The Fintech-NBFC relationship could increase inclusion
Written by Rajiv Sabharwal
Financial inclusion is undoubtedly one of the most important drivers of economic progress, and it is essential for the development of our country in a growing economy. The government is building a strong ecosystem to provide short services. Key initiatives like Jan Dhan Yojana, Pradhan Mantri Mudra Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana and Atal Pension Yojana have enabled the public to have bank accounts, get insurance protection, pension and loans. In addition, simplification of PAN acquisition procedures, unique identification (Aadhaar), complex tax systems through GST with Digital India have significantly contributed to the country’s financial inclusion. Financial institutions, including NBFCs, are also moving the mission forward by addressing some of the key challenges related to financial services for the low-bank and low-service communities.
Technology has enabled NBFCs to innovate their business models. The NBFC sector is at the forefront of digitalization and widespread adoption of technology in the financial services industry. Both large and small NBFCs have digitized their processes, business functions, credit cycles and created dynamic underwriting models. NBFCs provide agility and speed with the use of digital tools and platforms. This has enabled NBFCs to expand their reach and offer their services to the bankless people through tools like EKYC, e-signature, Aadhaar-based verification. Further, regional language chatbots and voicebots are helping RPAs, cloud computing, AI and ML businesses to build deeper connections with customers and speed up processes that can improve overall customer journey. NBFCs are facilitating India’s growing smartphone and internet penetration by offering mobile-based financial services platforms in local languages. These regional platforms have secure delivery systems designed to serve under-served portions across different regions.
India’s population is large and diverse; Keeping product design simple and matching the complex needs of low-income individuals or families encourages financial inclusion. For example, by creating simple and user-friendly mobile applications, NBFCs are enabling the rural population to get loans in minutes and hassle-free. Also, micro-savings led products help people to invest in a way that gives them financial liquidity and security. Over the years, NBFCs have invested in domestic distribution networks and products to make money easily accessible in the most remote locations of the country.
The rapid use of all types of technology is helping NBFCs to create financial literacy programs. While technology is crucial for accelerating financial inclusion in India, transparency is important for building trust. Teams that work hard to create financial awareness initiatives, engage with individuals and earn their trust are responsible for the last-mile connection that makes financial solutions work. These teams gain insights into the challenges that people face and the opportunities that can be created. Insights and data analytical tools are then applied to create specialized products to ensure development in the region. Also, proper access to education and financial solutions enables the vulnerable to avoid the trap of bad credit. Financial awareness programs are designed to address a variety of needs – enabling businesses and manufacturers to understand the importance of a credit score or how a pension plan works. These learning sessions are distributed across online platforms or private classroom layouts. An agreement with local community organizations enhances their effectiveness.
Currently, there are about 10,000 NBFCs spread across the country with about 25% assets in the banking industry. However, financial inclusion should be a collaborative effort and therefore, NBFCs partner with emerging fintech companies to create more skills and create more smart products and services. Collaboration with Fintech will help NBFCs deepen their market penetration and increase their bottom line. This is evident with the growing interest among players in both divisions to offer faster and cheaper financing solutions. There are also collaborative efforts to support up-skilling and re-skilling programs. The Prime Minister’s Rural Digital Literacy Campaign (PMGDISHA) program partners with technology companies to achieve inclusive education, create employment opportunities and help bridge the digital divide.
Fintech is assisting NBFCs in connecting with borrowers from a variety of backgrounds through operational automation and fraud detection tools. One big beneficiary is MSME. MSMEs are an accelerator of our economy, conducive to job creation, and well integrated with the rural economy as more than half of MSMEs operate in rural India. The collaboration between NBFC and Fintech has enabled MASME lending space to save credit. Digital financial inclusion will continue to evolve in India and we will continue to contribute to the country’s growth journey. A technology-led innovative financial ecosystem will encourage inclusive growth, reduce income inequality and enable people to become economically viable and empowered.
The author is the Managing Director and CEO of Tata Capital Limited
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