Microfinance institutions must go digital-first, but what holds them back?

Posted on by Adityaraj

Of late, microfinance institutions (MFIs) have been in the news for a variety of wrong reasons. However, for millions of Indians across the country’s far corners, MFIs have stood as a firm backbone of financial inclusion. Yet these vital lifelines face a crisis. MFIs have been struggling with ever-growing cases of default, increased operational inefficiencies, and deepening customer distrust. As pressure mounts on MFIs to stay afloat, they are being pushed to go “digital-first.” But what does that really mean—and why does it matter? We assert that the path ahead will open if MFIs embrace their community-centered model, but reimagine it through digital transformation. The question is no longer whether MFIs should go digital-first, but how quickly they can transition. When we speak of digital-first MFIs, we do not mean replacing loan officers with apps. True digital transformation requires a ground-up redesign, not just digitization of existing processes, from loan origination to collections. This approach uses technology to enhance customer experience, cut operational costs, and provide real-time insights while preserving MFIs’ core strengths: community-based lending and group solidarity. Consider the parallel transformation we witnessed when UPI revolutionized payments and Jan Dhan accounts changed banking for underserved populations. Both succeeded because they reimagined entire processes rather than simply automating existing ones. MFIs need the same fundamental shift.

Despite clear benefits, most MFIs remain trapped by fear. Their concerns are legitimate: borrowers value face-to-face interactions, technology investments appear daunting, and staff resist workflow changes. MFIs particularly struggle with unclear returns on investment and generic tech solutions that demand expensive customization. Yet this hesitation grows costlier by the day. Every month of delay means higher operational costs, increased defaults, and deeper customer distrust. The year 2024 has been particularly challenging. The total microfinance loan portfolio dropped by ₹58,667 crore—from ₹4,33,697 crore as on March 31, 2024 to ₹3,75,030 crore as on March 31, 2025. Even listed MFIs reported severe pressure in Q4 FY25 (ending March 31, 2025), with several posting either losses or sharp declines in profit. Similarly, as per the MFIN Micrometer (Q4 2024–25), the loan amount disbursed has declined by 16.9% year-on-year, while the number of new loans disbursed has dropped by 25.4%. While multiple factors contributed—including deteriorating asset quality, rising credit costs, and borrower overleveraging—many experts point to deeper structural issues: a saturation of agent-led efficiency, limited underwriting capacity due to poor digitization, and continued overreliance on field teams for customer sourcing and engagement.

The belief that customers resist digital solutions is a myth that ecosystem actors must dispel. Rural and semi-urban customers who use UPI, access PM-Kisan benefits digitally, and consume content in local languages are not technology-averse. They need intuitive, low-literacy-friendly interfaces that reflect their preferences. MFIs can build trust-based digital solutions for customer onboarding, repayment tracking, and grievance resolution. Technology exists. Yet, the will to deploy it is perhaps lacking. Regulators hold the key to unlock sector-wide transformation. The RBI and SIDBI can de-risk innovation through grant-backed sandboxes and catalytic capital for early-stage pilots. They can accelerate adoption by nudging MFIs toward existing public infrastructure, including account aggregators, Aadhaar eKYC, UPI123, and DigiLocker. Most critically, regulators can enable safe data-sharing between MFIs and FinTechs for better underwriting, even as they promote shared infrastructure, such as sector-wide consent managers and collection aggregators. Such support will reduce costs and create network effects that benefit the entire sector.

RBI’s recent revision in the definition of qualifying assets — reducing the threshold from 75% to 60% — presents a fresh opportunity for MFIs to adopt a digital-first approach and expand their presence in segments such as personal credit, agricultural finance, and MSME lending. Digital transformation succeeded in other sectors by enhancing human connection rather than replacing it. The telecom industry transformed access with prepaid models. Healthcare boomed with telemedicine and e-pharmacies during COVID-19. AgriTech now enables farmers to sell online and monitor weather through apps. In each case, technology amplified human potential rather than substituting for it. MFIs can follow the same path. Several trigger points demand immediate action from MFIs. Rising nonperforming assets require early warning systems, customer churn calls for data-backed engagement, and regulatory nudges push digital traceability requirements. The transition does not need to happen overnight, but MFIs cannot afford to delay further. They can start with digital group onboarding, predictive collections, or consent-based credit scoring. But they must begin now, guided by a clear vision of creating digital-first, customer-centric institutions that retain community roots.

