Digital Payments, Lending to Blockchain: Research Identifies Top 10 Investment Ideas for Financial Inclusion

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Updated: October 19, 2021 11:29 AM

Digital Payments, Digital Lending, Insurtech, Consumer Savings Products and Blockchain are some of the top 10 investment ideas for financial inclusion and inclusive growth identified by a research report - Investing for Impact: BFSI, Financial Inclusion and FinTech.

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Digital Payments, Digital Lending, Insurtech, Consumer Savings Products and Blockchain are some of the Top 10 investment ideas for financial inclusion and inclusive growth identified by a research report – Investing for Impact: BFSI, Financial Inclusion and FinTech. The report was recently released by Aspire Circle in an online event. Other investment ideas were Digital Invoice Discounting/Factoring, Digital Finance Ecosystem Actors, Neo-Banking, Agtech funding platforms and Impact Bonds.

The researchers highlighted that the top 10 emerging investment themes in the sector can collectively attract $150 billion in investment and $350 billion in revenues by 2030 with the potential to create 8 million jobs and impacting 1.1 billion lives.

In an e-mail interaction with FE Online, Amit Bhatia, Founder of Aspire Circle and Creator- Impact Future Project, shared details of the report and how investment can make financial inclusion a reality in In India. Excerpts:

How investment is financially feasible for making financial inclusion a reality in India from investors’ standpoint

India’s BFSI, Financial Inclusion and FinTech sector combined as the overarching Finance Sector attracted USD 9 billion in new annual investments and generated USD 184 billion in annual revenues in 2020.

While traditional commercial banks through priority sector lending have been in operation for decades with Jan Dhan Accounts and Direct Transfer Schemes making more recent appearances contributing to the cause of financial inclusion, it is the Micro Finance Sector, NBFCs, Small Finance Banks, Digital Payments, Digital Lending and NeoBanks which are in the vanguard of the Financial Inclusion movement.

This is eminently feasible as brought out in India’s first Impact Investment Returns study which we conducted in partnership with McKinsey in 2016, a study that I personally commissioned as the Founding CEO of India’s Impact Investors Council. In that study, we had found that Impact Investments in India return 10% IRR (after adjustment for INR depreciation), with the top tercile exits returning 34% IRR.

Clearly, the poor make great customers – not to be exploited – but for their potential to be realised for themselves and the nation. There is no surprise that stressed assets of Indian Banks, as per S&P, will be 11-12% in fiscal 2022. Compared to this, the NPAs for micro finance have been close to 2% through much of the last decade! This highlights the promise of Impact Investment for Financial Inclusion in India.

How these ten themes can spur a country-wide movement for financial inclusion in India

The Impact Movement, which has grown globally to $49 trillion, as per Global Sustainable Investment Alliance (GSIA), is an unstoppable trend. We estimate that India has attracted only ~1% of this global capital pool. As such, India Inc. must embrace the Impact movement with more vigour and a greater sense of purpose. The fundamental problem lies with the lack of an alignment between the corporate and the impact movement, as there is no mandatory Impact Reporting. The recent government decision to increase mandated ESG (Responsibility) & Sustainability Reporting from the top 500 to the top 1000 companies is a welcome step, but not enough. We need distinct ESG (Responsibility), Sustainability & Impact standards and strategies to spur an Impact Movement in India. And, Financial Inclusion/FinTech, Renewable Energy/CleanTech, EdTech, HealthTech and AgTech, among others, will lead this movement.

According to the World Bank, around 190 million adults in India still do not own a bank account. This is despite the unprecedented growth in financial inclusion in recent times. Since 2014, more than 330 million Indian adults have joined the formal financial sector. At 87%, India has the highest FinTech adoption rate among all emerging economies. With over 2,500 FinTech startups, India is the second-largest Fintech hub in the world delivering a return of 29% against the global average of 20%. Moreover, 70% of India’s FinTechs are into Digital Payments and Digital Lending. We must harness this momentum to build a greater Impact Movement!

Already, Financial Inclusion impacts 750 million in India and as per our research can exceed 1 billion Indians by 2030, when India’s population would likely cross 1.5 billion! Given the opportunity offered by key investment themes such as Digital Payments, Digital Lending, InsurTech, Consumer Savings Products, Digital Factoring and Neo-Banking, we should as a nation, create an enabling environment for impact entrepreneurship to help India truly become an Impact Republic.

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