How Internet Has Transformed the Traditional Micro Lending Models

The micro lending business model implemented by the Grameen Bank has transformed the lives of millions of poor people. As the poor people do not meet the credit requirements of commercial banks, they often find it difficult to raise capital to start small business. The traditional microfinance models aim to provide income sources to the women to improve the standard of living of their families. However, the lending models were devised much before the popularization of the internet based communication technologies. Further, the debt recovery measures used by certain microfinance institutions in India resulted in more stringent guidelines and regulation. These changes also made it essential for the microfinance companies to follow more organized and transparent methods. With implementation of latest technologies, the microfinance institutions can now raise funds in a completely convenient and transparent manner.

Usage of Technology:

The microfinance model developed by Prof. Muhammad Yunus has proved that an organization can still earn profits by extending small loans. The traditional micro lending model propagated by the Grameen Bank has been implemented successfully in various countries. But the advancement in communication technologies have changed the way a person extends or receives financial assistance. The web based technologies have made it easier for the microfinance institutions to raise funds in a more transparent manner. When an institution highlights the developmental projects run by it through its website, the lenders can extend financial support by understanding how their donation or loan amount is going to be utilized.

Methods of Raising Finance:

Each microfinance institution uses different options to collect money from the lenders. Most of the microfinance institutions in India still collect the loan amount from the lenders in form of cash, cheques and bank drafts. But these options require the organization to deploy additional staff to collect and process the loan amount. On the other hand, the web based applications have made it more convenient and faster for an organization to raise funds. The interested local as well as foreign lenders can simply login to the website and make instant payment using their debit or credit card, and bank account.

Bringing Together the Lenders and Borrowers:

The recent controversies have made many educational skeptical about the effectiveness of microfinance lending model to help the poor people. Many people also want to know how their online lending is going to help the end borrowers. The traditional microfinance model also lacks the level of transparency required to impress the prospective lenders. A number of microfinance institutions have implemented web based interface to gain the trust and confidence of lenders.

The online platforms enable lenders to browse through the profiles of prospective borrowers. When a lender spends some time in browsing through the website, he can easily choose a borrower by understanding his identity, profession and needs. So a person can extend the financial support by ensuring that his contribution is going to be used on a completely transparent way. The transparency also makes it easier for the organization to raise capital by bringing together the lenders and borrowers.

Author Info:

Gurudutta Mohanty has a distinct flair for writing with particular interest in penning research-based articles. He is adept at writing articles for the web, and has attained mastery over a number of subjects in both technical and non-technical fields. He has written many research based articles highlighting various aspects of Microfinance India.

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