Here’s how innovation in the fintech space is accelerating financial inclusion in India
Building financial inclusion is a priority for banks and other financial institutions today, especially for the semi-urban and rural segments. Currently, there are several headwinds and tailwinds that have to be dealt with at home, as a consequence of tectonic changes in the global economy. Despite that, there are several innovations to be seen in the fintech space.
In an enlightening conversation, Lingraju Sawkar, President, India and Rajeev YadavMD & CEO, Fincare Small Finance Bank discusses the impact of SFBs on the Indian economy, the role of technology in the penetration of banks and the reality of banking at the ground level, with YourStory’s Founder & CEO Shraddha Sharma in the last episode of ‘The New Springboard’ series. Powered by Kyndryl, the series brings together top executives from high-potential start-ups, unicorns and enterprise companies to brainstorm ideas and discuss relevant aspects and perspectives that can spur growth.
Perception of the Indian Economy
It cannot be denied that geopolitical tensions at the global level have a real impact on financial services in India, Rajeev believes. But at the same time, it is promising that India is a self-sufficient economy that has been able to cope with inflationary pressures consistently.
“I really believe that there is a huge pent-up demand after the pandemic. In terms of customer buoyancy, it is visible in sales of commercial vehicles or passenger cars. Although there is a global headwind, India is reasonably insulated from the global crisis in a local context,” he adds, sharing that their customer base is largely rural and is among the last to experience a direct impact.
Agreeing with Rajeev, Lingraju further highlights that the consumption patterns of their customers are future proof. He points to the example from the telecoms industry and shares that there is currently a huge demand driven by 5G.
“I see that the demand is high in the major sectors. Some of the earlier initiatives of the government have also started to kick in and there is the availability of talent today. Things are looking positive,” he adds.
The reality of financial services on the ground
At Fincare, the lending products help them gauge the mood of customers on the ground. In the last six months, they have observed a strong boom in secured loans and stable portfolio development.
“The industry is going through a recalibration after the launch of the new guidelines by the regulator. Apart from that, customer demand is strong and we have observed that people want slightly bigger ticket loans compared to what they took earlier. I expect the industry to return to a good growth rate in this financial year,” explains Rajeev.
Technology has been a key driver in increasing the penetration of small finance banks and the microfinance segment, Lingraju believes. Traditional banks had built large core banking systems and everything revolved around internal data; but today small financial banks do not have the legacy. Instead, they’ve built systems that are thin and light, and are able to leverage innovation in a unique way to execute faster.
“Also, platforms introduced by the government like Aadhar and UPI ensure good availability of data, especially for monetization. It is also important to be well structured, which helps to target the right customer segment and make quick changes on the fly.” he shares.
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The lending landscape
Although there is a distribution of talent across the financial services industry, Raeev believes that large institutions operate in a more bureaucratic manner than small banks. Fintechs have a clear role to play in the future, especially in a consumer context. Having said that, there is a need for regulatory entities to book the loans.
“Innovation has a role to play in this area. It is an area where you give money first and hope to get it back, a very strong innovative environment can also lead to problems with credit quality or collection practices. But there is great potential. for that credit should grow. That is why all the players in this ecosystem will work to bring superior products to the customers,” adds Rajeev.
Secured loans have endless potential, and currently Rajeev is focused on microfinance, affordable housing and real estate loans. Although the deposit franchise is distributed throughout the country, they are trying to expand this, also in rural areas.
Future trends
There are three topics being addressed today, from a banking perspective, shares Lingraju. The first is customer acquisition, the next is about the regulatory part, and the last is innovation, especially in the traditional banking segments.
While small banks like Fincare are trying to build financial inclusion in the country, it is an interesting observation that their customers are mostly women. This helps them become financially smarter, take control of their investment decisions and gain confidence in how they will repay their loans.
When you empower the women in the house, you not only lift up a family, but society at large, jokes Lingraju.
Rajeev is excited that they have a challenging problem to solve, considering the low-cost structures. This makes them nimble, more receptive to digital technologies and more progressive in their thinking.
The most exciting thing today is that India’s leapfrogging technology has been the solution to several complicated problems, shares Lingraju. The demographics of the talent and how people embrace change and adapt to it will take India far ahead.
