using technology for online commerce is major. Micro loans are able to harness the power of online transactions and mobile applications. With more ease, more members are joining MFIs. In addition, the MFIs are able to leverage the use of algorithm-based credit decisions, which drastically reduces in-house operating costs.
With the savings that technology provides, these MFIs can pass that on to their consumers. This means lower interest rates and a larger pool of low-income families being funded. As technology advances so should participating MFIs to ensure they remain sustainable in the long-term.
One way to bring added advantages to the customers to retain their loyalty is through offering other services. These include services like insurance and savings accounts. These allow members to retain all these products at one convenient institution.
In addition, education of members is imperative to the successful dealings of both parties. Many MFIs serve third-world countries where writing, reading, and arithmetic are not widely-known. By educating customers on how credit works, MFIs are finding new customers and increasing their repayment rate.
Be Customer-Oriented And Relationship Wise
Many businesses boast about how they’re out to help their customers. The problem is that many businesses end up helping their bottom line before extending care to their customers. MFIs are different in the respect they are non-profit organizations. They truly are out to help customers.
Those MFIs operating in the third-world countries are typically responsible for going to each town to collect on payments. The villagers don’t leave the town to go to the MFI. This can create massive costs for the institution if they’re constantly running from town to town.
This cost can be offset by having a large number of individuals needing financing in each town. To get a large customer base in a single town or village, outstanding customer service is imperative. By taking an interest in these borrowers through personal relationships outside of just the lending atmosphere, many MFI representatives are able to secure more business in each town.
This story portrays the same in the larger nations, like the United States. Customers don’t want to be just a number on the businesses record book. Customers want to be treated just as unique as they are. They want someone who takes an interest in them and their goals. When people are overly satisfied with the care they received from a business they will recommend the business to others in need of similar services. This extra bit of care can turn one client into many in just a short amount of time.
Microfinancing lenders fulfill the funding needs of a large part of the population that is overlooked by traditional banking institutions. This fulfillment comes along with a large amount of cost and it’s important for MFIs to keep their long-term financial sustainability in mind.
MFIs that are no longer able to operate due to unsustainable practices are not doing low-income customers in need of funding any good. Finding the right balance between fees and sustainability is a must to continue to serve this sector of the population.
Robert is our in-house expert on personal loans and finance. He got an MBA, specializing in Finance, before joining the workforce. After working for multiple Fortune 500 companies in the past decade, he brings a wealth of knowledge and experience to the table.