Riding the Tech Wave For Financial Inclusion — Ramakrishna NK

August 23, 2016
By Rang De Team

The upcoming mobile revolution can allow us to reach a greater number of individuals left out of the system than ever before in rural India

There is a wave of new and upcoming technological ideas and it is nothing short of a second freedom struggle — freedom from exclusion of India’s disadvantaged from formal financial systems.

This wave has been possible largely due to three visionaries — Raghuram Rajan, Nachiket Mor and Nandan Nilekani. It a natural result of the former duo’s longstanding efforts to bring about lasting change in the country.

In his address at the TiE LeapFrog in September 2015, Nandan Nilekani traced the metamorphosis of the humble mobile SMS into a disruptive force in the telecom sector by a single company called WhatsApp, which offered a service that ultimately has come to be synonymous with free SMS in rural India. The statistics showed that all mobile service providers on the planet clocked 20 billion messages a day, dwarfed by the 30 billion WhatsApp messages that people exchanged daily in comparison.

He then drew a parallel to speak about how a similar disruption is waiting to happen in the landscape of financial services in India. The rise of the affordable smart phone (anticipating it to rise to 600 million users by 2020), a high percentage of e-commerce transactions happening on the mobile phone in contrast with desktop computers, a move to an increasingly cashless economy (evidenced by the electronic clearance of cheques matching those of paper clearances), brand new payment technologies such as IMPS overtaking legacy payment systems like money orders, the sheer number of transactions that arise from governmental programs such as LPG subsidy and the innovation called payment banks by the RBI show how the landscape is swiftly changing in the country.

Aadhar can ease the inalienable step in all electronic transactions i.e. authentication. An e-KYC system can leverage an iris camera on a smart phone to authenticate the identity of an individual for opening a bank account in real time without paperwork.

I, together with a few of my colleagues, had the privilege of personally listening to Nandan Nilekani on a similar topic a few weeks ago. I believe that India is going through a massive sea change in terms of regulation, technology and even access to basic services.

Imagine two people having the power to send and receive money in real time, without having to know details such as an account number, IFSC code etc. All one would need is a mobile phone and an Aadhar ID.

I also believe that this allows for a major opportunity to take banking and financial credit products to masses in rural India who have hitherto been left out or are underserved by formal banks. Combining payment banks, Aadhar and the new regulation on Unified Payment Interface will create something absolutely disruptive.

We are already making five-year plans so that we can be well-placed to utilise the new technologies and offer affordable credit funded by individuals like you to a million households by 2022

While payment banks cannot lend directly, they can partner with third party organisations to offer credit services and loan products. They cannot accept deposits in excess of Rs 1 lakh which puts them in a position where they are forced to go out to underserved communities to open bank accounts and this provides an immense reach into the nooks and corners of India.

This is exactly the specific, narrow focus that we have been employing over the past eight years!

And for the delivery of financial credit in so many areas across rural India, there are a number of suitable partners available. The Indian Postal Department, which is one of the applicants to have been licensed to operate a payment bank, has 155,000 branches of which 133,000 are in rural India!

There is great opportunity for a partnership that could well result in a public distribution system for financial credit. This also offers fringe benefits in the form of making available financial literacy to largely illiterate borrowers, the creation of a financial track record and credit score for a population unreached by large banking companies.

It is Rang De’s vision to make poverty history in India and we are extremely excited about the ways in which we can ride this new tech wave to make that vision a reality.

Rang De co-founder Ram can be reached at communications@rangde.org for any media or related queries.