A micro-finance company is a type of banking service that is provided to unemployed or low-income individuals or groups who otherwise have no other access to financial services. Ultimately, the goal of micro-finance is to give low-income people an opportunity to become self-sufficient by providing a way to save money, borrow money and get insurance. In this post, we’ll look at how micro-finance companies can utilise biometric workforce tracking solutions to cut costs and enhance operational efficiency.
Aadhaar: the world’s largest biometric database
Aadhaar, is the biometric identification system of the Indian government. It aims to enroll 1.2 billion of India’s population using their biometrics which includes 10 fingerprints, iris scans and a digital photograph.
Bharat Financial Inclusion, India’s second-largest microfinance firm, has linked its credit systems to Aadhaar to speed up credit finance and digital inclusion of the unbanked population in the rural areas. Such microfinance companies provide collateral-free loans to individuals, usually women, to fund entrepreneurial endeavours, such as food stalls, poultry farms and tailoring shops. In the new system based on Aadhaar-enabled biometric authentication, the members can apply for a loan instantly. The new process is based on the adoption of digital technology with combined use of a tablet and dongle by loan officers for applicants with Aadhaar cards. This digital initiative will increase the ease of doing business and will help the microfinance industry take the giant tech leap towards cashless transactions.
However, India is not alone. Similar programmes have been started in many developing countries to biometrically identify their citizens for efficient delivery of social financial benefits directly to them.
Biometric solutions have the potential to bring a sea change in the way banking, microfinance and e-finance are delivered to the masses in the developing world. With the financial inclusion of the masses into the mainstream, their development activities can be carried out in a targeted way.
Biometric citizen databases are being linked to the direct delivery of state-provided benefits and subsidies to the people. Banks play a key role in this transfer of benefits as they are the enablers of the money transfers from government to the people. It is in this context of government benefit transfers that e-finance enabled with biometrics is being embraced across the developing countries.
Micro-finance enabled by biometric citizenship databases
Most microfinance companies in developing countries have e-enabled their operations. With the creation of national biometric citizenship databases, they are now enrolling citizens using their biometrics. Since biometrics cannot be counterfeited, money intended for a person cannot be highjacked in a fraudulent way by someone else. Fingerprints and Iris scans are the two biometric inputs predominately being used to facilitate direct cash benefit transfers in developing countries.
Micro-finance institutions can now expand their customer base using biometric citizenship databases. Disbursement of micro-credit to a vast section of the population living in villages and remote areas is now possible. Their credit history can now be tracked across locations in case they migrate. With biometric identification, loan recoveries will become better as a person’s identity can no longer be hidden. Micro-finance is thus poised for an inclusive and expansive growth in developing countries.
Profitable Micro-finance using Biometric solutions
Biometric technology has the potential to uplift an entire section of the population of the developing world who were till now devoid of benefits due to identification issues. Micro-finance organisations in India have emerged as the front-runners in deploying advanced technologies to grow their micro-finance businesses. “The success of these programmes invites other banks in these and other Asian countries that may not have previously considered micro-finance as a viable business. These banks have also been able to dispel the myth of biometric authentication systems being an expensive technology to use in consumer and mass financial services,” said Abhishek Kumar, senior research analyst, Asia/Pacific Banking Advisory Service.
Historically, the perception of micro-finance has been one of being a resource-intensive and generally unprofitable business venture. Concerns over high administration costs and especially the fear of default rates with the lack of conventional risk management tools (such as credit histories) have often dissuaded financial institutions from entering this field. In recent years, however, banks with micro-finance experience have been able to prove that a well-run micro-finance program utilising Biometric identification can maintain low levels of loan default, thereby reducing risk as well as administrative costs.
Biometric technologies being adopted quickly
Microfinance organisations in India are actively growing their operations. India’s ICICI Bank has adopted biometric and smart card technologies to alleviate the high cost of microfinance administration as well as the expansion of microfinance distribution points. The use of such technology is proving to be attractive to the unbanked population.
Biometric authentication systems are particularly useful in areas with low literacy rates. Customers no longer have to rely upon signatures or filling out documents — they can simply provide their fingerprints to authenticate themselves and access their accounts through specialised biometric teller machines (BTMs). In addition to this, smart cards are used to track customer interactions to build real-time credit histories and bolster know-your-customer initiatives. Ultimately, the use of biometric and smart card technology makes it easier for the masses to access financial services.
Whether you are already involved in the microfinance industry or are looking to set up your own microfinance company, get in touch with the experts at SecurAX today. Our expert team of advisers will guide you through the several options available that will help you take full advantage of the benefits a biometric system can offer.