Technology as a safety net

To become financially literate, it is essential that India addresses challenges pertaining to a holistic adoption of fintech, write Megha Jain & Aishwarya Nagpal

Government officials from all levels as well as the common man have  joined hands to lay the foundation for an inclusive financial system and ensure holistic growth and development of the country. Financial inclusion today is limited to not just universal gateways but has removed all obstructions for the deprived (poor and weaker sections) and opened up a formal financial system also for the marginalised (financially-excluded). In the backdrop of financial inclusion, what needs to be harnessed in complementarity is technology. If both are seen together, they project the evolution of a new era, named as FinTech era.

Simply put, FinTech means ‘financial technology’, which means usage of financial services via software and e-enabled systems. FinTech can also be deciphered as Digital Financial Services (DFS). In order to have an umbrella view, it is essential to ponder upon certain basic questions: What remains missing in the pie to achieve full digital financial inclusion (FinTech)? Can Information and Communication Technologies (ICT) usage infuse the desired financial inclusion level in India? Can it be treated as a step towards holistic digital financial inclusion? Can this help a developing nation like India to meet its Sustainable Development Goals (SDGs), like reduction in poverty, hunger and inequalities? Electronic financial literacy can actually guarantee a step forward to reach the actual potential. 

Missing planks: First and foremost in order to achieve full digital financial inclusion, digital adoption is a must. As per the World Bank’s report, ‘World Development Report 2016: Digital Dividends’,  India is not at par with its peer nations like China, Brazil, Russia and South Africa when it comes to technology inclusiveness. The Digital Adoption Index explains technology diffusion for three segments of an economy: People, businesses and Governments. Astonishingly, India scores the worst for business (0.29); technological diffusion in comparison to people (0.45); and Government (0.77).

Our second challenge is to ensure ‘universal access’ and ‘wider usage’. The benefits of fintech were only recently extended by Prime Minister Modi so as to include inclusion, connectivity, ease of living, opportunity and accountability.

It is unfortunate that over the years, the perception of seeing the poor as non-bankable clients has not seen any change. Information asymmetry (unawareness/lack of full information, especially among the marginalised sections) and higher transaction cost further augment concerns.

Several other contemporary financial parameters —which can play the much-desired role and that remain largely missing in the current set-up — include the role of institutions; technological infrastructure (digital literacy) and favorable climate for investments where conventional financial systems, like ponzi finance (borrowing afresh at much higher rates to settle old dues), can be addressed pro-actively (NIPFP, 2018).

Has ICT usage infused the desired financial inclusion level in India? The current exposure and adoption of digital financial inclusion reveals that India has a long road to go before it is fully recognised as a digital financial economy. As per Organisation for Economic Co-operation and Development, “Financial literacy is an amalgamation of knowledge, attitude, financial awareness, skills and behaviour, necessary to make sound financial decisions and ultimately achieve individual financial well-being”.

The dilemma is that the country’s official literacy rate stands at 74 per cent, and this chiefly comprises people who can barely sign their names. Historically, too, the usage of electronic modes through Point of Sale machines, Electronic Prescription Service and Unified Payments Interface transactions, among others, have witnessed spur only momentarily due to no-substitute availability during structural transformation measures (from RBI database 2017-18 of EPS composition). Competitive indices (GCI Report, WEF 2017) given by the World Economic Forum confirmed the deterioration in score and rank of easy access to loans and venture capital availability in 2017 over 2016.

The ability to adapt a holistic inclusive system and meeting SDG goals — increasing account ownership (a measure of financial inclusion) — to an extent endorses gender equality. Rising disparities among the rural and urban consumer (confirmed by rising Gini co-efficient of 0.28 in rural areas and 0.37 in urban areas in 2011-12, SWIID database) for credit access opportunities (micro-finance) question the efficacy of financial inclusion to bridge the inequality gap.

As per the recent 2017 Global Findex database, inclusiveness of female (77 per cent hold accounts) and younger (71 per cent  hold accounts) sections were much lower compared to the older (83 per cent hold accounts) sections of the country  Additionally, in the present scenario, there’s an imbalance in the economy as supply has not been able to cope with the demand.

There are a variety of issues surrounding digital financial literacy, the major being the challenge of educating consumers to conduct online financial services. For a country like India, electronic financial literacy plays a key role as it is considered an essential adjunct to the promotion of financial inclusion.

In order to have a holistic and inclusive financial set-up, India’s sizeable informal economic sector (consisting of domestic help, daily wage workers, farmers, fishermen, contract labourers and micro entrepreneurs, among others) needs to be brought within the ambit of the formal banking sector.

Much has been said and done. Still, the current structure is insufficient to capture potential financial inclusive gains.

Way forward: The most rational way to place financial inclusion effectively is through permanent, unanimous and technologically sustainable initiatives. Many recent structural transformations have enabled ripple effects through spending multipliers to influence the standard of living of the underprivileged (financially excluded). This can mark a future welcoming step towards ‘financial inclusion’. India is home to 17.5 per cent of the world’s population but approximately 76 per cent of its adult population does not fathom even basic financial concepts (S&P Fin Services LLC Survey).

For an average Indian, financial literacy is yet to become a prime motive. The key instrumental agent can be technology that can instill deeper financial inclusion. Undoubtedly, many pedals in the system need to function simultaneously, including infrastructure, better Internet connectivity, more value-added services, regulatory support, removing blockades in penetration of payment technology and most significantly, digital financial literacy so as to achieve the desired level.

In India, the need is to connect with the lower income groups and economically feeble sections as also with the millennials who are closely knitted and entail tailor-made financial products. Thus, the responsibility lies with each one of us to actively participate in augmenting financial literacy levels to create a new economic order.

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