Climate – another new-age risk for financial inclusion

Financial inclusion just got more complex than ever before

Photo Credit: Varsha Deshpande/Wikimedia,

Just after the excessive heat of a prolonged summer, we have the devastation caused by extreme rain across parts of North India. Climate change is here, and low-income households are bearing the burden disproportionately. A survey of Pahal Microfinance borrowers in Uttar Pradesh and Bihar point to increased stress due to climate change. Clearly, we need to reorient our policies, financial products and services to address these new risks. At Indicus, we have made a made a beginning to integrate the emerging climate risks with our work in financial inclusion. Pranav Kumar and I have written a short article on heatwaves and resilience through financial inclusion. We make the point that it is high time that government and industry broaden the conversation on financial inclusion across solutions in the form of benefits transfers and financial products to deal with climate risks.

Meanwhile we continue to grapple with basic challenges of extending access to and usage of all financial services and implementing effective customer protection. RBI Deputy Governor T Rabi Sankar recently made some very pertinent points while talking on the impact of fintech on financial inclusion. He noted that fintech innovation has worked to enhance the delivery of financial products, but the products being delivered remain the same as before. Innovations, he said, should be responsible and will be “even more beneficial if they address actual challenges faced by people in their day to day lives”.

There are two other articles that substantiate this point of the unfinished agenda of financial inclusion. One is by Arshi Aadil and Mahima Dixit highlighting the need to use data and effective grievance redressal mechanism to design better products for women such that access and usage improves; the second is by Priyadarshini Ganesan and Sowmini G Prasad on the many customer protection issues like mis-selling that continue to plague life insurance  services and products for low-income households.

While the Deputy Governor has spoken specifically to fintech, the point on innovating through responsible finance does apply to the financial sector as a whole. Mayada El-Zagbhi talks of breaking this cycle of insanity where we “continue to see the same old risks, and new risks are constantly emerging — yet our toolbox is not keeping up.”

When it comes to responsible finance, industry associations also have a role to play through monitoring the market, identifying consumer risks etc. Research on global best practices by Olga Tomilova, Juan Carlos Izaguirre and Eric Duflos showcases many examples, including from four associations in India. While most associations have framed codes of conduct for ethical principles and responsible finance standards, their implementation and enforcement are often lacking. Interestingly of the 23 associations surveyed, just one in Peru took up pricing disclosure publishing links to websites of their members with pricing information on their services. When associations take up measures towards increasing transparency, it creates healthy competition and improves trust in the entire industry.

Trust in the system and effective customer protection can also come through collective action and collaboration across the multiple stakeholders. Nowhere is this more visible than the case of digital lending apps where action goes beyond the financial regulator RBI, which released guidelines for its regulated entities, to action by app platforms like Apple and Google, local police (see recent request from Bihar Police), the Ministry of Electronics and Information Technology (MEITY) and so on.

And when we add climate risks to the equation, the complexities increase to cover more layers of government (central/state/local, ministries and departments (finance/environment), regulators(banking/insurance), industry players(banks/fintech/NBFCs/insurance), civil society etc. It is sobering to realise that even as India has made such impressive strides in extending banking access, DBT and digital payments infrastructure, financial inclusion just got more complex than ever before.

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Do follow our Indicus Centre for Financial Inclusion page on Linkedin to continue the conversation. Read on here for more of the latest news and views on financial inclusion in India, thanks!

• Eric Duflos, CGAP discusses recent findings on consumer risks and how to address them: “Why We Need a Responsible Digital Finance Ecosystem”.

• Mary Ellen Iskenderian, Women's World Banking and Graham Macmillan, VISA FOUNDATION highlight what the G20 and its constituent governments need to do to ensure that fintech expansion serves women.

• Anand Kumar Bajaj, PayNearby explains Distribution-as-a-Service (DaaS), which holds the key to unlocking sachet loans for India’s underserved or new to credit (NTC) population.

• ReBIT (Reserve Bank Information Technology Pvt. Ltd.) added GSTN as a new Financial Information Type under the AA Framework. With this move, GSTN can be expected to go live on the AA Framework soon.

• Neeraj Sahai and Arun Singh, Dun & Bradstreet write on lessons from global experience for raising credit to MSMEs.

• Geeta Goel, Michael & Susan Dell Foundation and Sharon Buteau, at Krea University write on financing nano entrepreneurs in India.

• Urvashi Sharma brings out industry views on whether fintech regulation is stifling innovation in India. Anand J does a roundup of various views on the latest FLDG guidelines from Reserve Bank of India (RBI). Mayur Shetty brings views on the recent FLDG guidelines from fintech representatives.

• Jiji Mammen, Sa-Dhan Association writes on how microfinance works towards the next step after financial inclusion - financial health of households.

• Magda Bianca, CFIAccion, outlines priorities for responsible finance.

• Nisha Singh and Gayatri Murthy, CGAP write a blog post on the challenges that women face on gig platforms, identifying three barriers.

• SIDBI(Small Industries Development Bank of India) CMD S Ramann reflects on how digital means are letting the government-owned lender reach more greenfield MSMEs.

• Prerna Saxena & Kanta Singh (respectively, head of Asia-Pacific, United Nations-based Better Than Cash Alliance, and deputy representative, India Country Office, UN Women) write on how gender transformative DPI is poised to accelerate an inclusive digital transformation, empowering women to manage their resources and make independent financial decisions.

• Arshi Aadil, MicroSave Consulting, has a blog post out highlighting the numerous barriers that contribute to the exclusion of vulnerable populations from accessing social protection benefits.

• Leena Datwani, CGAP writes on India’s robust digital public infrastructure (DPI), called India Stack which includes its United Payments Interface (UPI) and Aadhaar (India’s universal biometric identification system), supporting viable business models and innovations in credit, insurance, and a host of financial services products for harder-to-reach segments like gig workers.