Three fundamental shifts will determine success in this transformation. MFIs must move from vendor-driven to sector-led innovation to take control of their technology agenda rather than accepting generic solutions. They must shift from digitizing for compliance to digitizing for customers, which will ensure digital tools solve real customer problems rather than merely satisfy regulatory requirements. Finally, they must transform from one-time pilots to build continuous problem-solving capabilities and make innovation an ongoing organizational strength rather than a sporadic project. India’s MFIs stand at a digital inflection point today. They can cling to legacy models and risk obsolescence or embrace transformation with courage and clarity. The path forward demands collaboration between MFIs, regulators, and technology providers. The obstacles are real, but the alternative of gradual irrelevance in an increasingly digital economy is far worse. For millions of Indians who depend on microfinance, the stakes could not be higher. The time for incremental change has passed. The moment for transformation is here, and the country’s people cannot wait.

This was first published on  CXOtoday.com on 12th  September,  2025

How we can tackle dark patterns in India’s digital economy

Posted on by Saumya Dixit

In the village of Deori in Jharkhand, domestic worker Malti Devi tried to transfer money through a mobile app, but the amount deducted was more than she had expected. She shared, “At the bank, they told me that I must have missed a button or a message about extra charges at the bottom, but I did not see anything like that on my screen.”

Malti Devi’s experience is part of India’s broader digital transformation story. The country’s digital economy has transformed lives. Affordable smartphones and faster networks have enabled 969 million Indians to access the Internet. Millions rely on apps for payments, savings, credit, and investments. These platforms are fast, convenient, and increasingly central to our financial lives.

Yet hidden within this convenience lies a troubling reality called dark patterns, manipulative design choices that trick or pressure users into decisions against their best interest. Dark patterns can compel users to sign up for unwanted services, pay hidden fees, or share more data than they intended. These often-invisible traps erode trust in digital finance.

Key takeaways:

  • Dark patterns are designed to confuse, pressurize, or trick users.
  • Financial harm and loss of trust are rising in India’s digital economy due to these practices.
  • Stronger regulation, ethical product design, and user empowerment are urgently needed.

The hidden traps behind the screen

Imagine you open an app in an emergency for quick credit and instead encounter unclear fees, surprise debits, or threatening payment reminders. A woman from Kerala said, “I just needed help, and I ended up paying more than I borrowed.” She is not alone.

Across India, app users report:

  • Loan and investment apps pressure customers with pushy notifications (“Your INR 90,000 loan is pending approval”)
  • Payment apps hide critical options in fine print.
  • Consent for data sharing is buried under layers of confusing screens.

MSC’s recent research shows dark patterns have multiplied, which has left ordinary users to shoulder the consequences. Global studies find that two-thirds of online services use at least one such tactic. In the UK, misleading subscriptions cost families nearly GBP 688 million (USD 928 million) annually. In India, numbers are less visible, but given the ubiquity of dark patterns, the impact is massive on both consumers and providers worldwide, who, according to MSC, lose more than USD 231 billion due to eroded trust and early exits.

India’s regulatory gaps

The Reserve Bank of India (RBI) has cracked down on illegal lending apps, while the Ministry of Consumer Affairs has acted against unfair trade. Yet gaps persist:

  • Many dark patterns, such as pre-ticked consent boxes, hidden fees, and hard-to-find opt-outs, escape regulation;
  • Enforcement remains fragmented across the IT Act, the DPDP Act, and consumer legislation.
  • Excessive reliance on self-regulation (“companies audit themselves”) allows manipulation to outrun oversight.

Another MSC research highlights the need for stronger enforcement, clear multilingual design standards, and rules that actually help users rather than just satisfy compliance checklists.

What India needs to do

Regulators must act first to build a safer digital ecosystem. Their oversight should extend beyond lending apps to cover payment and investment platforms. Independent audits of disclosures and consent flows must be mandatory, while national design standards for user interfaces should establish clear and enforceable rules.

Meanwhile, accountability should not rely solely on self-certification. Instead, third-party audits can signal compliance and rebuild user confidence. Once, financial literacy campaigns taught people how to calculate interest; they must now equip citizens to recognize manipulative design. Laws across the IT Act, the DPDP Act, and consumer protection frameworks must also be harmonized to eliminate overlapping jurisdictions and resultant loopholes.

