Technology in Financial Inclusion: an Indian Perspective
Technology is regarded as the sole fillip of India’s thrust towards financial inclusion. But is that all there is? Read on!
Background
Financial inclusion, as a much talked about concept, undoubtedly stands as a pillar for India’s economic growth and progress story. The road towards serving the long-time underbanked and unbanked populace has been rather rocky, but I’ll save that story for another day. Here, I write about the silver lining: the power of technology, and what lies ahead.
Flashback 2015: Raghuram Rajan, the erstwhile RBI governor brings to light the much needed idea of small finance banks, with the objective of making financial services accessible to the general public. This was aimed at providing better financial infrastructure backed by legal and regulatory protection, and also to improve the ease of use and availability of banking services at low costs. RBI’s 2016 policy roster made some inclusions like pension funds, RuPay debit cards, and overdraft facilities too.
Informal and small-scale systems have been ruling the roost in terms of serving the rural population, and for reasons aplenty. The table below highlights several factors that come into play in this context.
This is where I believe technology comes in, the knight in shining armour. Also with a caveat that almost stares at you in the eye: technology can only work wonders only if a lot more implementations are set in place: for instance, regulations being relaxed for the bottom of the pyramid.
Some key observations
The trifecta of PMJDY-Aadhaar-Mobile banking, coupled with the rising trend of online payments: NPCI’s UPI has been much spoken given that the penetration of the Internet looks very promising. India also has the second largest cohort of active Internet users in the world. But is this translating to more acceptance across the entire population? Statistics provide a rather bleak picture: in India, nearly 50% of total bank accounts and about 23.3% of Jan-Dhan accounts are dormant. It brings me to one key inference which may sound pretty obvious by now: technology MUST be piggybacked and piggy-banked by partnerships between the government and the growing FinTech ecosystem: primarily to improve financial literacy and mobilize such services to the last mile.
Most FinTech startups in this space have followed the model of starting urban, going urban-rural, and finally reaching the rural population. A slow process, this can be expedited by innovative marketing techniques that build relationships beyond mere transactions. Financial services in rural areas are heavily tipped towards credit products, due to the agrarian-driven economy: right from crop insurance to equipment financing. A good starting point, I also see a possibility of provision of ancillary services such as AI-based market demand estimation and crop health management. Successful use cases of the same have been carried out by technology giant Intuit’s India-only initiative called Fasal. I also believe that credit products for small scale industries and entrepreneurs has a huge potential, as can be seen by SELCO Solar’s delivery model for financing rural energy needs. Lastly, the huge informal sector of the Indian economy can benefit a lot from credit services: with possible use cases such as monthly expenses management and access to housing and education via loans.
Concluding thoughts
It is now crystal clear that technology is only a facilitator, and a full-fledged involvement of the larger ecosystem is necessary. Picture this, in the earlier instance of crop insurance provision, what if there was a simultaneous initiative by local governments to make population data fully digital? It would be a win-win for both the populace and financial service providers.
The whole conundrum is not simply answered by statements like ‘provide a seamless customer experience’ or ‘increase the portfolio of offerings’. This is a problem that needs much more than a quick fix. What if pilot projects were conducted to assess how technology can address the fear of debt trap? In a system that is reliant on cash and promises, such possibilities can provide more groundbreaking and more tailored solutions.
This reminds of an oft quoted adage:
“If you want to go fast, go alone. If you want to go far, go together”
In this context, we definitely need to go together: government, policymakers, start-ups, financial institutions. Everyone.
(Disclaimer: The author is a Business Consultant in the Banking, Financial Services and Insurance domain at Tata Consultancy Services Ltd.)
Sources
a. IBEF report: Technology Application for Financial Inclusion
b. EPW article: Financial Inclusion and Digital India: A Critical Assessment
c. RBI website
d. YourStory article on Fasal: Farming on autopilot
e. SELCO solar website
f. Thought paper: “Executive Viewpoint: Toward Digital Financial Inclusion”, MIT-SMR Connections, commissioned by TCS
