Microfinance Managers Consider Online Funding: Is It Finance, Marketing, or Something Else Entirely?

This paper highlights issues that MFIs should consider before signing up for a loan through an online lending platform. Online lending platforms can direct significant amounts of funding to MFIs very quickly and at highly subsidized rates. But they can also expose MFIs to hidden costs and risks. Therefore, MFIs need to examine:

• Ability and willingness of online platforms to provide funding in the amount and at the time needed;
• Cost and currency of online funding;
• Help provided by the online lending or investment platform to MFIs in managing abrupt and unpredictable shifts in funding patterns;
• Reporting requirements of the online platform and their operational and cost implications for MFIs;
• Customer privacy and consumer protection concerns;
• Due diligence that MFIs need to conduct with respect to the online lending platform.

The paper calls for developing a more discerning microfinance sector so that MFIs can differentiate among online platforms and make funding decisions that are most appropriately geared to their needs. It also highlights the need for making the business operations and risks of online platforms as clear and transparent as possible.