Service providers have their own role to play. They must embed ethics into the design process to ensure that it is as easy to exit a service as it is to sign up. Regular sludge audits, conducted with independent oversight, should identify and eliminate manipulative practices, with findings shared publicly. Every digital screen where financial decisions are made must offer users clear grievance resolution mechanisms so that help is only a click away. Most importantly, product and design teams must receive training in digital ethics to move away from growth strategies that prioritize downloads and clicks at any cost.

Consumers are also not powerless. They can report suspicious apps and manipulative practices through the RBI’s Sachet portal or the National Consumer Helpline. Before customers download or make a transaction, they can consult independent reviews on platforms, such as Consumer VOICE India, and share their experiences to alert others. Most importantly, customers must pause before they react to urgent prompts for loans,  investments, or subscriptions designed to push them into hasty decisions.

Policymakers and development agencies can strengthen these efforts by legally recognizing dark patterns. They should define and prohibit dark patterns within consumer protection and data privacy statutes. India also needs its own multilingual design standards that are tested locally and updated regularly to keep pace with evolving manipulation tactics. At the same time, the country needs to encourage innovation that works against manipulation, such as AI and machine learning tools that can detect dark patterns in real time.

The technology and design community can potentially drive a cultural shift. They can codesign workshops with NGOs and consumer groups to test financial platforms for manipulation and feed evidence back into regulatory reforms. The community should also promote ethical innovation, which would allow India to lead in FinTech and stand out as a global champion of fair and transparent digital design.

A collective response

Dark patterns thrive in opacity, which exploits gaps in awareness and regulation.  A focused collective response from regulators, industry, civil society, and consumers is required to tackle them. This will ensure that users can trust the innovation.

If India can combine stronger oversight, clearer design standards, and empowered users, it can build a digital ecosystem that protects the most vulnerable while sustaining growth. In doing so, India has the chance to set a global benchmark for a financial system that is fast, convenient, fair, and fundamentally ethical.

MSC in action

MSC (MicroSave Consulting) works with FinTechs, regulators, and user groups to develop ethics-based design toolkits and run pilot audits of app interfaces. This is to help promote India’s leadership in trusted digital finance. Explore our wealth of research on digital trust and dark patterns here.

A collective response and path forward

Dark patterns thrive on user confusion and regulatory ambiguity. To tackle them is everyone’s job: regulators to set rules, providers to act responsibly, civil society to watch and advise, and users to speak up.

India’s digital financial ecosystem should be innovative and ethical. The country can protect its most vulnerable, strengthen the whole sector, and set a global standard for fairness and integrity through transparency, accountability, and empathy in design.

Can design reforms improve the adoption of the Soil Health Card among India’s farmers?

Posted on by Saumya Dixit

Clad in a faded vest and dhoti, 53-year-old Bhagya Narayan has been farming in his little plot of land for the past 40 years. A veteran farmer from an aspirational block in India’s Bihar state, Bhagya uses a blend of traditional wisdom and modern farming techniques. He understands how optimum fertilizer use can improve soil health. When the Soil Health Card (SHC) was distributed in his block a few years ago, he could adopt its recommendations on fertilizer use with ease, which eventually improved his farm’s productivity.

However, Bhagya’s story is an exception.

For most smallholder farmers in his block, the SHC remains a missed opportunity. The SHC’s complicated terminology and layout make it difficult for the farmers to understand the card, which leaves them unsure. They do not know how to put the information into practice. The limited support from frontline agriculture officials, or even from informed farmers like Bhagya, makes many farmers set the SHC aside.

Bhagya notes, “The SHC has great value, but it is too complicated. It needs to be simplified so every farmer can derive its benefits.”

His observation reflects a nationwide challenge. A decade since its launch, around 250 million SHCs have been distributed to farmers across India. The card can potentially boost productivity, as some states recorded yield improvements of up to 40%. However, adoption is still limited due to persistent implementation hurdles. Several studies have highlighted these barriers over the years, including those by MSC and other organizations in specific states or regions. Among these challenges, the SHC’s design significantly limits its adoption.

