Financial inclusion is one of the critical drivers of economic progress. As India aspires to develop into a burgeoning economy, accelerating financial inclusion is inevitable. India has a vastly underserved population, and including this extensive group in the financial mainstream will enable economic growth and social progress. Government initiatives such as Pradhan Mantri Jan Dhan Yojana (PMJDY), simplified KYC, Digital India Initiatives through Aadhar have so far complemented this process. The initial barriers of unavailability of suitable financial products, lack of physical infrastructure, or lack of skilled human resources have been addressed to a large extent. NBFCs have played a vital role in addressing some of the key challenges to financial inclusion and, over the years, have built a strong ecosystem to serve the unbanked and the underserved population of our country. Here are the key drivers that have contributed to financial inclusion in India:
Technology the enabler
Technology-led NBFCs have created opportunities by serving the diverse and underserved population across the country. The foundation pillars of the digital financial roadmap were built by Aadhar and India Stack. New smartphone users with their unique digital identities prefer to transact across digital platforms. Digital finance is thus increasing financial inclusion in a way that it is complementing or substituting traditional finance. Take, for example, a small-scale textile manufacturer in a tier 2 town, who can now avail a working capital loan almost instantly using a mobile application. Digital financial services have proved to be faster, efficient and cost-effective. Also, Covid – 19 has accelerated digital financial inclusion as contactless transactions, and cashless payments were preferred over traditional modes. The latest RBI data clearly shows that digital payments have recorded a growth of 30% during the year ended March 2021. This indicates faster adoption and deepening of digital transactions across the country (As per the newly constituted Digital Payments Index (RBI-DPI), the index rose to 270.59 at the end of March 2021, up from 207.84 a year ago.)
The ‘Trust ‘Factor
While technology has a crucial role in accelerating financial inclusion in India, the element of trust is equally important. The last mile connection to make financial solutions accessible and viable is attributed to the teams that work hard to create financial awareness programs, engage with the people and earn their trust. These teams gain insights into the challenges faced by the people and the opportunities that can be created to increase financial inclusion. This helps NBFCs to create specialized financial solutions to drive growth and development in the region. Curating financial literacy programs designed to empower rural women is one way to facilitate inclusive growth. Similarly, digital finance programs to educate the youth in a particular village will give the required knowledge and skill to improve their livelihoods. A consistent approach with a dedicated team fosters trust and the community at significant gains with better access to financial products and services.
Simple and Easy Access to Financial Solutions
India’s population is huge and diverse. The way to cultivate financial inclusion is to keep the product design simple and tailor-make it to meet the complex needs of a low-income individual or a family. Take, for example, Tata Capital’s working capital loans for SMEs and MSMEs. The loan structure is designed to be hassle-free, quick and simplistic. Another critical category is insurance – which too is now made available in an uncomplicated way. For instance, NBFCs partner with local panchayats to distribute specialized health insurance products, i.e. a cover only for dengue or an insurance cover to protect the farmer against loss of crop or even cattle. NBFCs have over the years invested in ingenious distribution networks and products to make finance easily accessible to the remotest parts of the country.
In conclusion, NBFCs have immense potential to provide financial solutions to those who need them the most. RBI, in its report, has stated that there has been a 24% improvement in Financial Inclusion (FI) as measured by RBI’s financial Index between March 2017 and March 2021. NBFCs will have to keep innovating their offerings, invest in technology and continue to deliver on its promise to bring prosperity to the people of our country.
MD & CEO – Tata Capital