RBI promotes financial inclusion through fintechs in India
By Arvind Agarwal, Co-Founder and CEO, C4D Partners
The Indian banking and finance sector has undergone an unprecedented transformation with accelerated adoption of technology, providing consumers with a range of convenient digital financial solutions and helping financial institutions become more efficient. This has caught the attention of the country’s government and the apex financial body to closely monitor and evaluate the fintech movements and bridge the digital divide to promote financial inclusion.
Since the onset of the Global Financial Crisis (GFC) in 2008, the induction of financial technology in the country has helped develop modern banking and financial services. From cost optimization to improving customer service, FinTech has helped the country make a breakthrough in its age-old traditional banking system. It is rapidly changing the face of the banking industry and automating the processes through digitized financial solutions, and paperless and contactless procedures.
Indian fintech landscape
India has undoubtedly become one of the largest growing economies in the world in recent years. Growth is mainly driven by the new startup hub, and FinTech has emerged as one of the biggest hotspots. The industry has driven massive adoption of convenient financial platforms with the increasing availability of smartphones, increased internet access and technology penetration in non-metro areas.
The past three years have been revolutionary for the FinTech industry as the pandemic-induced shutdowns resulted in the massive adoption of digitization. According to the Boston Consulting Group and FICCI, the Indian FinTech sector is estimated to cross the $150-160 billion valuation by 2025. Considering the $100 billion incremental value creation potential, RBI is launching a series of unprecedented events that are creating history in the Indian financial industry.
The role of government in fintech growth
Initially, the government first showed its interest by the quick announcement of demonetisation, banning the use of Rs 500 and Rs 1000 currency notes and later launching a new version of Rs 500 and replacing the Rs 1000 note with Rs 2000 notes. Although demonetisation was announced to curb the exchange of black money, it created chaos across the country that shifted consumers to online financial services, thus increasing the potential of the FinTech industry. Furthermore, the outbreak of the Covid-19 pandemic accelerated FinTech’s journey in India with people adopting digital payments, contactless and paperless solutions without choice.
Despite being a highly dispersed country, a large section of the Indian population remains unbanked and underserved. RBI adopts various solutions to constantly change the regulatory environment and solve challenges that can lift the sector. In recent years, the Indian financial landscape has seen a major improvement in its infrastructure with the launch of Unified Payments Interface (UPI), Bharat Interface for Money (BHIM) and many others. It has been further pushed by the launch of ‘Digital India’ and ‘Make in India’ campaigns, in line with RBI’s vision to accelerate FinTech adoption.
The adoption is mainly driven by the RBI’s efforts to push and enable the growing use of electronic payments to build a cashless society. According to the statistics, the April to June 2022 quarter recorded a whopping 20.57 billion transactions, estimated at Rs. 36.08 trillion in value via multiple fintech platforms including UPI, debit and credit cards, mobile wallets, etc.
Digital lending landscape in India
Throughout the decade, many socio-economic factors have led to favorable growth in the Indian digital loan market. It is set to grow at a CAGR of 22 percent from $270 billion in 2022 and become a $1.3 trillion market opportunity by 2030. Other data indicates that digital lending is set to account for 60 percent of the total FinTech market in India by 2030. Currently, India has 33 soonicorns, out of which 39 percent of them are in the digital lending segment.
Considering the growing number of soonicorns, and encouraging innovation in the FinTech landscape, RBI has stated that products and credit delivery methods should ensure orderly growth, preserve financial stability and ensure protection of depositors’ and consumers’ interests. That being said, certain concerns have also emerged that could make it challenging for the public to trust the digital lending ecosystem if not mitigated. Concerns are primarily focused on third-party involvement, misspellings, threats to data security and privacy, lending to unfair business practices, and unethical recovery processes.
In an effort to protect consumer interest in the digital lending ecosystem, the RBI has also formed a task force on digital lending and expanded permissible and safe credit facilitation services.
PM on financial inclusion
India is a highly diversified country with a majority of its population located in remote and remote areas. To promote financial inclusion in the country, Prime Minister Modi has announced 75 Digital Banking Units (DBUs) across 75 districts in the country to ensure that banking services reach the last mile. This has opened up a whole new world of opportunities for FinTech startups to capitalize on, and the RBI with its quick nod has enabled these startups to strengthen the Indian financial infrastructure.
RBI is supporting the FinTech industry stakeholders to set up 75 DBUs in a record six months in 75 districts of the country. It will act as a key enabler in the digital ecosystem by facilitating convenient banking transactions and reinforcing the government’s efforts to promote financial inclusion. If properly implemented, DBU will play an integral role in providing end-to-end digital processing of small ticket and MSME loans and savings, credit and insurance facilities to local households.
The advancement in financial technology has spurred economic growth and has promoted financial inclusion in the country. To continue this exponential growth trajectory, all stakeholders need to identify key issues and work on a solution to implement robust and beneficial solutions for the country.
