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Many financial service providers (FSPs) rely on business process outsourcing (BPO) to properly serve their customers. From customer support to debt collection, BPO services help streamline operations and reduce costs for financial institutions of all sizes and capacities.
Microfinance and small loan businesses greatly benefit from BPO’s advantages. Additionally, BPO firms can develop secure platforms to support customer expansion, cybersecurity, and compliance.
This article explores the many uses of BPO in supporting microfinance and small loan services. Keep reading to learn valuable insights!
How to leverage BPO for microfinance and small loan solutions
What is BPO’s role in microfinance and small loan services? Let’s first examine the latter. In a nutshell, these financial services aim to provide flexible lending solutions to individuals and small business owners with limited funds. Since most, if not all, microfinance users and small loan applicants face significant financial challenges, they also expose lenders to more risks.
An outsourcing vendor helps resolve this issue by managing some or all the tasks required to process loans securely and fairly without affecting the overall service quality. Simply put, BPO plays a critical role in streamlining processes to benefit the lender and the borrower.
The following sections delve into the many advantages and uses of BPO for microfinance and small loan businesses:
Process user applications
Financial institutions that offer microfinance and small loan products and services require clients to pass through stringent checks similar to traditional banking. Applications for financial services such as small loans, credit cards, and savings accounts call for due diligence.
Processing loan applications, including loan amounts, credit scores, and credit history, wastes significant resources that FSPs could spend on more challenging cases instead. BPO services help eliminate this issue by taking over time-consuming and rote responsibilities.
Provide customer support
Clients of microfinance and small loan institutions vary greatly in terms of socioeconomic status, personal goals, and repayment capacities. These translate into equally diverse challenges in communicating and determining equitable terms for both parties.
Hence, borrowers are likely to encounter issues and need help understanding these services, including repayment, due dates, and interest rates. BPO call centers provide a critical function in ensuring users fully grasp the terms. They have the advantage of skilled and emphatic workers who can easily overcome communication barriers.
Stop cybersecurity threats
Strategic planning and expertise are critical to cybersecurity. Hiring BPO firms to manage processes such as data entry and background checks ensures robust data protection for microfinance and small loan businesses. Outsourcing partners also manage company data and network infrastructures to prevent intrusions.
Third-party companies design and implement cybersecurity strategies to suit client needs, including protecting data integrity, installing security software, and assessing network vulnerabilities. Other critical BPO security threat responses include:
- Perform full security risk assessment and management.
- Assess website and web and mobile application security.
- Limit data access and implement identity management.
- Assess and manage risks from third-party service providers.
- Ensure compliance with data protection and security policies and regulations.
- Create a disaster recovery and a business continuity plan.
- Handle security information and event management (SIEM).
- Implement robust endpoint detection and response (EDR).
- Develop a comprehensive data loss prevention (DLP) plan.
- Design and execute cybersecurity awareness programs.
Handle bookkeeping duties
Balancing books is one of the more popular BPO solutions for FSPs, especially microfinance and small loan businesses. BPO firms can mobilize accounting specialists to monitor loan amounts, process outsourced mortgages, and track general cash flow from clients’ financial services.
For instance, BPO companies often handle credit reporting duties as part of their services, including noting credit history, reviewing credit card charges, and tracking payment behavior to assess creditworthiness. However, they also help perform accounting, auditing, and compliance duties for the organization itself:
- Accurately record financial transactions from products and services
- Prepare regular financial reports to provide insights into the business
- Match the recorded transactions with the actual balances
- Help microfinance and small loan businesses comply with regulations
- Prepare audit schedules, respond to inquiries, and address findings
- Perform analysis of financial performance and current trends
- Assist in preparing budgets, forecasts, and projections to meet targets
Manage debt repayments
BPO companies typically oversee debt collection for loans and credit card charges on behalf of financial institutions. That said, BPO firms and microfinance and small loan businesses must exercise caution in their approach to debt collection to avoid losses.
For example, MRS BPO LLC has been the subject of numerous lawsuits regarding its practices, with one filed as recently as January 2024 for violating the Fair Debt Collection Practices Act. In June 2023, two BPO firms operating in the Philippines also faced SEC complaints for abusive collection practices.
These examples show the importance of finding an ethical BPO partner to avoid harm to a company’s customers or reputation. Other laws, such as the Truth in Lending Act (TILA), Bankruptcy Code, and Telephone Consumer Protection Act (TCPA), also regulate how debt collectors can legally and ethically conduct their business.
Perform risk assessments
The increasing vulnerability and instability of microborrowers’ finances pose one of the biggest challenges for microfinance. However, the rate of borrowers unable to repay the loan has historically been low, with a median microloan write-off rate of 0.6% in 2022 and 0.5% in 2021.
Risks exist and evolve in response to unstable economic conditions. BPO firms can assist lenders in balancing client demands with available resources. Alongside excellent bookkeepers, BPO companies employ analysts to examine market trends, monitor economic shifts, and protect investor interests. They ensure clients have a rounded view of risks and rewards.
Improve legal compliance
BPO companies shoulder some responsibilities in promoting and upholding legal compliance. These include state licensing and local regulatory requirements related to financial services, such as caps on interest rates and restrictions on lending practices.
Other regulatory frameworks that cover microfinance and small loan businesses include:
- Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations
- Equal Credit Opportunity Act (ECOA)
- Servicemembers Civil Relief Act (SCRA)
- Small Business Administration (SBA) loan programs
- Fair Housing Act (FHA)
- Truth in Lending Act (TILA)
- Fair Debt Collection Practices Act (FDCPA)
- Community Reinvestment Act (CRA)
- Fair Credit Reporting Act (FCRA)
- Gramm-Leach-Bliley Act (GLBA)
A BPO firm’s role in compliance and accountability depends on the scope of its responsibility to the client and its customers. Microfinance and small loan businesses should work closely with their BPO partner to ensure practices remain within legal standards.
The bottom line
Microfinance and small loan businesses provide a crucial and noble service for many struggling communities around the world. However, they can quickly become overwhelming and taxing on resources. BPO companies resolve these challenges by removing confounding factors and providing centralized services.
BPO firms leverage teams of skilled professionals, including data entry specialists, accountants, bookkeepers, data analysts, information technology (IT) experts, and customer service providers, to help clients meet their goals. BPO services can significantly reduce costs and simultaneously improve service quality.
Let’s connect and discuss which solutions work best with your microfinance or small loan business.
