Financial sector Innovations: Empowering Microfinance through the application of KYC Blockchain technology

Abstract

A strong financial system is essential to fulfill the objective of strengthening the real economy and also for its healthy and orderly growth. It helps to increase the volume of investments, encourages savings. Also small, medium and large entrepreneurs are the major functions of financial system and leads to economic development of any nation. It is very important to maintain proper equilibrium between supply and demand of money which acts as market force determining the sustainability of the financial markets. One of the most important sources of money into financial markets is Microfinance (MFs) and Micro Finance Institutions (MFIs). Initially microfinance institutions grew to provide financial support for the retail customers, where banks were unable to supplement the same, due to various reasons. The customers who are serviced by Microfinance institutions are the ones that do not have proper documentation or have very few mandatory documents. These customers also try to arrange for tangible security, making it extremely difficult for institutions to offer any banking services. There is not much availability of the documentation for usage of funds that were taken earlier as the resources have not been put to proper usage making it difficult for the customer's survival and repayment of debt. Because of these reasons there are some operational and technical problems like increase in rate of interest charged, non-availability of the services, slow KYC process, excessive transaction costs etc. facing by Microfinance institutions. This brings in a need for proper use of technology to minimize the problems, facing by this industry and it is the need of the hour to set bottlenecks at any cost for the success of MFIs and also to maintain the transparency, authenticity and validity of the information provided by the customers. Indian financial sector has been moving towards innovations and application of technological advancements for the better and quality services and transactions and at the same time it is very important to take measures for the maintenance of liquidity and safety of the funds supplied into the markets. As a solution to this we introduce a new public ledger technology called the blockchain technology. This is a tamper proof technology which does not allow any modifications to be done on the data once stored in it.