Why a Minimum Baseline Digitization of Internal Audit is Critical for MFIs During the Growth Phase?

As MFIs grow, they encounter several challenges that put their sustainability and long-term success at risk due to reasons like managing escalated service costs, maintaining quality control across an expanding network, and ensuring efficient resource allocation.?

The increase in a number of branches, centers, SHGs, and JLGs raises pressure on the internal audit department because, with the increase in the scale and complexity of operations, internal audit needs to cover a larger scope while remaining constrained on resources.?

Therefore, to circumvent this situation, at some point, MFIs opt for restructuring of internal audit operations during the growth phase.

Digitization Before Restructuring

If internal audit processes are manual / Excel-driven, the pressures continue to mount despite restructuring due to friction of technological inefficiencies.

Therefore, restructuring of internal audits should be backed by digitization as it can have a huge impact on the cost and effectiveness of audits.

Digitization should aim at enhancing efficiency, bringing better control mechanisms, and improving the capacity of the internal audit department.

Usually growing MFIs prioritize digitization of loan origination and loan management processes to manage scaled-up operations better.?

If digitization is not extended to internal audits, it exposes MFIs to expanding threats and risks.?

Also, growth leads to a proportionate increase in the cost of Internal Audit, which becomes hard to explain as compared to an increase in the cost of business operations.

Therefore, from efficiency, capacity, and risk coverage perspectives, it becomes important to undertake digitization of internal audits.

A Minimum Digital Baseline is Needed?

We recommend that to be effective the internal audit digitization should enable baseline capabilities in real-time monitoring (digitized field audits), process automation (auditor and auditee workflows), and streamlined reporting mechanisms.

These baseline digital capabilities can enable MFIs to swiftly identify and address control & compliance issues, thereby reducing risks associated with rapid growth.

We have demonstrated that without these foundational digital structures, MFIs will fail to achieve requisite efficiencies, capacity building, and risk coverage.?

Whereas, sufficient digitization will not only facilitate better risk management, but it will also ensure that the internal audit function remains agile and scalable.?

To better understand the baseline digitization motivations and capabilities in MFI internal audit, refer to our white paper titled “LEVERAGING DIGITAL AUDITS FOR A FAST SUSTAINABLE GROWTH IN MICROFINANCE BUSINESS”

Message Nilesh Varzirani to request your copy.