When technology hurts the poor: Rethinking digital technologies in Microfinance in India
By Prof. Nidhi S. Bisht and Prof. Arun Kumar Tripathy, Management Development Institute Gurgaon
Digital technologies are often celebrated as powerful tools for financial inclusion. From mobile banking to digital loan disbursement, technology promises to bring millions of underserved people, especially poor women in rural India, into the formal financial system. But this promise is only part of the story.
A recent study on microfinance institutions (MFIs) in India by Prof. Nidhi S. Bisht, Prof Ernesto Noronha and Prof. Arun Kumar Tripathy, published in Information and Organization, shows that the impact of digitalisation is more complex. While technology improves speed, and efficiency, it also reshapes how microfinance works, sometimes in ways that weaken its original social mission by enabling exclusion. The study highlights how weak digital infrastructure, such as lack of internet, intermittent connectivity, and even unreliable electricity, limits last-mile outreach. While earlier manual processes allowed institutions to serve anywhere, operations now depend on digital devices and connectivity, leading them to prioritise better-connected areas. This shift risks excluding the poorest. The move to bank-based disbursements further sidelines borrowers without accounts or with low digital literacy, many of whom remain hesitant or distrustful of formal banking systems.
From people to data
One of the most significant shifts highlighted in the study is the move from relationship-based lending to algorithmic assessment. Borrowers are no longer understood through lived context but through data points. This shift tends to favour those who are already better positioned, those with digital access, and financial histories—while marginalizing those who lack these.
At the same time, digitalisation is reducing what the study calls the “quality of outreach.” Earlier, MFIs invested in building trust and capability through regular group meetings, training, and close engagement by field officers, crucial for helping borrowers, especially first-time users, use loans effectively.
With digital technologies, however, field officers are less invested in organising or encouraging attendance in group meetings. As a result, engagement is declining, interactions are becoming more transactional, and the support systems many borrowers rely on are weakening. This erosion of support systems is particularly concerning because many borrowers are first-time users of financial services and require guidance.
Efficiency v/s Inclusion
These concerns can be understood as “mission drift.” As digital tools make operations more efficient, MFIs increasingly prioritize financial performance over social impact. Technology enables institutions to identify and target “safer” borrowers, those with better data profiles and lower risk, rather than the most needy. Over time, this shifts the focus away from poverty alleviation toward profitability, subtly altering the purpose of microfinance itself.
This shift has significant consequences. Borrowers who most need support may be excluded, while those who are included may not receive the guidance necessary to use loans effectively. Without adequate support, there is a risk of financial stress and indebtedness, undermining its intended outcomes.
These findings extend beyond MFIs to any organisation using technology for social impact. A key lesson is that technology is not inherently inclusive. Simply introducing digital systems does not guarantee better outcomes; without careful design, it can reinforce existing inequalities. While speed and cost reduction are important, they should not come at the expense of human engagement, especially when working with vulnerable populations.
Beyond access, what inclusion requires
The research also highlights that inclusion cannot be reduced to access alone. Providing access to digital platforms is only the first step. Meaningful inclusion requires that individuals have the skills, confidence, and support needed to use these systems effectively. In contexts like rural India, where users face multiple constraints, such as low literacy, restrictive gender norms, and limited mobility, this becomes essential.
Another important implication is the need to move away from one-size-fits-all solutions. Technology must be designed with sensitivity to local realities, taking into account the diverse challenges faced by users. At the same time, organizations must rethink how they define success. If performance is measured only through metrics like loan volumes or repayment rates, there is a risk of overlooking whether borrowers are actually benefiting. Metrics must also capture improvements in capabilities, financial stability, and well-being.
Digital tools should complement, not replace, human engagement. This could involve blending technology with in-person support, investing in borrower training and digital literacy, and designing systems that account for local contexts. Crucially, systems must not exclude the very people they are meant to serve.
As India’s digital push accelerates, the risk is clear: if systems favour the less poor borrowers, microfinance could move further away from those who need it most.