The Covid pandemic showed rural India's remarkable resilience to thrive in the most difficult situations. It also brought to light how urban progress is deeply dependent on rural capacities. As we advance to achieve the $5-trillion mark and attain the vision of an ‘Aatmanirbhar Bharat’, we must recognize that this is not possible without rural India's contribution. For this, we need to create an ecosystem that is equitable and sustainable. Financial inclusion underpins this. It is the single most vital component that can pave the way for an all-inclusive nation.
Jan Dhan – Aadhaar – Mobile (JAM)
India has made significant strides in financial evolution. In 2014, the launch of Pradhan Mantri Jan Dhan Yojana (PMJDY) proved to be a historic beginning to deepen financial inclusion. Through this initiative, the Government of India has made it easy and affordable for the masses to access financial services. A savings bank account is the starting point in the financial inclusion journey. Once the bank account is opened, individuals can get access to other financial products like loans, medical and life insurance, and pensions.
Another remarkable step forward for financial inclusion is the JAM trinity (Jan Dhan, Aadhaar and Mobile), the linking of Aadhaar and mobile numbers to Jan Dhan accounts. This has facilitated several Direct Benefit Transfer (DBT) programs and also helped to plug systemic leakages of government subsidies. Today, seven years later, the JAM trinity’s evidence base is noteworthy—there are over 430 million bank accounts with a cumulative of Rs 1.46 trillion under Jan Dhan accounts. It is also important to highlight that 55 per cent of Jan Dhan account holders are women and 67 per cent of the overall account holders reside in rural and semi-urban areas. The JAM trinity played a crucial role in making credit accessible during Covid, especially to women.
With JAM as the foundation of financial inclusion, several key benefit programs such as disbursing loans to Joint Liability Groups (JLGs) and Self-Help Groups (SHGs) have seen an uptick. Additionally, core banking services too have been strengthened over the last few years to now include insurance, pension, and access to a credit line for the semi-urban and rural Indians especially, all of which are paving the way towards financial inclusion.
These timely financial services have enabled and intensified rural economic activity, resulting in tremendous growth across vital sectors such as agriculture, dairy, handlooms, and others. An increasing number of women and the rural population are becoming self-reliant, which is bringing more people into the economic fold.
Digital Acceleration Of Financial Inclusion
Despite this large-scale impact, there remains significant ground to cover. India still has the second-largest unbanked population in the world and according to a recent report by the Reserve Bank of India, on a scale of 100, India's annual Financial Inclusion Index in 2021 stood at 53.9. A significant portion of our country remains outside the realms of digital finance and financial inclusion and relies on informal sources of credit. Significant strides are being taken to digitize the credit ecosystem. Taking advantage of the India stack, quite a few microfinance institutions, small finance banks, and commercial banks have digitized the process of loan disbursement. The collection process is also being strengthened using digital technologies.
Credit Bureaus Can Play A Role
There’s a long road ahead to make financial products like credit available to all. However, a key to realizing this is credit reporting, which can support and facilitate access to credit at a large scale. By building individuals’ and businesses’ reputational collateral using payment history and predictive analytics, credit bureaus can play a vital role in expanding financial services to the unserved and underserved population of our country.
Credit reporting will help lenders to calculate price risks and defaults with better accuracy, and individuals with higher credit scores and lower risk will get access to formal loans. As credit reporting becomes a continuous exercise, it will also help traditional lenders to avoid over-indebtedness or no payments. And consumers can get access to a wider pool of loan products.
Collaboration Will Remain Important
Undoubtedly, rural growth, which is deeply dependent on financial inclusion, continues to remain a key priority on the Government of India’s agenda. To accelerate growth, the government is collaborating with the Reserve Bank of India to introduce several financially inclusive measures for the welfare of citizens. Steps are being taken to support lenders and insurers to enable initiatives for the country’s inclusive economic development.
Rural progress, a key agenda in 2022, will require various stakeholders to work together to create a large-scale impact. Financial inclusion will continue to be at the heart of this. Financial institutions in collaboration with credit bureaus can play an instrumental role in strengthening financial mechanisms and increasing financial literacy in rural India, which will go a long way in accelerating India’s social and economic progress.
The author is MD and CEO, CRIF High Mark