Over the years, as the traditional banking sector has remained partially successful in extending its services to low-income and vulnerable groups, FinTech organizations, NBFCs and Small Finance Banks have emerged as industry disruptors.
India has the second-largest unbanked population with an estimated 190 million adults still without a bank account—a significant number of them being women. The problem is exacerbated in rural India, home to over 65% of India’s population, where most remain outside the ambit of formal credit. Vast swathes of the populace also remain largely unfamiliar with technology and face unique challenges in financial literacy and lack of trust in new payment systems. The lack of strong technology infrastructure in most parts of the country also presents a challenge to financial inclusion. Beyond the urban-rural gap and the digital literacy divide there is also a glaring gender gap when it comes to inclusion. Despite a large number of women opening bank accounts, loan rejection rates for women-owned SMEs in India almost double than those owned by men.
The prime minister’s flagship financial inclusion programme, the Jan Dhan Yojana has done a yeoman’s job by opening more than 454 million bank accounts over the years. However, despite the availability of basic account ownership, access to a broader range of financial services still remains a challenge. Financial inclusion has moved beyond simply opening bank accounts, and true inclusion requires ensuring participation in the formal economy and enabling access to credit, savings, and other financial products, pivoted on upskilling and reskilling large sections of the populace.
These challenges are not limited to the demand side, as financial institutions are often reluctant to serve certain populations.
NBFCs, small finance banks and FinTech organisations, however, are leveraging technology and innovation to create products and services to help the unbanked and underbanked in the country. Fintech is also enabling NBFCs and small finance banks to reinvent their business models, with better market penetration. NBFCs and small finance banks have over the years, built a strong ecosystem to serve the unbanked and the underserved. For instance, several NBFCs have been at the forefront of innovation in P2P and MSME lending and Small Finance Banks have greatly improved access to credit for several small farmers and small business units with their targeted approach. On the other hand, FinTech has transformed the Indian banking, financial services, and insurance space over the last few years and has become the world’s fastest-growing ecosystem with a market size of US$31 billion, expected to grow fivefold by 2025. With increasing digital adaptation, Fintechs hold huge promise in driving the inclusion agenda along with NBFCs and Small Finance Banks.
Together NBFCs, Small Finance Banks and Fintechs comprise a formidable trio in addressing the inclusion challenge. This discussion seeks to bring to fore the synergies, discuss and redress challenges and enable collaboration between them.