By Kishan Sundar, Senior Vice President, Digital Business Unit, Maveric Systems.
“Poverty is the deprivation of opportunity”, quoted economist Dr Amartya Sen.
Financial inclusion is a crucial parameter to assess the growth of a developing nation. The higher it is, the more developed a country is. On the contrary, low financial inclusion indicates slumping socio-economic development.
In India, technology has significantly improved the accessibility and affordability of financial services that were previously inaccessible to the unbanked or underbanked masses. In the past nine years, our country has accelerated the pace of financial inclusion. From 40% of Indian adults with a bank account in 2011, this number has consistently increased to 80% in 2018[ Global Findex Data].
A predominant factor driving this impressive increase in bank account ownership is a series of government policies. These include demonetisation, Jan Dhan – no-frills saving bank accounts to transfer social benefit payments directly; Aadhar – a biometric database providing a unique identity to every citizen; and UPI – a digital payment platform that integrates across fintech and mobile banking applications. As a result, 90% of India’s 1.3 billion population[ UIDAI] got a unique Aadhar identity by 2018. Indians have opened 330 million new Jan Dhan bank accounts, a three-fourth jump in four years. However, despite these successes, India is the second-largest unbanked population globally, meaning the number of Indians availing financial services is very low. But why?
Financial and digital illiteracy: Poor awareness equals poor knowledge equals poor usage
An average Indian internet user in 2018 consumed more internet than 92X in 2014. Increased adoption of digital services by consumers has helped in this achievement. These numbers are likely to soar higher with rising mobile penetration, supposed to reach 90% this year. Yet India’s high dependence on cash and informal lending sources gives an idea about the low financial and digital literacy levels among its population, and therefore, poor usage of financial services.
For example, people cannot differentiate amongst financial products or possess adequate legal documentation, preventing them from accessing basic banking services.
Especially for women in India, low financial literacy levels combined with lack of property ownership, assets and credit score history multiplies the difficulties in accessing financial services. This gender-disparity also leads to women having to pay a higher rate of interest as compared to men.
These factors neglect the potential of digitisation in terms of reaching the unbanked, who otherwise could have availed a slew of micro-finance services right from their phones. Digital literacy and implementation of modern technologies such as big data, AI and mobile banking can drive up financial literacy, thus paving a progressive path for sustainable inclusion.
Inclusive digitization is key to the success of Bharat / India 2.0
The success of the Indian FinTech revolution has opened up new possibilities for diverse economic groups across the nation. But for both banks and disruptors, reaching the extent of the masses is a costly affair. Lack of last mile connectivity poses a huge challenge. This is where the government’s successes can bring the unbanked into the banking fold for equitable growth.
For example, banks can deploy big data technologies for alternative means of evaluating the credit profile of an unbanked individual. Data points such as sales records, payment history and records at local authorities are reliable parameters to predict possible credit risks of a credit seeker. With this technology, in fact, the credit bureau coverage in India had expanded to 43.5% in 2017 from 21.4% in 2015. Digital apps enable users to access faster, affordable and hassle-free financial services beyond demographic limitations. For instance, individuals can avail multiple banking services including loans, open FDs, fund transfer and more, simply by mobile banking.
To drive inclusivity and enhance customer services, banks are proactively adopting technology and introducing innovative products. RBI has also played an instrumental role in accomplishing various objectives including electronic payment system implementation such as RTGS, NEFT and mobile banking system. The economic potential of including the next-billion unbanked through technology is undeniably massive, but active and organic collaboration is key.
Partnership is key to true financial inclusion
Financial inclusion is a long-term goal. The government and banking institutions must educate consumers to expand the use of financial products at a grass-roots level, cost-effectively. The introduction of RBI’s fintech regulatory sandbox is a step in the right direction. Culturally, maturity will only come over time by embracing emerging technology, progressive strategies and sustainable banking policies.
To achieve this, both the public and private sectors have to join hands to use every opportunity and fix the shortcomings to accelerate the inclusion process. Current opportunities and challenges frame the road map to navigate better offerings and more innovative ways of economic value edition. Only a collective approach will propel the nation towards a sustainable growth trajectory.