MSC adopted a human-centered design approach to understand how farmers perceive and use the SHC to address these design barriers. We conducted focus group discussions with farmers in four aspirational blocks of Bihar and Assam. Through empathy mapping, we identified key design barriers and developed a more farmer-friendly version of the SHC.

MSC’s research revealed several barriers:

  • Technical language: Many farmers struggled to understand the jargon-heavy content. For example, terms, such as pH and EC were mentioned without their full forms or explanations.
  • No visual cues: The SHCs delivered nutrient results in a text-heavy format, and as a result, farmers with low literacy struggled to understand and apply the information.
  • Unclear QR integration: The QR code on the SHCs was meant to give farmers access to detailed reports and crop-specific fertilizer recommendations. However, many farmers could not use the code due to a lack of clear instructions.
  • Unit conversion challenges: The SHC uses hectares as a unit of measurement in the card, rather than the local units prevalent in Bihar, such as kattha or dismil. This disparity also hindered adoption.
  • Bulky layout: The large single-sheet format led to frequent folding, which caused the card to wear and tear and become inconvenient to use.

These issues affect how farmers engage with the SHC, which prompted MSC to redesign the SHC with a focus on simplicity, accessibility, and practicality. MSC’s redesign incorporated several improvements. We redesigned the SHC into a foldable format, which made it more durable and easier to use frequently. The QR code featured in the card was supplemented with clear, step-by-step directions to enhance usability. Additionally, we used locally preferred land measurement units in the SHC to encourage adoption.

Figure 1: Comparison of the original and redesigned soil health card

Through an iterative redesign process, the SHC became more farmer-friendly. During feedback sessions, farmers reported that they could make sense of the redesigned card and showed greater confidence in its recommendations. One farmer remarked, “We can understand it better now. Receiving such a card from the government would be beneficial to us.

How can we unlock the SHC’s transformative potential?

Design reforms alone cannot drive change—the true potential of SHCs will be realized when farmers across the country receive accurate information at the right time alongside better support. A synchronized approach is essential to address this—one that blends timely policy implementation, upgraded infrastructure, strong farmer engagement, and more accessible design.

  • Receiving the SHC: Deliver the right information on time

For the SHC to be useful, the first step is to deliver the right information at the right time. This requires a well-coordinated pipeline, from on-time soil sample collection to lab analysis, card generation, and last-mile distribution. The scheme’s operational guidelines outline a 30-day turnaround time. Samples should be collected within 10 days, analyzed in the next 10 days, and SHCs printed and distributed in the final 10 days. Block-level staff and trained personnel must be available and equipped to collect samples through standard protocols to achieve this turnaround time. Each block should also have a soil testing lab or mobile unit, with proper staff, resources, and supervision to maintain quality and turnaround times. Many farmers do not receive the card at all due to gaps in the implementation of these steps.

  • Engaging with the SHC: Drive farmer engagement through community-level support

Since the card is issued once every three years, farmers need regular nudges, especially before each sowing season, to encourage healthy fertilizer use. This is why field-level engagement activities, such as periodic demonstrations, are essential. Guidelines for demonstration under the scheme rightly emphasize a participatory, farmer-facing approach. They also mandate activities, such as field days and farmer melas, to engage surrounding communities and build farmer confidence.

Implementing agencies, which include the Department of Agriculture, Krishi Vigyan Kendras (KVKs), state agricultural universities, and registered NGOs, play a key role in technical inputs, training, and support during demonstrations. Building social proof through visual comparison between SHC-applied and control plots could reinforce the idea that the SHC is a practical decision-making tool. The guidelines also recommend that subject matter specialists and farmers collaborate to conduct on-field demonstrations that compare SHC-based practices with traditional ones. MSC’s pilot study in 2018 in Krishna district, Andhra Pradesh, showed the impact of active awareness drives, where targeted messaging and local outreach significantly increased SHC adoption by farmers.

  • Understanding the SHC: Reimagine the SHC design for everyday usability

Once farmers have access to the SHC and understand how to use it, the card’s design determines its usefulness. It must be easy to understand, supported by the implementation of the design reforms suggested above across all states in India. State agriculture departments must regularly review and adapt the SHCs to reflect these design principles, which would ensure the card functions as a farmer-friendly tool. In addition, artificial intelligence (AI) tools can be used to help farmers better understand the card. For instance, the Bihar Krishi app, developed by MSC, is a digital platform that provides farmers with access to essential resources and services, and uses AI to deliver SHC’s insights in easily comprehensible Hindi.

