Digitising microfinance: on the route to losing the traditional ‘human face’ of microfinance institutions

Abstract

Digitising how financial services are accessed in the microfinance industry is considered a magical pathway to increasing financial inclusion. This paper argues that beyond the numerous advantages digitisation is supposed to bring, it may also hinder financial inclusion if it completely replaces the loan officer-client relationship that has been a hallmark of microfinance. Based on questionnaires and on 21 semi-structured interviews with managers and loan officers of four microfinance institutions in Zambia, our research highlights the trade-offs that need to be considered when digitising the lending process. The study argues for a blended approach between digital technologies and flexibility through human touch if microfinance institutions are to retain the competitive advantage, as well as enhance the production and quality of soft information for financial inclusion in less mature markets.