“Adaptation is not limitation, it means the power of resistance and assimilation” – Mahatma Gandhi
This is how India need to follow the strategy to use the fintech to its full potential, that is, by not getting afraid in adapting the technology. The literal meaning of fintech is computer programs and other technology used to support or enable banking and financial services. The amalgamation of finance and technology in order to have a wide range of financial services by non-financial institutions, is widely recognised as fintech, which has discovered to subjugate the global finance. Now the question arises how this technical know-how in finance helps in getting the whole population access to finance. This means how ‘fintech’ help in accelerating the process of ‘Financial inclusion”.
Financial inclusion is the delivery of financial services at affordable costs to sections of disadvantaged and low income segments of society. The main objective of financial inclusion is to promote sustainable development and generating employment in the rural areas. Basically it means providing financial services at grass root level. Amongst India’s rural poor, 70 percent of marginal/landless farmers do not have a bank account and 87 percent have no access to credit from a formal source. The Rangarajan Committee (2008) had estimated that around 41% of the population in the country is unbanked, 61% in rural areas and 40% in urban areas. Out of the 6 lakh villages in the country, only about 10% have a commercial bank branch. The proportion of people having any kind of life insurance cover is as low as 10% and proportion having non-life insurance is an abysmally low 0.6%. People having debit cards comprise only 13% and those having credit cards only 2%. Further, the National Sample Survey Organization has reported a meager 18 percent of the poorest households availing institutional borrowings (NSSO, 2006). The Index of financial inclusion (IFI) for India is as low as 0.2 (range of values of IFI lie between 0 and 1, 0 indicating complete financial exclusion and 1 complete inclusion).
In India, research indicates that women are largely financially excluded in comparison to men. The Global Financial Inclusion (Global Findex) Database suggests that only 26% of female adults in India have an account with a formal financial institution compared to 44% of male adults (World Bank 2014). The recent census of India (2011) stated that financial inclusion in a country like ours with large population and geographical spread is, indeed, challenging. The data released indicates that only 58.7% of households in India avail of banking services with the figure being 54.4% for rural areas and 67.8% for urban areas. But still In India also, financial inclusion has been a national priority agenda for the Government of India over the last decade.
Since 2005, the Reserve Bank of India (RBI) and the Government of India (GOI) have been making efforts to increase financial inclusion. Measures such as SHG-bank linkage program, use of business facilitators and correspondents, easing of Know Your Customer (KYC) norms, electronic benefit transfer, separate plan for urban financial inclusion, use of mobile technology, bank branches and ATMs, opening and encouraging ‘no-frill-accounts’ and emphasis on financial literacy have played a significant role in increasing the use of formal sources for availing loan/ credit. Measures initiated by the Government include, opening customer service centers, credit counseling centers, Kisan Credit Card, Mahatma Gandhi National Rural Employment Guarantee Scheme and Aadhar Scheme. These renewed efforts are more focused than the earlier measures which were more general in nature having a much wider scope. Though the measures were initiated earlier, their impact on the rural population needs to be analysed and reframed in order to understand the present scenario in the rural areas. “Financial Inclusion is at the core of the Government’s focus” which is to create job-creators, not job-seekers,” said by Prime Minister Narendra Modi. Recently, Modi Government facilitated the opening of 185 million bank accounts, so that every household have full access to Banks. PradhanMantri Jan DhanYojana (PMJDY), one of the biggest financial inclusion initiatives in the world launched by PM Narendra Modi which aims for the liberation of the poor from vicious circle prevailing in the Indian society.
Financial Inclusion & Fintech
Fintech is visualised as one of the tools that is probably going to revolutionize the banking industry and financial sector. Fintech has gained the world-wide recognition as the technology that would strengthen the country to compete effectively in the 21st century.
Government of India has extensively used the fintech like automated teller machine (ATM), internet banking, international electronic fund transfer, mobile banking etc. The biggest driving force towards financial inclusion using fintech generated from the diffusion of ‘JAM’ as articulated in Economic Survey 2015-16. These are Jan-dhanYojana (JDY) accounts, Aadhar universal and Portable identity and Mobile phones. These are briefly described as ;
Jan-Dhan Yojana accounts:
Following the announcement of JDY by Prime Minister NarendraModi in 2014, to date, there are more than 26 crore JDY accounts, with a combined balance of over `1 lakh crore. The JDY accounts require zero minimum balance, and have insurance and overdraft facilities linked to the account. The know-your-customer (KYC) requirements for JDY accounts uses the Aadhaar mechanism.
Aadhaar cards: More than one billion Indians have been issued a unique biometric identity. The Aadhaar database is under public ownership, and the Aadhaar system provides free and instant authentication of identity and also online KYC. This free authentication is its unique and most potent innovation. It is a public good. The Aadhaar system is designed to handle 100 million simultaneous requests for authentication. With free authentication enabled by smartphones, the transaction cost is substantially eliminated.
Mobile phones and smartphones: Smartphone users are estimated to be 750 million by 2020, up from around 150 million in 2015. Phones with integrated Aadhaar compliant iris (biometric) scanners are already in commercial use.
Other developments are the adoption of the Unified Payment Interface (UPI) and cashless/ electronic transactions. The UPI is a payment system that allows money transfer between any two bank accounts by just using a mobile phone, which may or may not be a smartphone. UPI allows a customer to pay directly from the bank account to different merchants, both online or offline, without the hassle of credit card details, netbanking or wallet passwords.
* According to Fintech trends report 2017, India offers the highest expected return on investment on FinTech projects at 29% versus a global average of 20%. So from this we can see that there is an emerging need to invest more on this technology so that more employment opportunities could be created.
* Credit is an essential need of the population. The marginalized group since ages has been excluded from the formal system of credit. The one of the prominent reason is the lack of credit worthiness on the part of the customer. The digital payments environment creates transaction history of customers so credit worthiness can be evaluated. So it is urgent to strengthen the online payment system in India and also there is need to control the cyber fraud in financial online transactions by creating more vigilant supervision to mitigate and eradicate this problem.
* Also there exist some gaps in payments, credit, saving etc. These loopholes and gaps need to be efficiently bridged by incorporating ‘Fintech’ agenda and directing country’s monetary policy towards this agenda.
* It is rightly said that, “Where there is a will, there is a way”, so unless and until we will not educate the population, we won’t be able to make the citizens to get comfortable with the technology. The immediate need is to reform our country’s education policy.
(The author is a student of M.Sc Economics in SMVDU)