It took us 10 years!
India’s financial inclusion mission has a fresh breath of life as a long-standing fundamental issue is finally being addressed - that is, the viability of the business correspondent network. And for us at Indicus, this news couldn’t have delighted us more! We have been focusing on this critical gap repeatedly for more than a decade now (read ICFI policy briefs from June 2014 and March 2015 to name just two), we have written innumerable op-eds (these from April and May 2015 to name just two) and have continuously highlighted the issue since through our newsletters. Our ask for the DFS to play a coordinating role in resolving the bank-BC economics came through in December 2021 when the Department of Financial Services constituted a Working Group to go into the issues and challenges affecting the BC ecosystem in India, using the Indicus White Paper from July 2021 as the background reference. The recommendations made by this Working Group are finally taking shape - on January 21st, in the 8th Monitoring Committee meeting on BC matters, the Secretary Department of Financial Services ordered banks to relook the terms of engagement including penalties, and specifically commission structures that have not been reviewed in a decade. Read Raghu Mohan and KR Srivats for details. The takeaways from this meeting hold special significance for us. Apart from adequate commissions as a top priority, we have also been advocating a multi-tier structure with higher commissions in difficult to reach geographies, where typically economic activity is low, and this point has also been taken up by the DFS.
We are still addressing fundamental gaps in our financial inclusion ecosystem, even as new players, business models, and risks emerge. For India’s policy makers and regulators, the journey of this critical pending ask over a decade holds an important lesson - the need for continuous consultation with industry stakeholders. So last year we saw the RBI tightening regulation on fintechs and also starting regular consultations with industry. While industry is grappling with growing costs of compliance as governance and customer protection take precedence for the regulator, Vinay Kumar Singh has argued that data doesn’t support fears expressed in industry of regulatory overreach strangling innovation. There will always be a balance to strike for the regulator and all eyes are now on digital gold apps, the latest offering in micro-savings, where Archishma and Anand explain the possible impact of impending regulatory changes. Meanwhile firms are adapting to the regulatory stance, as Pratik Bhakta reports on fintechs changing their product offerings.
There is a slew of data out on the growing adoption of digital payments across India. A McKinsey survey of more than a thousand farmers showed a surge in the use of digital payments last year. A study by Visa delves into the financial landscape in semi-urban India and the potential for serving unmet credit needs. However, the Fintech Barometer (Vol II) by CRIF High Mark and the Digital Lenders Association of India have called out the higher delinquencies in small ticket personal loans, particularly in smaller towns served by NBFCS. Aarati Krishnan used data on rising retail NPAs from RBI's recent Financial Stability Report to conclude that there is little risk of an emerging retail loan crisis, but she does identify the pockets of stress in certain segments that need monitoring.
As far as legislation goes, Yadul Krishna has weighed in on the draft bill, Banning of Unregulated Lending Activities (BULA). In his analysis, the bill falls short by focusing only on actions penalizing informal lending and can lead to financial exclusion. He proposes a slew of points to be included e.g differentiated regulation, transparency in disclosures, use of AI-based tech for monitoring etc. Clearly, a nuanced approach would be more effective for financial inclusion.
This month we have highlighted two areas – a) Karina Broens Nielsen, Patrick Spaven, Peter McConaghy and Nancy Widjaja have written on the concept of financial well-being as set forth by the GPFI and b) looking at the evolving credit landscape, Rounak Kumar Gunjan has written on the opacity of credit scores and Ram Rastogi has a post explaining the new credit reporting rules from the RBI.
Do read more news and views in our curated list below. Please also follow our Indicus Centre for Financial Inclusion page on Linkedin to continue the conversation.
Pratik Bhakta, Economic Times, explains the split in the digital payments industry on using third-party payment routers.
Tracxn's Annual India Fintech Report 2024 notes that India ranked third globally in terms of funding received in the fintech segment despite a decline of 33% on a year-over-year basis to $1.9 billion in 2024
Saloni Shukla, Economic Times, reports on the Budget pitch by fintechs for a ₹1,000 crore dedicated fintech fund. And also on the request by business correspondents to the RBI to double the monthly transfer limit to ₹50,000 and reduce two-factor authentication to once a month.
Raghu Mohan, Business Standard, brought out the need for the rehaul of the business correspondent model.
Manojit Saha, Business Standard, talks to Alok Misra, CEO, Microfinance Institutions Network (MFIN), on the trends in India’s microfinance sector.
Securities and Exchange Board of India (SEBI) proposes new models to enhance participation in mutual funds, offering a ₹250 SIP option. Read ET Edit on this initiative.
Harsh Kumar, Business Standard, reports on the review of progress of financial inclusion schemes by the Department of Financial Services.
Dinesh Nair, Moneycontrol, rounds up the issues with rising gold loans and NPAs.
Labanya Prakash Jena and Aayush Anand write on insurance options to climate shocks.
Rajat Deshpande, FinBox examines the fintech struggles to balance risk and innovation.
Joydip Gupta, Scienaptic AI interacted with Raghu Mohan on issues involved in risks arising from retail credit.
Sowmya Ramasubramanian and Mansi Verma, Mint, delve into the latest trend of direct-to-consumer (D2C) brands turning to alternative financiers to secure larger working capital needed to stay competitive.
Suyash Rai, Carnegie India and XKDR Forum, has a paper out that critically evaluates India’s progress on financial inclusion from 2011 to 2021.
Denise Dias, Majorie Chalwe-Mulenga, Tatiana Reyes Chamas, and Tatiana Alonso, CGAP, bring out a comprehensive working paper presenting an analytical framework to identify the potential exclusionary effect of climate-related financial sector regulation on the incentives and ability of financial service providers to lend to vulnerable segments in emerging markets and developing economies (EMDEs).
Interesting read.