A total of more than 63 million MSMEs contribute nearly 30 per cent to the country’s GDP. More than half of these establishments are in rural areas, and over 99 per cent of these are micro-enterprises. It is imperative, therefore, that the yawning gap in availability of formal financial services for this segment is plugged at the earliest. Micro-enterprises not only represent a substantive solution to the employment quandary that India currently faces, but also contribute to the development of the local economy and market systems.

In this context, it is important to recognise the niche capabilities that fin-tech firms bring in reaching the un-banked and under-served segments of the populations, not least through alternative lending.

Fin-techs can leverage advances in ICT to pilot and scale innovative process of credit scoring, risk assessment and disbursement of credit. This essentially means easier application processes, use of Big Data for alternative credit scoring, and lower processing time for clients. Recent policy moves such as demonetisation, implementation of GST, and initiatives like UPI have engendered a process of formalisation and digitisation in the economy and, thereby, deepening the digital ecosystem that enables fin-tech to scale. Fin-techs are also in a position to offer customised financial services and products aligned with specific needs, such as working capital and cash flow needs of micro-enterprises, credit aligned with cropping cycles, etc.

Plus, there is massive underutilised scope for value-added products like micro-insurance. However, the new frontiers in financial inclusion represent a set of old and new challenges. These include: persistent low financial and digital literacy; infrastructural hurdles such as low internet penetration and mobile phone ownership; and language barriers.

Nabard survey

A 2018 Nabard survey finds that a mere 11.3 per cent of respondents had ‘good financial literacy’. As many as 43 per cent of those who sought loans and were not sanctioned one, said this was due to incomplete paperwork. This reflects continued difficulties of cumbersome paperwork (including furnishing supporting documents). Similarly, 38 per cent of those who felt the need for a loan did not apply for one, due to anticipated challenges in formalities and procedures. While this reinforces the need for digital procedures, which reduce the burden of complex paperwork, it also shows a sticking problem with financial literacy.

Collateral security (documentation) is also a major problem, which often is caused or compounded by unavailable or inconclusive land records. Progress on The Digital India Land Records Modernization Programme (DILRMP) will be important to watch in this regard.

Requisite infrastructure needs to be in place for digitally driven financial inclusion. While rural tele-density, as reported by TRAI, is still a low 59.05, the monthly growth rates of wireless subscription is 2.84 per cent — significantly higher than the 1.87 per cent in urban India. Half of India’s internet users will be from rural areas by year 2020. But, currently, mobile internet penetration stands at a measly 18 per cent, compared to 59 per cent in urban India. It is, therefore, important that basic infrastructural hurdles are overcome at the earliest.

India is the largest consumer of mobile data. While fin-techs are well-poised to leverage the improving digital infrastructure, scaling fin-tech innovations in a rural micro-enterprise context nonetheless requires a steady increase in infrastructure. The government’s efforts under Digital India will be watched closely on this front.

Also, the ownership and use of mobiles by women will be a key lever to empower them not only through financial inclusion, but also by nudging them to formally and productively contribute to the economy.

Internet use is often driven by entertainment. The potential for converting existing entertainment internet users into digital consumers of business and personal credit is large.

Finally, language is important, particularly with the receding human touch. According to a Google-KPMG report, there were 234 million Indian language internet users in 2016. Moreover, nine out of ten new users up to year 2021 are expected to be local language users of the internet.

This means fin-techs have to be mindful while developing applications, weaving in regional languages not only in app interfaces, but possibly with translation, transliteration, and text-to-speech features. For fin-techs to make a dent in the bottom of pyramid segment, localisation of English language apps will be imperative.

The writer is with IPE Global, an international development

consulting firm.

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