Digital lending: Now more than ever we need fintechs to democratise credit, uplift livelihoods

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. It mentioned that "geography and gender are the biggest drivers of inequality, which can be addressed with smart policies built around digital technology that improves both the quality and reach of government services".  

The report also 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 and increased the reach of services. 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. The scheme 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 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 of innovation globally, and can change our current status around "unbanked" and "under-banked".

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Democratisation of credit through digital lending.

Access to credit is limited in India and needs to be urgently worked on to improve it. With more keypad literate Indians than literate ones now, with wide availability of mobile services along the length and breadth of the country and with lower-priced internet access, digital finance never looked better before.  

The basics of financial inclusion are to make sure consumers have access and choice of products that suit their needs. 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.

The conventional finance industry, by using digitisation of its processes, benefits from quicker and robust decision making, operational efficiency, and a better quality consumer experience. Financial services have traditionally been a distribution-led business with dominant physical presence. The high cost of fixed assets in traditional banking and other financial services sectors and licensing norms make the entry into the sector a tough one.  

Digital finance firms carry no legacy baggage or costs and use data as the gospel truth - the basis of financial decision making 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.

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Financial Inclusion, not a platitude

Financial inclusion has been the focus of the government's 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.  

Fintech players have been focused on bringing differentiated finance products to the market. They have been working with financial services brands for the past few years and the experience has paved the 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 the availability of finance from FinTech platforms. Some of the platforms also cater to the crucial MSME & SME sectors.  

Dealing with Bad apples  

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

Like any other industry, the fintech sector of late has seen 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 finances or lack of finance. Data protection, responsible fiscal behaviour by lenders, transparency of information are amongst those non-compromisable aspects sought from the industry.

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The lending industry, along with the digital platforms need to work with our regulators to ensure that consumers are not victimised by 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 a greater number of incidents in the formal finance sector that have hurt consumers than the anecdotal cases around digital finance so far. So, let's not besmirch the digital sector.

As we encourage consumers to go digital, we need to strengthen their belief in grievance redressal. 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.  

(Srinath Sridharan, Independent markets commentator and Member of Governance Council for FACE & Akshay Mehrotra, Fintech entrepreneur, Co-Founder & CEO of EarlySalary and Co-Founder of FACE (FinTech Association for Consumer Empowerment.)