Democratisation of credit through digital lending

The Bill & Melinda Gates Foundation’s annual report 2019, titled Goalkeepers: Examining Inequality , tracked the global progress in meeting the UN’s Sustainable Development Goals (SDGs) by 2030.

The report has showcased the wonderful architecture that India has put together the “JAM trinity” — ‘Jan Dhan Yojana’ to open bank accounts for the underprivileged, ‘Aadhaar’ to provide every Indian with a biometric-authenticated unique identity number, and mobile phones that enabled increased the reach of services.

The Pradhan Mantri Jan-Dhan Yojana is India’s National Mission for Financial Inclusion to ensure access to financial services, namely banking savings and deposit accounts, remittance, credit, insurance and pension in an affordable manner. It has over 40 crore beneficiaries so far. It also uses the services of over 1.2 lakh “Bank-mitras” delivering branchless banking services. The digital innovation that India has made so far, is here to stay. It needs adoption into commercial application to deepen the financial inclusion net. This is probably the lowest per unit cost innovation globally. This can change our current status around “unbanked” and “under-banked”.

Access to credit is limited in India and we need to urgently work on improving it. With more keypad literate Indians than literate Indians now, with wide availability of mobile services across the country and with lower priced internet access, digital finance never looked better before.

The basics of financial inclusion is to make sure that the consumers have access and choice of products that suit their need. The brick and mortar distribution has been expensive to reach much of our population, especially in the interiors of the county. Digital channels have started making access to finance, especially credit, as easy as searching for something on Google.

Digital finance firms carry no legacy baggage or cost and put their trust on data — the basis of finance decisioning anyway. Combining data science with technology and their quick decision-making, they are in a great position to question the status-quo and be responsible mainstream participants in the overall financial system.

Financial inclusion has been the focus of our policies in building a robust economy. It would bring economic development and offer respectable livelihood to our citizens. This basic right to dignity needs to be improved by bringing sustainable distribution of finance.

The fintech players have been focussed on bringing differentiated finance products to the markets. They have been working with the financial services brands for the past few years and the experience has paved way for newer segment of consumers to benefit from access to finance.

Affinity groups that were unserved before, like low-income, semi-urban and rural customers in unorganised sectors have benefited due to availability of finance from fintech platforms. Some of the platforms also cater to the crucial MSME and SME sectors.

Most of the digital lenders who have been funded by PE investors and family offices of repute, are regulated companies with their high standard of corporate and digital governance.

As any other industry, the fintech sector of late is seeing miscreants masquerading as fintech platforms. We need to deal with the bad apples with an iron hand. No one should be allowed to play with consumers — be it their finance or lack of finance. Data protection, responsible fiscal behaviour by lenders, transparency of information are amongst those non-compromisable aspects sought from the industry.

The lending industry along with the digital platforms need to work with our regulators to ensure that consumers are not victimised by the nefarious players. At the same time, such sporadic incidents should not be an excuse for slowing down the growth of digital finance.

Statistically there have been more number of incidents in the formal finance sector that have hurt the consumers than the anecdotal cases around digital finance so far. So let’s not besmirch the digital sector.

As we encourage our consumers to go digital, we need to strengthen their belief in grievance redress. The surest form of consumer confidence is when they come forward with complaints with the assurance that it would be redressed within a certain time period.

Sridharan is an independent markets commentator and Mehrotra is a fintech entrepreneur

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