RBI finally blesses fintech!

The much-awaited guidelines allowing  Default Loss Guarantee in digital lending came through from the Reserve Bank of India (RBI) last week. This is set to unleash new life into collaboration between fintech, NBFCs and banks, giving customers more options for their unmet credit needs. As explained in the Financial Express, the 5% cap on guarantee may be lower than what fintechs would have liked, but can work well for all players, especially as better appraisal kicks in the ecosystem with the rapidly expanding account aggregator (AA) framework.

With the GSTN (Goods and Services Tax Network) set to go live on the account aggregator platform by July 1^st, India is looking for another revolution towards financial inclusion and formalization. At SamvAAd 2023 Sahamati showcased the impressive achievements so far, as well as products and services being provided using the AA platform. Do listen into the keynote address where  Anantha Nageswaran elaborated on the positive macro-economic impact expected from the AA framework as well as the need for the industry to self-regulate. Nandan Nilekani spoke of the social transformation being ushered in through this digital revolution. 

After UPI and AA, the next to take off is ONDC (Open Network for Digital Commerce), currently with 36,000 sellers on the network processing around 15,000 transactions daily, with the goal to bring in 30 million sellers and 300 million shoppers by the end of next year. A tall order? Read Varsha Meghani for the challenges ahead and TN Hari for a slightly skeptical analysis of whether or not the idea of ONDC is game changing.

One innovation from the government that has not delivered on its promise is CKYC – the Central KYC registry set up in 2016 to ease compliance across the financial ecosystem. Recently the RBI amended its KYC Master Directions - customers onboarded through CKYC have been recognized as full-KYC customers, but such customers are to be tagged as high-risk and subject to enhanced monitoring until face-to-face or Video KYC is done. Gaurav Noronha has done a deep dive into these changes – fintech who have already invested in the CKYC process are stumped, seeing higher KYC costs ahead. While fintechs are pushing for a decentralized blockchain-based registry, this is unlikely to materialize soon. Yet, as Gaurav notes, we now have more stringent KYC monitoring, greater credibility for the industry, better asset quality and reduction in frauds – a win-win for the system as a whole.

There is some news of personal interest to us at Indicus - the RBI Governor launched a Financial Inclusion dashboard! From the press release it appears that our recommendation made repeatedly since 2017 for a dashboard of relevant parameters at a granular level may finally come to light. However, this dashboard, currently for internal use, will remain opaque to outsiders, just like the Financial Inclusion Index, which has no finer details in public domain.

We also have a White Paper out - “Beyond Financial Inclusion: Measuring what matters” authored by Pranav Kumar, Laveesh Bhandari and me. The paper argues that the desired outcome of India’s financial inclusion mission should be ‘Financial Wellbeing’, defined by us as “a state where households, and individuals within, are confident of meeting current and ongoing financial obligations and feel secure of their financial future.”  We argue that the underlying objective needs to be determined as per needs and objectives and not be defined by global entities.  We also point out that unless a customer focus (as reflected in ‘wellbeing’) underlies financial inclusion policies, we will not be able to deliver on the promise of universal inclusion.  Specific recommendations on measuring progress towards these goals conclude the paper.  Look forward to your comments.

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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!

• The RBI Annual Report for 2022-23 has noted a significant drop in the number of Business Correspondents from 3.25million to 2.11 over the past year on account of “select private sector banks”.

• The RBI has placed the Report of the Committee for Review of Customer Service Standards In RBI Regulated Entities on its website for feedback. Comments may be sent by July 07, 2023 through email cscommittee@rbi.org.in

• "Ensuring Access to Finance for Women Entrepreneurs" a T20 India Policy Brief argues for an integrated approach to ensuring that service providers understand the value of this market segment and provide women entrepreneurs appropriate products and services that fit their specific needs.

• Setu has brought out a White Paper expanding upon some of the challenges and potential solutions in the account aggregator ecosystem from the FIU or Financial Information User point of view.

• Nishan Gantayat and Anushka Ashok, The Final Mile and R.V. Srikara Prasad and Beni Chugh, Dvara Research highlight design elements that providers can use to make their consent artefacts more effective for constrained users in the Account AGgregator framework.

• The Open Network For Digital Commerce (ONDC) has launched business-to-business (B2B) e-commerce on the government-backed network with startups SignCatch and Rapidor enabling the buyer side and seller side platforms, respectively.

• Shayan Ghosh reports in LiveMint on the growing popularity of UPI over debit cards.

• Alok Mittal, Indifi Technologies, speaks on the change that fintech has brought to how historically underbanked segments of India interact with formal financial services.

• Salil Panchal, Forbes India does a deep dive into payments bank performance in India.

• Niyati Agrawal and Misha Sharma from Dvara Research have a research brief out on the challenges in the delivery of Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY).

• Abhishek Sharma, Business World, writes on digitalization in rural MSMEs.

• Gargi Sarkar reports for Inc42 Media on forthcoming regulations for companies that offer solutions for point-of-sale terminals, QR code-based payments.

• Linson Paul, Muthoot Microfin Ltd, explains how the integration of AI and ML into rural microfinance operations has improved the bottom lines of MFIs.