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Accelerating financial inclusion in India

Arun Prasad
Arun Prasad
Head of Sales – South Asia

Banking services are now accessible to millions more Indian citizens thanks to a series of digital initiatives. A Refinitiv summit will examine the technologies accelerating financial inclusion in India, including the increased use of AI, blockchain and digital identity.


  1. A digital identity program, increased mobile usage and simplified KYC have enabled hundreds of millions of previously unbanked citizens to open bank accounts in India.
  2. The use of technologies such as AI or blockchain and alternative sources of data are making financial services more transparent, accessible and cost-effective.
  3. The Refinitiv Data and Emerging Tech Summit in Mumbai will discuss how regulators and institutions leverage fintech to drive financial inclusion in India.

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The past half a decade has seen a slew of government initiatives to drive financial inclusion in India.

These include the Jan Dhan Yohna (Scheme for People’s Wealth) establishing a no-frills bank account with simplified KYC processes and no minimum balance requirement.

The digital ID initiative Aadhaar also offers a unique 12-digit identification to all residents in India based on basic biometric and demographic information, empowering many in the country with a proof of identity for the first time.

Meanwhile, mobile connectivity and a range of apps and messaging services are helping to facilitate financial transactions through mobile phones.

Accelerating financial inclusion in India

These three digital technology initiatives — known as the JAM trinity — have led to more than 355 million people opening bank accounts during this period.

Eighty percent of India’s population now has access to a range of banking and insurance services — up from 53 percent in 2014.

Yet despite holding these accounts, many first-time customers are unable to take advantage of the benefits offered by the financial ecosystem.

Many in India typically borrow from non-bank financial companies (NBFCs), which in turn rely on funding from both state and private banks.

A high ratio of non-performing loans, however, present a significant challenge to India’s banking sector. In 2019, more than nine percent of loans issues by banks defaulted, which has impacted lending by NBFCs.

Financial inclusion in India

A significant section of the Indian population and micro businesses lack the credit history and collateral needed to secure loans

Reliance on cash continues despite a government decision in 2016 to remove bank notes that accounted for 86 percent of currency in circulation at the time. This represented an attempt to reduce tax evasion, and encourage a move away from a cash-based informal economy.

According to the World Bank’s 2017 Global Findex Survey, around 48 percent of bank accounts in India are inactive, and only seven percent of loans are issued by licensed financial institutions.

While access to financial services for women has increased in recent years, a gender gap remains, with about six percent fewer women than men owning bank accounts.India bank accounts. Accelerating financial inclusion in IndiaCustomers in rural areas are unable to access the same level of banking benefits, credit options, and wealth management products that are offered in towns and cities.

Low levels of financial literacy create misunderstandings and distrust of the formal financial system. Without the knowledge of why financial products exist and how they should be used, underbanked customers won’t use or trust them.

Providing financial services to this segment is also costly. The delivery of financial services using traditional ‘brick-and-mortar’ channels is unprofitable for banks, given the low amounts of money stored or transacted by the underbanked.

Offering these services through digital and mobile technologies, however, presents a significant opportunity.

India has 1.2 billion mobile phone subscribers, with more than 50 percent of these living in rural areas. Mobile proliferation is bringing about a new era, giving the unbanked and underbanked access to financial products, while driving service and technological innovation among financial institutions.

Fintech solutions for financial inclusion

India also houses a vibrant fintech ecosystem, which during 2017 and 2018 received US$4.2 billion (INR420 crore) in venture capital funding, accounting for 4.5 percent of global investments within this space.

Arun Prasad quote. Accelerating financial inclusion in India

Innovations in cash management and loans are driving down servicing costs and creating alternative funding sources.

Among others, the facilitation of digital payments through QR codes, radio-frequency identification or tokenization are making transactions cheaper and easier for banks and NBFCs to facilitate.

Similarly, in the loans segment, new financing channels including peer-to-peer lending, crowdfunding, factoring, and PayLater products are being offered online, anywhere and at any time, for a fraction of the cost of traditional lines of credit.

For banks and NBFCs, there is also an opportunity to leverage new sources of data to overcome current bottlenecks experienced during the loan approval process.

Alternative sources of data

With limited customer information, financial institutions are increasingly leveraging artificial intelligence, machine learning, and alternative, anonymized sources of data supplied by sellers of daily items to produce deeper insights on loan applicants.

The market is also experimenting with open source blockchain technology to authenticate transactions, improve workflow, and keep records tamper-free.

Financial institutions are using low-cost, cloud-based solutions in areas such as customer relationship management, risk management and treasury operations to allow them to trade with lower overheads.

Such ‘win-win’ solutions enable citizens and businesses to access new products, while allowing financial institutions to provide novel low-cost services.

Middle class access to wealth management

Much of today’s discussion within India’s financial services community focuses on the potential of India’s low-income segment, which currently accounts for 43 percent of households.

However, within the next 10 years, the demographics of India will vastly change, with 77 percent of households expected to fall within the lower middle-income and upper middle-income brackets by 2030.

This demographic shift could translate into increased demand for savings, wealth management, insurance and pension products.

The wealth management industry, in particular, is expected to prosper, and is already undergoing significant disruption due to a wave of home-grown ‘WealthTech’ innovations.

Traditionally, the knowledge and expertise of wealth advisors has acted as key differentiators between firms.

The application of AI, machine learning, and big data in evaluating investment opportunities, optimizing portfolios, and mitigating risks is democratizing wealth management and making it more accessible.

Watch: India’s economic past, present and future

Data and emerging technologies

Data and technology have the potential to transform India’s financial markets as the country looks towards driving more inclusive growth. However, these developments also raise important questions:

  • What new technologies can accelerate financial inclusion, as well as encourage the emerging affluent class to save, invest and insure?
  • What is the role of the private sector in educating both the unbanked as well as retail investors?
  • How can alternative sources of data improve customer experiences, streamline client onboarding, and further mitigate risks?

These issues and more will be discussed at the 2020 Data and Emerging Tech Summit in Mumbai, bringing together over 300 senior executives from India’s banking, investment management, insurance, and fintech industries. Contact us to register your interest or if you would like to find out more.