This three-step approach shows that for the SHC to reach its true potential, design improvements must go hand-in-hand with timely delivery and sustained farmer engagement. Achieving this vision will require proactive leadership from policymakers and sustained support from state-level implementing agencies. Farmers like Bhagya Narayan show that when the right information is paired with the right support, the SHC can become a powerful tool to improve soil productivity.

The redesign of the soil health card was led by Dinesh Singh, Associate Manager with the Knowledge Management Marketing team at MSC.

The landscape and financial access of social commerce sellers in Indonesia

Posted on by Melya Findi Astuti

Social commerce sellers have emerged as Indonesia’s new generation of entrepreneurs. They hold massive potential to expand the country’s MSME ecosystem. They can create new pathways for women and small businesses to participate in the digital economy. Unlike formal e-commerce platforms, social commerce uses channels, such as WhatsApp, Instagram, and Facebook, which are already familiar to many sellers and provide a flexible entry point into the market. 

This report hinges on data from 458 respondents across seven provinces, 70% of whom are female sellers. We present two core findings: 1) The journey of social commerce sellers, and 2) their access to credit and financial services. Together, these findings offer a comprehensive view of the challenges that sellers face. For many, social commerce serves as their first step towards digitalization. 

The report also identifies pressing issues in the social commerce ecosystem, such as unclear regulatory frameworks, limited trust and protections for customers and sellers, and fragmented digital tools for each sales step that make transactions inefficient. 

At the same time, the report identifies opportunities for policymakers, regulators, and financial service providers to strengthen this ecosystem. These stakeholders can help sellers grow sustainably if they link formalization with real benefits, integrate financial solutions into platforms, and design safeguards to build trust. 

The social commerce sector must understand the sellers’ journeys and address the financial barriers they face. This is how the sector can realize its full potential and drive inclusive digital transformation. 

Here are the links to the reports: 

  1. Click here to download the full report in English. 
  2. Click here to download the full report in Bahasa Indonesia. 

Bancassurance in Bangladesh: How we can harness the distribution potential to grow inclusive insurance

Posted on by Saumya Dixit

This white paper outlines a strategic roadmap for advancing bancassurance as a scalable and inclusive insurance distribution model in Bangladesh. It highlights the regulatory, institutional, and technological enablers needed to strengthen consumer trust, drive innovation, and expand outreach, particularly in rural and underserved areas. The paper also emphasizes the role of bancassurance in building climate resilience through digital delivery, parametric products, and ecosystem collaboration, and outlines actionable pathways for regulators, banks, and insurers. It also showcases MSC’s role in providing policy support, product innovation, and capacity building to create an equitable, climate- smart insurance ecosystem

Unlocking financial resilience: How MFIs can solve the climate disaster in Bangladesh’s farm economy

Posted on by Saumya Dixit

Around 60 million smallholder farmers produce nearly 60% of Bangladesh’s food. However, most lack adequate tools to adapt to the dangerous risks climate change brings. Every year, these farmers face threats, such as floods, droughts, cyclones, salinity intrusion, river erosion, and pest outbreaks. The scale and frequency of these disasters continue to grow, with deadly results.

In 2024, monsoon floods destroyed 1.1 million metric tons of rice, while Cyclone Remal damaged crops across 50 districts, and a record-breaking April heatwave scorched rice and fruit harvests. In coastal Khulna, salinity intrusion and drought wiped out more than 18,800 hectares of paddy and vegetables. In November 2023, Cyclone Midhili flooded farmlands and affected more than 160,000 farmers. For families who already live on the edge, one bad season can push them back into poverty. This forces them to make painful trade-offs between food, education, and healthcare.

MSC recently conducted a study on agri-allied customers in some of Bangladesh’s most climate-vulnerable regions. We found that when a climate shock hits, farmers react with urgency. They withdraw any savings or sell off assets to buy food, repair homes, replace lost livestock, and cover other important expenses. The need for capital surges once the immediate crisis has passed, as farmers must replant crops, rebuild structures, and replace equipment. This drives up the demand for loans. However, they hesitate to take on new debt as income sources become uncertain. MSC’s primary study also reveals a similar trend, as shown in the graph.

