Nov 12, 2021

Financial Inclusion in India

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India is fast becoming one of the biggest financial technology markets in the world and it’s easy to see why. Data from Merchant Machine shows that there are still 20 billion people in India without a bank account. But with around 622 million Indians that use the internet as of 2020, which might even grow to 900 million by 2025, fintech companies are seeing a lucrative opportunity in the country and are forging their ground. 

Growth of fintech in India

While the genesis of the Indian fintech sector started a few years back, 2015 became a formative year for the country due to the emergence of numerous fintech start-ups, incubators, and investments from public and private investors. The rise of fintech became a breakthrough in the country’s cash-driven economy because of increased e-commerce activity and smartphone penetration as well. Since then, some of the leading fintech solutions taking India by storm belong in the categories of digital payments, digital lending, and wealthtech, among other things.

More than half of the 2,100 fintech companies in India in operation today were established in the last five years, with most of them located in Bengaluru and Mumbai. Even in the midst of the COVID-19 pandemic, 33 new fintech investment deals worth $647.5 million in India were made in June 2020, which was significantly bigger than investments made in China amounting at $284.9 million in the same period. India’s fintech market is now valued at US$31 billion and projected to grow to US$84 billion by 2025. 

India is evidently quick with its fintech innovations, partly thanks to the full support of the Indian government towards fintech operations in the country. While India still lacks a single set of regulations that govern fintech products, some of the regulatory frameworks that include fintech operations are the PSS Act, PPI Master Directions, UPI Procedural Guidelines governed by the NPCI, and Payment Intermediary Guidelines.

Moreover, the Indian finance sector has collectively settled with a more collaborative model instead of one that revolves on competition, with banks and non-banks teaming up and fusing their solutions together to help their customers access financial products and services better.

Digital lending for financial inclusion

Digital lending has been instrumental in bridging gaps in the Indian financial sector over the past few years. For instance, individuals and micro, small, and medium enterprises rejected by traditional banking loans now turn to digital lending solutions since digital lending companies ask for less requirements and process applications faster. Data shows that only 10% of Indians have access to organized credit.

Digital lending solutions have also been helpful amidst the pandemic, which created an increased demand for credit in the country.

Because of this growing demand and its clear role in promoting financial inclusivity, digital lending has become one of the fastest-growing fintech segments in India, growing exponentially from US$9 billion to nearly US$110 billion within a seven-year period. To keep up with this growth, regulatory bodies in India are working to modulate digital lending activities.

Just early this year, the RBI created a working group to study the aspects of digital lending activities, such as those done in online platforms and mobile apps, in the regulated financial sector and activities led by unregulated players. According to the RBI, digital lending can potentially make access to financial products and services more fair, efficient and inclusive. From only fulfilling a supplementary role in finance, digital lending now sits at the core of the design, pricing, and delivery of finance solutions.

As digital lending rises in popularity, alternative credit scoring methods rise in parallel as well. Borrowers, such as small merchants like kirana store owners, who have been denied loans due to their lack of credit history rely on alternative sources of data—such as their utility payment profile, location data, and assets ownership—to get real-time credit scores and, eventually, small-ticket loans.

The use of alternative sources of data, which then empowers alternative credit scoring methods, comes from the rapid embrace of digital payments in India as well. Ultimately, the increase in the usage of digital data points is further widening the scope for alternative lending in the Indian market.

What do these stats mean for you?

As access to traditional credit and loans become harder and harder to attain, digital lending and alternative credit scoring solutions are stepping in to promote financial inclusion in India. With its technology, Credolab can help new lenders and creditors in India speed up their credit processing operations and improve their credit risk management, all while protecting the data of their customers. Thanks to technology, more unbanked people in India will finally be able to achieve their financial goals.