How India’s NBFCs and Fintech Companies are Working Together for Financial Inclusion

Financial inclusion has been a stepping-stone towards building a robust economy and this has become even more crucial post-pandemic, as we try to mitigate uneven impacts of the crisis and set the nation for more egalitarian and sustainable growth.

With technology progressively enabling last-mile connectivity, India’s financial inclusion agenda has seen a welcome shift away from an emphasis on lending towards a more comprehensive approach. Thanks to a thriving economy, a boom in mobile phone usage and technological breakthroughs such as AL & ML, blockchain, and data analytics, India now provides an ideal ground for financial technology to thrive and make a difference.

Fintech companies are altering businesses and transforming the way people transact and access money through digital means. This has significantly helped financial inclusion, particularly in locations where traditional banking infrastructure is limited.

In the past decade and a half, new-age institutions such as payments banks, and small finance banks have been launched with a focused aim for specialised products for diverse segments of the population such as farmers, low-income people and small companies.

Now, the convergence of universal account penetration, rising adoption of smartphones, and low-cost payment channels have resulted in a never-before-seen surge in digital transactions.

UPI witnessed an exponential surge as the platform recorded its highest-ever monthly performance of 9.41 billion transactions in May 2023, for Rs 14.3 trillion. The next wave of payments, via UPI Lite and UPI 123, is expected to deepen UPI penetration and foster financial inclusion in rural regions.

The solid foundation provided by the Jan Dhan-Aadhaar-Mobile (JAM) trinity, UPI, and other regulatory frameworks aided the adoption of digital financial services, bolstered by constant shifts in consumer literacy and the rising usage of digital communication.

NBFCs in India have been at the forefront of financial inclusion, with widespread branch networks, early adoption of technology and a strong partnership approach. They have been instrumental in reaching out to those where access to formal credit is typically limited, greatly expanding the breadth and depth of financial inclusivity.

Fintech in collaboration with NBFC’s has the potential to reshape India’s financial services sector, bringing together the agility of new-age banks, allowing them to deliver new services without increasing risk and over-leveraging traditional banking systems.

The journey has only just begun. While India’s financial sector has made significant headway in financial inclusion, they now need customised solutions and a stronger risk-profiling framework for customers at the bottom of the pyramid. This can be done by deploying a trinity of data analytics, automation, and a customer-centric strategy. This is important in ensuring financial stability and Banks, NBFCs, Fintechs, and insurance firms must work together on this.

Fintech is clearly no longer a passing fad; it represents a sea change in our approach to money, with the potential to create a more inclusive and prosperous future for all. Due to its ability to digitise conventional value chains, develop last-mile connections, and provide both financial and value-added services at a low cost, FinTech businesses have emerged as significant facilitators of financial inclusion.

They have revolutionised payment systems and the consumption of financial services including insurance, banking, and stock trading. Together, India’s financial sector, in partnership, and armed with technology, can bring more Indians into the financial fold and write the playbook for inclusion in developing economies.