In these moments of urgency, farmers resort to System 1 Thinking, which is hasty, instinctive, and often desperate. Many smallholder farmers borrow from multiple sources and must sometimes turn to informal moneylenders who charge steep interest rates. What starts as survival borrowing can spiral into a vicious debt cycle, as they scramble to repay one loan by taking on more debt that eats into their already fragile incomes. Their lives are so precarious that a single failed farming season can trap a household in chronic financial distress without any safety net.

Credit and savings have expanded significantly in rural Bangladesh due to microfinance institutions (MFIs). However, these tools alone are not enough during and after climate disasters. This is where products, such as asset-based microinsurance, can cushion when disaster strikes. Unfortunately, insurance coverage in rural Bangladesh remains negligible. Less than approximately 1% of older farmers have any form of comprehensive agricultural insurance.

Farmers often view insurance with suspicion. Many hear stories of delayed payouts, unclear policy terms, or agents who disappear after they collect premiums. Others consider insurance a bad omen. Insurers have limited rural reach on the supply side. They have a thin distribution channel and slow administrative processes. The insurers are less digitally connected and do not understand claim mechanisms well. The result is a trust gap, and farmers who could benefit the most from insurance are the least likely to buy it.

From the insurers’ perspective, rural markets are hard to reach profitably. Yet, if they partner with MFIs, they can unlock high-volume, low-cost distribution. MFIs already have the network, client trust, and collection systems in place that can lower acquisition costs and improve premium collection rates.

For decades, MFIs have built deep, trusted relationships with rural clients. Farmers see MFI staff regularly to disburse loans, collect them, and for financial advice and support. This trust and accessibility give MFIs an advantage most insurers lack. MFIs can embed microinsurance into current loans or savings products and make them easy to adopt. They can collect premiums and loan instalments at the same time, which would remove the need for separate payments and reduce administrative hurdles. MFI staff can act as facilitators between farmers and the insurers when claims are needed by the farmers. This would help farmers file claims and ensure timely and transparent payouts.

From the insurers’ perspective, rural markets are hard to reach profitably. Insurers can partner with MFIs to unlock high-volume and low-cost distribution. MFIs already have the network, client trust, and collection systems that lower acquisition costs and improve premium collection rates. A partnership between MFIs and insurers can go beyond social impact and serve as a business opportunity for insurers. Therefore, insurers can work with MFIs to expand their customer base, diversify risk pools, and build long-term revenue streams from millions of small but consistent premiums.

Globally, MFI–insurer partnerships have proven effective. In the Philippines, the microinsurance mutual benefit associations (Mi-MBAs) bundle insurance with microloans, which insure more than a million clients. In Indonesia, PasarPolis partners with MFIs and digital platforms to sell affordable, simple insurance products alongside everyday transactions. In India, VimoSEWA combines insurance with social protection and livelihood support for women in the informal sector.

Bangladesh has started to see similar innovations. The Bangladesh Rural Advancement Committee (BRAC) has partnered with the Syngenta Foundation, the Green Delta Insurance Company, and the Sadharan Bima Corporation to offer crop insurance to its clients. MSC’s research revealed that when products are simple, affordable, and trusted, farmers are willing to pay the extra premium for their peace of mind. However, the scale remains small, and broader adoption requires MFIs to innovate products, simplify claims, and engage strongly with communities.

In recent years, climate risks have only intensified, while the gap between farmers’ needs and the tools available to manage those risks has widened. MFIs can uniquely bridge that gap to complete the financial protection package with embedded microinsurance alongside credit and savings. For farmers, this financial protection package means the difference between a fresh start after a disaster or years of debt. For MFIs, it can protect loan portfolios and strengthen client relationships. For insurers, it provides a way to access a profitable, underserved rural market at scale. Ultimately, this creates mutual benefits for all the involved stakeholders.

Microinsurance is the missing link in rural financial resilience that can emerge as the gateway to a transformative future for smallholder farmers. When we empower MFIs to deliver microinsurance, we can transform lived experiences from survival toward inclusivity and planned empowerment. It is time to equip Bangladesh’s farmers in Bangladesh with the tools they need to withstand and recover from climate disasters.