Digital Microcredit Services & Microloans Offerings to Spur Microlending Business

The emergence of startups is anticipated to boost the demand for microlending activities across the globe. Moreover, microlending has proved to be beneficial for small businesses & individuals who cannot avail loans from banks due to either bad credit or small amount. With microlending financial activities addressing loan requirements of lower-income group population and reaching out to informal businesses, the microlending business is projected to gain traction in years to come. Reportedly, during the COVID-19 period, there was a prominent surge in number of people applying for microloans from banks. Currently, peer-to-peer lending has changed the way people carry out business. Popularity of peer-to-peer lending business activities is attributed to ability of individual or group of individuals to issue microloans rather than any financial institutes or banks. Citing an instance, Prosper Marketplace, Inc., the U.S. based firm in peer-to-peer lending business, provided over $20 billion in form of microloans to more than 1.2 million people as of May 2022.  According to the report published by Allied Market Research, the microlending market is estimated to generate $343.84 billion by 2027.

Moreover, a large number of lenders pursue one of the two microfinance business models, either conventional consumer finance business model or microcredit business model. In conventional consumer finance business model, lenders compensate for higher default incidences through imposing of higher interest rates along with increasing revenues through imposing of penalties and other fees. Microcredit business model focuses on providing informal short-term loans for microenterprises, particularly women-owned microenterprises.

How microfinance helps common people?

None of the two microfinance business models can prove to be ideal for cost-efficiently serving myriad requirements of low income families and small businesses in a sustainable manner. However, there exists a key opportunity for lenders to chart another path for developing better risk models with the help of big data and high computing power for analyzing  big data.

Let us discuss some of the events taking place across the globe.

Microloan offering has become one of the key strategies adopted by the microlending market players for expanding their business along with supporting a social cause such as women empowerment. Since its inception in 2008, Grameen America, a Grameen Bank Affiliate providing loans to poor women in the U.S., offered microloans of over $2.4 billion to more than 150,000 women. Moreover, in May 2022, the organization started campaigns such as Lifting America: The Campaign for Her Future and Elevating Black Women with $100 million funding. Its key objective is to provide loans worth nearly $1.3 billion to over 80,000 black women entrepreneurs by 2030. The strategic move is aimed at encouraging entrepreneurship among women, particularly those who are underprivileged. Such bank-based microloans are projected to enlarge scope of microlending business in forthcoming years.

Launching of digital microcredit services has become a major trend among banks in third-world economies to enhance their online presence. As per digital microcredit scheme launched by The Bangladesh Bank in June 2022, nearly Tk 1 billion refinancing funds are allocated for banks. Moreover, these banks can lend loans ranging between Tk 500 and Tk 50,000 to customers. The initiative is aimed at helping in expansion of financial products and services for financial sector in Bangladesh along with addressing fiscal requirements of marginalized population of the country

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