By HP Singh
It is a fact that India has the highest fintech adoption rate in the world, making it the global epicentre of the digital finance revolution. The Indian fintech market, currently the third largest in the world, is projected to ascend to a staggering US$1.3 trillion by 2025, sustaining a phenomenal CAGR of 31%. In the ever-evolving financial domain, two formidable forces have risen to reshape the landscape— Microfinance Institutions (MFIs) and Fintechs & Non-Banking Financial Companies (NBFCs). The key to transformative financial progress lies within their collaboration, creating a ‘win-win’ version where the specific and complementary strengths of all entities come together to create ecosystems that deliver a seamless financial services experience to clients across all social strata.
MFIs: Bridging Gaps with Deep Community Ties
MFIs have been unwavering champions of financial inclusion, especially in India’s diverse and underserved landscape. Their strengths lie in their grassroots understanding, robust network in remote areas, and the trust they have painstakingly built within local communities.
- Personal Connection and Last-Mile Reach
One of the most compelling aspects of MFIs is their personal connection and last-mile reach. MFIs have a distinctive advantage when reaching individuals in rural and underserved areas. Recent data from the Microfinance Institutions Network (MFIN) reveals that MFIs in India have been serving over 100 million borrowers, a testament to their far-reaching impact.
- Tailored Financial Products
Moreover, MFIs excel at crafting financial products tailored to the precise needs of their clients. This bespoke approach is invaluable for small business owners and entrepreneurs, who often require flexible and accessible financial solutions that cater to their unique circumstances. A survey conducted by Sa-Dhan, an association of community development finance institutions in India, found that 93% of respondents reported an increase in business income after availing MFI loans.
- Effective Risk Management
Another critical strength of MFIs is their effective risk management, which extends beyond community bonds. Through close community bonds and other regular interactions, MFIs have honed a robust mechanism for risk mitigation. However, their ability to closely monitor borrowers’ activities and provide timely support significantly reduces the likelihood of defaults. As per the RBI, the gross non-performing asset (NPA) ratio for MFIs stands at a mere 0.59%, showcasing their adeptness in managing credit risk.
Fintech Firms & NBFCs: Pioneers of Technological Innovation
On the other side of the financial inclusion spectrum are Fintech firms, which have reshaped the economic services landscape by leveraging cutting-edge digital solutions. In this ecosystem, NBFCs play a pivotal role, connecting the traditional and digital worlds.
- Digital Infiltration and Development
Fintech companies have elevated their digital penetration and innovation. Utilizing the power of technology, they provide innovative solutions which have revolutionized the accessibility of economic services. According to data from the Indian government, digital payments in the country witnessed a remarkable 55% growth among 2018 and 2020, highlighting the accelerated adoption of fintech-driven solutions.
- Data-Driven Decision-Making
Financial technologies rely upon records-driven selections. They leverage massive data analytics to assess creditworthiness rapidly and efficiently. This data-driven approach expedites mortgage disbursements and expands their scope. According to a study by PwC, fintech-driven credit in India will develop at a CAGR of 22.7% among 2020 and 2025.
- Enhanced Customer Experiences
Additionally, fintechs prioritize improving the patron experience. They are designed with the person in mind, turning in a continuing and user-friendly experience. Mobile banking applications and virtual payment systems have become integral to the daily lives of millions. In a survey by Ernst & Young, 68% of Indian consumers reported that they are satisfied with their fintech experiences.
The Path to Synergy: How MFIs and Fintech Firms Join Arms for Financial Inclusion
Collaboration between MFIs, Fintech Firms, and NBFCs is the catalyst for financial inclusion in India. By synergizing their strengths, they’re enabling swift, accessible, and personalized financial services, which are already transforming the landscape. This partnership has led to holistic reach, with MFIs’ deep-rooted community presence complementing Fintech and NBFCs’ digital prowess, extending services to remote areas. Efficiency is redefined as Fintech-driven innovations streamline operations, accelerating loan processing and enhancing risk management. Tailored solutions, a fusion of MFIs’ personalized offerings and Fintech and NBFCs’ data-driven insights, offer flexibility to borrowers. Legislative support ensures a fertile ground for financial innovation. Looking ahead, this collaboration promises deeper financial inclusion, continuous product innovations, tech-driven financial literacy, robust digital identity solutions, and the creation of seamless financial ecosystems.
The Bottomline
As we navigate the ever-evolving landscape of financial inclusion in India, it becomes evident that the ‘symbiotic alliance’ of MFIs, Fintech companies, and NBFCs holds the key to unlocking the full potential of inclusive growth. These formidable forces, with their unique strengths and collaborative spirit, are poised to propel India’s journey towards a US$ 5 trillion economy. As they join arms to bridge gaps, reach the underserved, and innovate relentlessly, the resounding answer to the question of whether Fintechs can thrive in collaboration with NBFCs is a resounding “Yes.” Together, they not only augment each other’s capabilities but also empower millions, ensuring that financial inclusion in India is not just a dream but a dynamic reality.”
The author is chairman, managing director, Satin Creditcare Network Limited
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