Covid19 — Impact and Wayforward for The Microfinance Industry

5 min readOct 11, 2020


As the COVID-19 pandemic continues ravaging the world, there have been concerns by players in different industries on their operations and continuity post-COVID. The pandemic is a threat to lives and livelihoods in all corners of the world and has created many challenges for businesses, some of which had gone bankrupt. The damage created by the pandemic has not spared microfinance institutions (MFIs) and their clients. Unfortunately, there has been little focus on how microfinance institutions have been affected and how they have responded to it.

How the pandemic has affected lenders and borrowers in the microfinance industry

The COVID-19 pandemic has forced MFI’s to limit their lending significantly. In India, the most significant microfinance sector in the world with 40 Million borrowers and $ 10 Billion in outstanding loans, more than two-thirds of all MFIs have reduced their disbursements by substantial amounts. Although the sector is already suffering from the protests of the Citizenship Amendment Act (CAA), the pandemic has forced the existing debts to be reorganised. In contrast, the new ones have had to be cut by more than half. CRIF MicroLend reports that one in every ten companies has stopped lending altogether.

For micro businesses and households who borrow money for their operations and different activities, lockdown meant halting their operations and daily labour opportunities. This meant the interruption of MFI’s ability to carry out their activities, especially the collection of repayments. While it is unclear as to when things will return to normal, one thing that is for sure is that borrowers and the micro-lending institutions in India will need some help from the government to cope up with bad debts and the losses made during the pandemic. MFIs might not be in a position to give relief without getting help themselves from the government in whatever the form.

Although many Indian MFIs have some amount that will enable survival for some months of non-repayment, the long-term effect pandemic on the existing business model remains unknown, considering most lenders rely on high repayment rates.

The success of the industry post-lockdown will require some tradeoffs between profitability, consumer protection, subsidy, and financial inclusion.

How are the Microfinance institutions responding to the challenges posed by COVID -19?

  1. Moratorium on the existing term loans
  2. Reduction in new loans processed
  3. Digitisation of the loan process

In a nutshell, although the Central banks around the world have announced a raft of measures to limit the effects of the pandemic in the financial industry, including raising moratorium periods for loans, rebates of interest rates, and giving special package, most of the announcements are focused on commercial banks and non-specific on MFIs and customers.

MFIs must therefore find their means of surviving such challenging moments by leveraging on technology, scaling up remote channels, making flexible staffing arrangements, and being lenient to borrowers in some instances for their survival.

The Way forward for Microfinance Institutions

The microfinance sector still plays a significant role in providing financial services to millions of unbanked and underbanked, which is needed to rebuild our global economy.

Once we are past this crisis, there will be an increased demand for loans by farmers and SMEs to fund working capital and restart businesses. This represents a huge opportunity for the microfinance sector as a significant portion of its population falls in the low-income band. Also, a large part of its population still lacks access to credit from the formal sector, forcing them to borrow from informal channels. This indicates the scope of microlending in achieving financial inclusion. However, the industry needs to realise this growth opportunity, identify and assess the need to adopt initiatives to improve digitisation reduce systemic inefficiencies.

Technology as an Enabler

If the digital transformation was a hot topic for microfinance institutions before the coronavirus, the pandemic and lockdown have made it even more urgent than ever. For MFIs to continue communicating with their customers, pursue their loans, market their services, and continue recoveries, their digitisation will be the only solution. Despite the continuing social distancing measures, lenders with strong digital channels will continue their operations partially. In contrast, those that rely on branch-based transactions may have to halt their operations in the times of crisis.

Using Blockchain Technology

Blockchain’s decentralised nature can assist microfinance institutions in removing the need for mediators, thereby increasing operational efficiency and transparency. Also Recording the economic history on an immutable distributed ledger can help build innovative solutions like credit scoring and risk profiling.

Cognitochain is building a highly secure blockchain consortium for Microfinance Institutions(MFI). Our Technology stack is a full suite of products for managing Microfinance loans through a secure and privacy preserving decentralized blockchain platform. Using our platform removes all the technological complexities which allow for easier onboarding of Microfinance Institutions.

Advantages of joining Cognitochain network

Microfinance Institutions:

  • Reduce operational costs due to reduction in reconciliation issues and tapping into blockchain data to generate MIS reports.
  • Use borrowers credit score for making credit decisions, which helps with fully automated loan decisioning.
  • Institutions that are part of the consortium can share data securely and privately, which helps detect fraud.
  • Blockchain-based member identities can enable paperless loan agreements, thereby simplifying the loan management process.
  • Take advantage of machine learning algorithms to mine data on the blockchain to identify specific risk groups.


  • Credit rating established based on a member’s economic history will be a digital asset which can be used as collateral for accessing micro-loans
  • Credit score enables financial literacy and inculcates/encourage good financial behaviour.
  • Borrowers can utilise their digital identity along with credit score to access financial services from formal institutions.

Regulatory / Government Agencies:

  • Increased transparency and auditable financial metrics.
  • Enhanced supervision and regulatory oversight on risk-taking activities by MFIs.

Cognitochain is fully committed to our mission to provide affordable credit for millions of unbanked. We are building the technology backbone for the Microfinance Industry and aiming to offer a delightful experience to unbanked that even traditional banks struggle to provide.

If there was a time where digital transformation is must not only for the survival of the industry but also provide affordable and quick credit lines to millions of unbanked, It is Now.

About Cognitochain:

Cognitochain Technologies Pvt Ltd. is on a mission to empower unbanked and underbanked with affordable access to credit. Cognitochain is a blockchain-based platform for Microfinance Institutions(MFIs)

Institutions joining the network can exchange borrower economic history ( blockchain-based credit score), reducing operational costs, detect fraud and automate credit decision making.

Borrowers can utilise the score to avail better credit and other financial services like micro-insurance.

Govt and Regulatory authorities can tap into the network for auditing and identifying systemic issues and take proactive steps to mitigate potential risks.