How Microfinance Institutions are Responding to the COVID-19 Pandemic
The COVID-19 pandemic has affected businesses from different industries and people from all walks of life. It has changed so much in such a little time, and everyone has had to scramble to provide immediate solutions. Microfinance institutions are no different.
Clients of microfinance institutions are mostly low-income people and micro-entrepreneurs – both of which are one of the most vulnerable during this time. They usually live from hand to mouth, and the initial lockdowns that halted economic activity affected their livelihoods drastically. In response to these issues, microfinance institutions activated rules and regulations to help lighten the burden on their clients and made sure to change their business model to keep themselves up and running.
More Lenient Measures for Clients
According to the CGAP Global Pulse Survey of Microfinance Institutions, 85% of microfinance institutions have undertaken more lenient measures to help their clients during this uncertain time. While some central banks encouraged these at the onset of the lockdowns, most MFIs are doing it of their own accord. Leniency measures include deferment on moratorium payments and restructuring loans.
Reductions in Lending
According to CGAP’s survey, 69% of microfinance institutions have reduced lending when the pandemic hit while a minority have stopped lending entirely. This is a worrying scenario as low-income households might need money now more than ever due to the sudden halting of their income flow. However, microfinance institutions are similarly suffering from the pandemic because of reliance on client face-to-face interactions — which is now discouraged to curb the spread of the virus. To stay afloat, MFIs have reduced disbursements during this time.
Expand Remote Channels
A lot of traditional microfinance institutions rely on face-to-face interactions so the pandemic’s resulting lockdowns have affected them greatly. One solution that answers this is to expand remote channels, which MFIs have done because according to CGAP's survey, 35% scaled up call center operations, 31% expanded their digital channels, while 29% created new ones. Aside from these remote channels enabling MFIs to reach clients amidst quarantine, they can use these to promote health protocols and reminders to further help contain the spread of the virus.
Upgrade Digital Banking Strategies
Aside from expanding remote channels, an upgrade of digital banking strategies is needed to keep up with the changing customer needs and expectations. Clients of microfinance institutions are less likely to have high cellular technology and fancy equipment so remote channels that work in 2G conditions and can be scaled up through agents are needed. One such solution is BanqIn (A Product of Bank-Genie). It is an all in one banking platform that can be implemented cheaply for microfinance institutions. This will improve both the institution and the client’s remote banking options, all the while retaining old customers and introducing new ones to their services.