18 Best Practices For Navigating Microloan Lending

Expert Panel® Forbes Councils Member

Forbes Finance Council COUNCIL POST

Microloan lending can promote financial inclusion and empowerment for underserved populations. However, navigating the complexities of the process and ensuring successful implementation can be daunting for fintech companies.

Understanding the best practices for offering microloan lending to both potential clients and existing customers is the key to striking the right balance. To that end, 18 Forbes Finance Council members discuss some key best practices for fintech companies introducing microloan lending. Their recommended strategies can help your organization not only improve the customer experience but also mitigate risks associated with microloan lending.

1. Be Proactive In Managing The Credit You Extend

Be able to proactively manage the credit you extend to your customers. Just because you are not experiencing significant losses initially doesn't mean that your luck will continue into the future. A best practice would be to segment your customers by creditworthiness and try to avoid concentrating too much on lower-credit applicants. - Christopher Aliotta, Quantalytix

2. Offer A Better Value Than Credit Cards

Many entrepreneurs who need microloans use credit cards, which can carry a high interest rate. Do your due diligence for customers and try to offer a better value than credit card financing. Fintech companies should have automation and seek partnerships with customers for cross-promotions. Demonstrate the value you bring to customers and help them. - Dave Sackett, Persimmon Technologies Corporation

3. Provide Educational Resources

Having educational resources is one best practice. Create informative content that explains the benefits of microloan lending and how it can help customers achieve their financial goals. We have invested in several companies in this space with a lot of cool ideas. Your customer needs to be educated first. You can have lots of promotional options, but providing education assures they understand your offering is key to the loan. - JD Morris, RHC 21 LLC (a SPE Fund) with family of Special Purpose Entities (SPE or SPV)

4. Create Underwriting Guidelines That Attract High-Quality Clients

Anyone can offer a loan, as we've seen with countless fintech peer-to-peer lending platforms. The one practice that separates one company from so many others is the ability to create underwriting guidelines that attract borrowers who actually pay back loans. Unsecured loans that default at a high rate have challenged many fintechs, but attracting high-quality clients who pay back loans is vital. - Leo Kanell, 7 Figures Funding

5. Combine An Easy Application With Practical Resources

One best practice might be combining a couple of approaches, both of which put the customer's or end user's needs first. The application process needs to be easy, intuitive and extremely convenient, while at the same time making sure that there is an ample amount of easy-to-digest information and that educational resources are practical. - Bob Chitrathorn, Wealth Planning By Bob Chitrathorn of Simplified Wealth Management

6. Prioritize Transparent Pricing

Transparency is the key. Some consumers run away from microloans due to hidden charges. A product that has pricing transparency and meets the needs of the consumers will sell in the marketplace. Product awareness is another key factor. Fintech should sell their products using mediums that targeted consumers can access. There is no point in winking in the dark because no one will see you! - Ayo Adepoju, Ecobank Transnational Incorporated

7. Leverage Technology To Gain Customer Insights

One best practice is to leverage technology for personalized and seamless customer experiences. This involves using data analytics and artificial intelligence (AI) to gain insights into the financial behavior and needs of customers. By analyzing this data, fintechs can tailor their microloan offerings to match the specific requirements and repayment capabilities of each customer. - Magdy Hassan Fayed, Forex Gump SRL

8. Offer Personalized Guidance

Providing clear information about the terms, interest rates and fees empowers clients to make informed decisions. Offering educational resources and personalized guidance helps clients understand how microloans can be utilized effectively to achieve their financial goals, thereby building trust with their clients and promoting responsible borrowing practices and financial well-being. - Pankaj Vasani, Cube Highways InvIT

9. Gamify The Application Process

Fintech companies proposing microloan lending should gamify the application procedure. This involves breaking down the application into digestible steps, rewarding progress and adding instructive content. Community interaction and personalized loan recommendations promote transparency, trust and ethical borrowing. This strategy makes microloans more accessible and interesting. - Neil Anders, Trusted Rate, Inc.

10. Balance Innovation With Customer Focus

Fintech companies that offer microloans can use data analytics to ensure responsible lending practices and to create transparent platforms that build trust. Educating clients about loan management and providing flexible repayment options is crucial. Balancing innovation with customer focus is essential for ethical growth while enhancing client experience and promoting long-term trust and loyalty. - Jeffrey Bartel, Hamptons Group, LLC

11. Outsource And Partner With Specialized Companies

A best practice for fintech companies is to outsource and partner with a company that specializes in microloans that could allow you to offer financing to your customers without the assumption of credit risk or defaults. Having access to your customers' revenue in advance would assist greatly with marketing a customized offer comforting your client and sending a message that you know their business needs. - Anthony Holder, C&H Financial Services, Inc.

12. Match Customers With Lenders Using Data Analytics

When fintech companies offer microloans as one of their options to existing and new customers, they should apply their data analytics to match them with appropriate lenders, as they would for any other type of loan. This will result in better relationships between the parties as convenience and efficiency are important factors in lending. - Chris Seveney, 7e investments

13. Differentiate With Instant Funding

Microlending powered by instant funding through the RTP network and the FedNow Service creates a truly differentiated experience for customers. The ability to decide on the loan and fund with final funds within seconds creates a fast, digital-first experience that customers and vendor partners will prefer. - Reed Luhtanen, U.S. Faster Payments Council

14. Use Ad Campaigns To Explain Microlending

Fintech companies should engage in education campaigns to ensure potential and current clients can understand how microlending can increase access to capital in underbanked communities and promote entrepreneurship. Such campaigns should emphasize how microloans have higher repayment rates than traditional loans and only require limited collateral to secure and empower marginalized individuals. - Anthony Georgiades, Innovating Capital

15. Streamline The Application Process

One best practice for fintech companies introducing microloan lending is to streamline the application process. Implement a user-friendly digital platform with minimal documentation requirements, ensuring a seamless and efficient experience for potential clients and current customers. This approach enhances accessibility, encourages participation and facilitates quicker decision-making. - Richard Polgar, CFG Merchant Solutions

16. Leverage Data Analytics For Personalized Offers

There are many ways companies today can introduce new products. One best practice is leveraging data analytics for personalized lending offers. By analyzing customers' transaction histories and behavior, fintechs can tailor microloan amounts, terms and rates to individual needs, enhancing customer experience, trust and uptake while managing risk effectively. - Greg Cucino, Roundtable Strategy Advisors

17. Offer Services Instantly And Automatically

Especially when it comes to microlending, time and accessibility are key. Today, customers expect services to be where and when they need them, instantly and automatically. From smart onboarding and thorough evaluation with flexible decision engines, risk models, rules and open banking, optimized for quick assessment and analysis to automated loan origination, offer customers time and accessibility. - Tomer Guriel, ezbob Ltd.

18. Showcase Real Client Testimonials

One best practice is to showcase social proofs and implement frictionless onboarding. Fintech companies should showcase success stories, as evidenced by featuring real clients overcoming challenges due to microloans, which helps build trust and emotional connection. Removing unnecessary hurdles during onboarding and integrating financial education can optimize customer acquisition and empower clients to manage their loans effectively. - Parth Kulkarni, Adobe

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