With a burgeoning population of more than 1.3 Bn, India is at the doorstep of becoming the most populous country in the world. Yet a large section of this population remains unaware and often, with no access to basic services. One such category is banking.
Over the years, we have seen more activities in the banking and credits sector, with the effort to reach these sections of society. There have been massive efforts to expand the scope of financial inclusion, driven with strong policy and regulatory measures. However, the outcome of these is yet to deliver optimum results. With access to banks and digitization taking over, the scenario has certainly changed from what it was a decade ago.
Even though with widespread reach, the banks haven’t been able to extend more than basic financial services to most sections. There is a need to look at more alternatively, more actively, for more time for financial inclusion. India continues to add 100 Mn smartphone users every year in the market.
The online payments present a huge business opportunity as the market is now worth $200 Bn and is expected to reach $1 Tn in 2023 according to Credit Suisse. Global giants such as Google, Amazon realise this market potential for India and are jumping in the market opportunities through various platforms.
This is so because there are one billion users who are yet to access or adopt to online payments. Further, around 70% of our total population remains underserved by institutional lenders.
One would ask why is that is so? With organised banking set up, that consists of traditional players across public and private segments hasn’t been able to achieve complete financial inclusion. These players follow credit assessment methodologies that allow collateral-based lending.
A vast country like India requires a system that utilises different channels and intermediaries for untapped financial inclusion. The focus needs to provide basic financial services to the most inaccessible sections at the lowest cost as possible.
For this “unbanked” population, experts believe that NBFCs, could be used to exploit this business opportunity. For the last few years, we have seen that NBFCs credit growth has been around 30%, sans the scenario of the current liquidity crisis.
The sector needs a push, in terms of cash flows which will certainly propel rural credit and greater financial inclusion in the rural segment. This will be key to spur cash flow and employment in the rural economy. In the long run, for financial inclusion to be successful, one needs a more low-cost model that allows last mile connectivity which NBFCs have the potential to cater to.
They provide a better and wider access to credit, something a regular bank doesn’t find viable. Imagine a rural family living in some remote district of Bihar. For this family, easy access means credit in an emergency or time of need, or even support with expenses like college tuition fees for children. NBFCs work towards bringing more individuals and businesses with a much larger geographical purview.
Their staff works with customers, reaches out to them for personal assistance and invests in making them more independent on they should be using their funds.
These corporations work with the most underprivileged sections, that don’t know how to manage their funds. Running formal and informal programs on managing funds and credit system is also a part of their operations to overcome the gap of financial literacy in these communities.
NBFCs act as their safety net, provide this ease of doing business through newer fintech models that were not possible earlier. With digital payments gaining widespread acceptance, the NBFCs have an edge to extend loans and help livelihoods, not just for a business or community but for individual ventures as well. It is heartening to see how NBFCs are heading into this direction, one such example being a smartphone-based fintech model, and providing more exposure to rural and semi-urban communities.
One can say that the role of NBFCs bodes well in for the nationwide financial inclusion. Their specialisation in accessing to remote sections and wider community reach is certainly key to resolve issues of lack of working capital for rural families. At this juncture, these organisations need policy support to help strengthen the rural economy and enable optimum use of funds. A concrete push from the government to push these corporations is what we feel will set the ball rolling for the economy and increase consumption.