By Sabyasachi Goswami
India today stands at a crossroads, with its socio-economic and geopolitical resolve being increasingly acknowledged on the global stage and home front alike. As the Nation passed the 77th annual milestone of emancipation from foreign dominance in 2023, its aspirations are rightly embodied in the vision of Azadi Ka Amrit Kaal: a clarion call upon 1.4 billion Indians to help the country reach a higher state through sustained excellence in all spheres of individual and collective efforts over the next 25 years.
Indeed, with the ethos of Atma Nirbhar or self-reliant Bharat rekindling the audacity of hope in India’s shared mindset, the goals apparently look well within reach. Nevertheless, this piece seeks to advocate that ensuring universal financial well-being for both individuals and institutions is an indispensable pivot for enabling the future that India envisages for her people. But, the paradox in a country where 90% of citizens have bank accounts, but merely 14% of MSMEs have access to credit insinuates that there remains a rather extensive ground to be covered!
But what does this gap at the bottom of the country’s socio-economic pyramid mean for India’s growth story? More importantly, can it possibly derail the constitutional commitment to securing a welfare state for the present and future Indian generations?
Alongside agriculture, the MSMEs are the engine of progress and the pulsating heart of India’s nearly $4 trillion economy. While accounting for 30% of the national income, the businesses in this sector also contribute to 45% of the country’s exports at present.
However, besides their overarching economic significance, a paper titled “Policy Brief: The Role of Micro-Small and Medium Enterprises in Achieving SDGs” by the UN also points out that the social implications of MSMEs worldwide are more than just speculative. It is no different for India, where such businesses have employed over 110 million citizens, with their earnings having a multiplying and transformative effect at the grassroots, enhancing disposable income and driving upward social mobility.
Notably, the absence of simplified and on-demand access to credit and broader financial services by mid-tier and small businesses puts that proposition under siege. It risks undercutting India’s sustainable and inclusive development within the next two and a half decades below its actual potential! For instance, nearly 51 million MSMEs currently lack access to formal credit, many of them turning to informal lending channels. Joint research by Omidyar Network and Boston Consulting Group found that at least 40% of Indian MSMEs are compelled to access the informal credit market, where the interest rates are 2.5 times higher than average. A case in point, this paper recorded community lending interest rates to be as high as 120% in some parts of Eastern India!
The challenges of MSMEs, who are primarily thin-file applicants, to access formal credit can be recounted as many, including small ticket sizes, incomplete documentation and lack of collateral. India’s existing credit access equation is degenerating both profitability and equity of income at the institutional and individual level which can otherwise translate into better healthcare, education, nutrition, and livelihood opportunities for the citizens.
However, it also doesn’t mean a complete state of stagnation. It goes to the obvious credit of the current government to firmly plant the seeds of perception towards a need for inclusion into India’s financial services landscape and formulate policy actions to pry open its doors for all.
From launching of Pradhan Mantri Jan Dhan Yojana in 2014 to empowering every Indian with a bank account, PM MUDRA (Micro Units Development and Refinance Agency) scheme in 2015 for small businesses to more recent PM SVANIDHI (PM Street Vendors AtmaNirbhar Nidhi in 2020 to shield street vendors from the financial fallouts of the pandemic, the government’s push towards financial inclusion has been consistent, meaningful and indicative.
Although the schemes are yet to reach their desired potential due to several factors, the government’s intent behind them is not lost on India’s over 3000-strong fintech community that has come of age to take over the task of steering financial inclusion in the country to promote socio-economic wellbeing at India’s socio-economic rock bottom.
What India’s fintech sector and non-profits can achieve with the proper policy assistance and nurturing is well documented by the success of India Stack – a brainchild of the think tank iSPIRT launched in 2010. India Stack is embarked on a mission to democratize data and make nationwide seamless payment transfer a reality. As part of its identity layer, it brought Aadhar into existence and eventually scaled it into the world’s most extensive biometric system, attaching a digital identity to every Indian for easy authentication and consumption of public services.
A total compilation of 200 APIs has enabled banks and other financial institutions to onboard customers in minutes and 2.5B of such verifications have been completed. The country realized the Unified Payments Interface as India Stack’s payments layer, a home-grown, mobile-based payment system without a parallel anywhere else. It can tightly bind money custodians, payment switches, and front-end applications, making fast and intermediary-free money transfers possible for every Indian citizen and institution.
The transformation has been spectacular and empowering, particularly for small businesses, reimagining how they handle customer payments. Notably, a tweet by NPCI CEO, Dilip Asbe, called out the positive shift, observing that today, a street vendor in India can accept credit money and be part of the credit ecosystem using UPI.
In 2020, a little after independent India turned a septuagenarian, it realized the data layer of India Stack through the Open Credit Enablement Network (OCEN), launched at the Global FinTech Festival that year.
As a common set of standards and APIs that enables digital handshakes between lenders, businesses, and marketplaces, it seeks to expand the credit delivery channels and embed them into the daily experience of every Indian, replacing the overly bureaucratic and archaic approaches to conventional credit underwriting that often drives MSMEs into the exploitative arms of informal loan sharks. Indeed, Nandan Nilekani, the eminent visionary at OCEN’s launch, was almost prophetic – “India needs to go that extra mile in offering credit to the most deserving, small businesses and individuals.”
This year, with the long pending Digital Personal Data Protection bill becoming an act, India has taken a resolute step in the right direction. Upholding the right of Indian citizens over their personal information and establishing a system of its consent-based usage, the act only solidifies the proposition of OCEN to ensure reliable underwriting of credit and its fast disbursement. Indeed, open credit enablement as an idea is designed to be an agency of India’s credit underserved like the MSMEs and is intended to bring India’s next 500 million into the warm folds of financial inclusion where hopes can thrive, and aspirations can shore.
But is it a forlorn concussion? Apparently not! Because from Aadhar, UPI to OCEN, India Stack has acted as a catalyst, merely setting the foundation necessary to bridge India’s enormous credit gap that has remained unaddressed for nearly six decades, engulfing dreams and ambitions of communities together at times.
While the past cannot be changed, the upcoming chapter in India’s financial inclusion running over the next 25 years will be what we make it out to be, and fintech will have a rather definitive role to play. As the die is cast on what Bharath should look like at 100 for its citizens and businesses, it is the moral responsibility of the Indian fintech community to no longer restrict its role as the provider of finance automation or user experience.
Instead, it needs to be the custodian of financial well-being and the thread connecting India’s financial institutions with those standing at the end of the line. Its transformed accountability demands not only sustained technology innovation and product designs like always but also to be a conduit for financial literacy and policy inputs for the regulators, ensuring that the deserving, regardless of their socio-economic status, have adequate access to credit.
While this is a tall order, the industry peers are more than ready to deliver on the objectives. As an equal and empowered stakeholder alongside India’s financial institutions, the country’s fintech community is prepared to be kinetic, bringing the best of its capability and bearing upon the financial inclusion mandate, drawing a rightful resolution to the nation’s long-standing credit access dilemma.
Sabyasachi Goswami is the CEO at Perfios. Views expressed are the author’s own.