FINANCIAL INCLUSION- NEWS AND VIEWS - DECEMBER 2018
Financial services are going through a digital transformation, that has a strong impact on inclusion. In India, digital lending is taking off, with a rise in online consumer lending. A new report, “Credit Disrupted: Digital MSME Lending in India”, by Omidyar Network and Boston Consulting Group, estimates the potential of digital lending to MSMEs as a 10 - 15 fold increase touching $80 - 100 billion in annual disbursements by 2023. However, as pointed out by Graham Wright in a blog post, technology brings with it both opportunities and threats and he identifies the explosion of digital consumer credit in its current form as a threat, rather than an opportunity.
Here, the RBI should take lessons from the experiences in Kenya and Tanzania, where loan delinquency rates from digital credit are high. It is important to monitor the trends in the industry and enforce strong customer protection measures; exercises like CGAP’s transaction data analysis with the Bank of Tanzania may be a useful template for the RBI to follow. CGAP research shows that regulators can do a lotto ensure improved transparency on loan terms and conditions, better credit screening models, encourage widespread deliberations on product suitability etc.
However, a recent undercover report by ET Wealth revealed that banks continue to mis - sell insurance and other financial products, despite the RBI’s directive a year ago. Clearly, the RBI needs to take customer protection more seriously, and monitor more closely, rather than leave grievance redressal to ombudsmen. Digital credit can be a boon or a bane for inclusion, it is for the regulator to lay down the appropriate path for providers.