In the rapidly evolving landscape of financial services, digital inclusion has emerged as a crucial driver of economic growth and social development. While urban centres in India have experienced significant strides in digitalisation, tier-3 and 4 cities present a unique challenge due to limited access to traditional banking infrastructure.
Non-banking lenders or non-banking financial companies (NBFCs) are playing a pivotal role in bridging this gap, ensuring that residents in these areas have access to financial services that were once out of reach.
NBFCs grew by a robust 25.48 per cent year-on-year (YoY) in August 2023 from a growth of 25.5 per cent in August 2022. This growth was due to continued healthy loan disbursements reported by NBFCs for their dependency on the banking system, especially by the smaller NBFCs.
So, how important is digital inclusion?
One could say it is of vital importance for the financial empowerment of people, particularly in tier-3 and -4 cities where conventional banking services are scarce. Providing access to digital financial tools can enable individuals and small businesses to manage their finances more efficiently, fostering economic growth at the grassroots level.
Secondly, for many individuals in these areas, access to credit is a game-changer. Digital inclusion facilitates seamless credit assessment and disbursal processes, allowing non-banking lenders to extend financial support to those who were previously excluded from the formal credit system.
Enabling digital inclusion goes beyond financial transactions. It opens doors to online marketplaces, skill development platforms, and government schemes, thereby contributing to improved livelihoods and socio-economic development.
Strategies Adopted by Lenders
1. User-Friendly Apps and Interfaces
Non-banking lenders are developing user-friendly mobile applications and digital interfaces that cater to the diverse needs and technological literacy levels of users in tier-3 and -4 cities. Simplified language, intuitive navigation, and vernacular language options enhance accessibility.
2. Awareness Programmes
To address the digital literacy gap, lenders are actively engaging in awareness programmes. These initiatives educate individuals about the benefits of digital financial services, instilling confidence in using digital platforms for their financial transactions.
3. Training and Upskilling
Recognising the need for enhanced digital literacy, some lenders are investing in training and upskilling programs. These initiatives not only empower individuals to use digital platforms but also equip them with relevant skills for a rapidly evolving digital economy.
The government, too, is doing its bit to support those in the underserved areas, by introducing a set of initiatives. Some of them are as follows:
Pradhan Mantri Jan Dhan Yojana (PMJDY): The government’s flagship financial inclusion programme, PMJDY, encourages non-banking lenders to open bank accounts for individuals in rural and remote areas. This initiative has facilitated the integration of these individuals into the formal banking system.
Digital India: This initiative aims to transform India into a digitally empowered society and knowledge economy. Non-banking lenders align with this vision, leveraging government support and infrastructure to enhance digital inclusion in tier-3 and -4 cities.
Subsidised Data Plans: To address connectivity challenges in remote areas, the government has introduced subsidised data plans. Non-banking lenders leverage these schemes to ensure that individuals in tier-3 and -4 cities can access digital financial services without the hindrance of high data costs.
Opportunities on the Horizon
As digital inclusion gains momentum, the economic landscape in tier-3 and -4 cities is set to transform. Increased access to financial services will stimulate economic activities, paving the way for sustainable development.
Non-banking lenders have an opportunity to innovate and tailor their products and services to the unique needs of individuals in these areas. Customised financial solutions can address specific challenges and further drive adoption.
Moreover, collaborations between non-banking lenders, government bodies, and technology providers can amplify the impact of digital inclusion initiatives. Synergies in resources and expertise can create a robust ecosystem that supports long-term sustainability.
Reducing NPAs through Digital Inclusion
Digital inclusion also contributes significantly to reducing non-performing assets (NPAs) for non-banking lenders in tier-3 and -4 cities.
By promoting financial literacy through digital channels, non-banking lenders empower borrowers to make informed financial decisions. This, in turn, contributes to a healthier credit culture and a lower incidence of defaults.
Digital platforms facilitate real-time monitoring of loan portfolios and also help lenders conduct more thorough and accurate credit assessments, leveraging alternative data sources. This proactive approach allows lenders to identify and address potential issues promptly, minimising the risk of NPAs.
Through strategic initiatives, awareness programs, and leveraging government schemes, these lenders are not only expanding their customer base but also contributing to the overall development of these regions. As digital inclusion continues to gain momentum, the potential for economic growth, innovation, and reduced NPAs paints a promising picture for both, lenders and the communities they serve.
(The author is co-founder and CEO of Sugmaya Finance)
