By Dilip Modi
Credit and finance for MSMEs: Rural India is home to almost 70 per cent of the population of the country. Together, the sectors that make up the rural economy in India generate close to 50 per cent of the country’s GDP. However, for decades, the hinterlands of India have remained outside the ambit of rapid progressive development that has been the norm in urban areas. With the advent of technology, ease of living, ease of conducting business, infrastructure, etc, have evolved and grown in the urban sectors while the rural ones, for lack of inclusivity, lagged visibly behind.
However, the overall rural ecosystem has been undergoing dramatic change over the past decade. With a significant push from the government and the emergence of private players, significant strides have been taken towards inclusive growth, with monumental improvements in physical infrastructure, connectivity, and digital infrastructure. Due to a constant drive for Aadhaar enrollment, as of March 2021, 1.3 billion Indians had been enrolled with an Aadhaar ID.
Around the same time, the country witnessed a steady 30 per cent average annual growth in rural smartphone and internet penetration. The usage of smartphones increased too, as a result of the massive decline in data prices, with multiple operators offering low-cost data. The pandemic too played its part, reducing standard social exchanges online, thereby pushing not just the urban, but also the rural population to explore online avenues more frequently, further boosting smartphone and data usage and adoption.
Even though the rural sector still grappled with the problem of access to various essential services, developments over the past decade gradually created an environment in the hinterlands that was conducive to rapid inclusive innovation and growth. This is where rural fintech players stepped in, aiming to bring in inclusive growth, by bridging the existing rural-urban divide that was more evident than ever during the times of the pandemic, with the help of technology and solutions that were customised to address the specific needs of the sector.
Fintech players realised early on that even though there was a now-abundant supply of data and affordable smartphones, there was a lack of digital education which made the rural population reticent towards actively adopting digital solutions that were already popular in urban centres. In order to address this reluctance and keep in mind our country’s tremendous diversity, these new-age startups turned to a phygital approach. They on boarded aspiring small business owners in their network and trained them in digital and financial tools to reach the last mile of the country, while simultaneously providing employment and additional income opportunity.
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Essential financial services were scarce in rural India, and the traditional banking system hindered operational costs to effectively provide these services across the hinterlands of Bharat. Basic facilities like ATMs were few and far between, averaging one for every ten villages. Now, armed with digital and financial tools, local business owners from these fintech networks provide services like online payments, bill payments, and cash withdrawals via modes like AePS, mATM services etc. to citizens of their communities. mATM networks created by fintech players easily surpassed traditional avenues, reaching the farthest corners of the country. Since these small business owners / merchants were part of local communities, the issue of trust, as well as barriers of language and culture were taken care of.
While UPI, the app-driven digital mode of payments gained extensive traction across the urban regions, AePS, or Aadhaar enabled payments services, a biometric driven payment system based on unique Aadhaar IDs linked to bank accounts, witnessed phenomenal growth in the rural sector. According to NPCI (National Payments Corporation of India), Aadhaar number-based AePS transactions stood at 102.66 million in September, as against 105.65 million a month earlier. In July, there were as many as 110.48 million AePS transactions.
Similarly, with the GoI-backed Online Network of Digital Commerce (ONDC), the hinterlands of India are set to witness the democratization of e-commerce as well. Small businesses are set to gain greater discoverability and visibility that were hitherto out of reach due to high charges and commissions on established e-commerce platforms.
The rural economy now stands poised to undergo more inclusive growth, with persistent efforts from the government as well as rural fintech players. Having made significant inroads on the basic financial services front, fintech players are stepping up the game by making available more innovative digital products such as digital investment options, digital healthcare, and e-commerce. All of these innovations in the rural sector are set to ultimately culminate in the overall growth of the economy and contribute significantly towards hitting the $5 trillion mark in the foreseeable future.
Dilip Modi is the Founder of Spice Money. Views expressed are the author’s own.