RBI reports BCs doubled from 1.5 to 3.2 million in a year
Financial Inclusion News and Analysis Curated Monthly by Sumita Kale
Reserve Bank of India’s latest Annual Report 2021-22 has us stumped. It shows a stupendous rise in the aggregate number of Business Correspondents (BCs) in the country over the past year- the number of BC outlets in villages increased from 11,94,640 in December 2020 to 18,44,732 in December 2021, and in urban areas from 3,24,507 to 14,12,529 – the footnotes clarify that data for December 2021 are provisional and that “There is a significant increase in data reported by few private sector banks.” So the rise from 1.5 million Business Correspondents in India to 3.2 million in one year has been attributed to better data reporting by a few banks. While data reporting is a challenge in the country, getting the basic number of BCs in the country wrong by such a large number points to a deeper malaise.
It is now time for a universal push for better data collection and dissemination from the RBI, National Payments Corporation of India (NPCI), and the Ministry of Finance.
On the other hand, there has been a slew of data coming through from private players. Boston Consulting Group and PhonePe tied up to bring out a report on digital payment trends in India, using insights from official as well as in-house PhonePe data. The study projects digital payments in India to more than triple in value from the current US$3 trillion to US$10 trillion by 2026. Interesting insights include the point that over the past two years, tier 3-6 cities have been the mainstay of rapid adoption of digital payments, amounting to nearly 60-70% of new mobile payment customers. The uneven trends across geographies also come through clearly in the map below.
It is this kind of analysis that the NPCI and RBI should facilitate at an aggregate level.
Source: Digital Payments in India: A US$10 Trillion Opportunity, BCG & PhonePe Pulse
It is heartening to see both industry and civil society contributing to the evolution of the digital payments ecosystem. FACE (Fintech Association for Consumer Empowerment) released its first data-packed report, FACETS highlighting trends in fintech lending from its members. While the number of indicators and data points presented will increase over time, one insight we found particularly interesting is that 90% of the loans had gone to males, showing a wide gender disparity, a feature that was common across lenders. Clearly, the industry must look a little more deeply into this to understand what constrains women from accessing loans through this channel. We also believe that many loans at the household level are logged under the name of the head of household or the chief wage earner. So a payments history is being created for the senior male and not the senior female of the household. Going forward this will make the whole ecosystem biased against women.
Some pointers for fintechs interested in bridging the gender gap come through from the Women and Money research program. As Mary Katica of IDEO.org explains in her recent blog, there are “complex realities” that inhibit women from adopting digital financial services (DFS). Digital confidence and trust emerge when there is a strong support network for learning and onboarding. DFS agents should therefore work from locations that are inherently comfortable for women e.g. hospitals, tailoring shops, etc.
Trust however is a feature that the fintech industry as a whole has to work hard at earning, as Arundhati Ramanathan points out. She showcases two examples - one a rollback from Slice and the other a rollout from Paytm, where trust has been the casualty. Both consumers and the industry must be more cautious as these new products and services evolve on digital platforms.
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New data and insights on the delivery of government benefits are now available with the release of a comprehensive report from Dvara Research, “State of Exclusion: Delivery of Government-to-Citizen Cash Transfers in India”. The study brings together field experiences from eight states to identify the challenges faced by beneficiaries in accessing their dues at every stage of the transfer – from beneficiary enrolment to payments into bank accounts to the actual cash withdrawal from the account.
In his Monetary Policy speech, the RBI Governor announced the decision to allow the linking of UPI to credit cards. There are however a number of questions regarding the MDR, KYC, and merchant re-enrollment, and clarity is awaited from the RBI on the modalities.
Reserve Bank of India has announced the committee to review customer service standards in RBI regulated entities - the report should be out within three months after the first meeting. Customer service and grievance redressal are continuous pain points in banking in India, the report should include actionable recommendations, which should be monitored by RBI over time.
In an interview with IBS intelligence, Sasidhar Thumuluri, MD & CEO at Sub-K IMPACT Solutions Ltd details the potential of using digitalization to bridge the rural-urban financial divide. Interestingly, he also mentions that in their ecosystem, within 18 months, borrowers moved from everyone repaying in cash to 25% permanently shifting to digital and another 25% switching between cash and digital-based on convenience. Rural women are also repaying microfinance loans through QR codes and apps.
Nielsen released Bharat 2.0, a report with fascinating results on the increasing adoption of internet usage in rural India. This augurs well for the ongoing democratization of credit through fintech, as data patterns emerge in hitherto invisible segments. While growth in rural India outstrips urban, one interesting data point is that 1 in every 3 female internet users in rural is actively using the internet.
Shreya Garg and Manvi Khanna of Vidhi Centre for Legal Policy detail the changes needed in the legal system to close the gender gap in financial inclusion. These include a fundamental amendment to the Micro, Small, and Medium Enterprises Development Act, 2006 to add a criterion classifying MSMEs based on whether they are owned/led by women. Facilitating gender-disaggregated data will allow for more effective targeting and monitoring of government schemes.