Cracking the financial inclusion code
Research has time and again shown that financial inclusion can be a strong tool to alleviate poverty and bring about empowerment and respect for the human rights of the communities that have been systematically sidelined. According to the World Bank, financial inclusion covers three main facets- access to financial products and services, usage or uptake of these products and services and finally the quality of these products and services. To address the issue of financial inclusion, many programs have been regularly implemented- increase in bank branches, increase in the number of bank accounts opened, women-centric loan products and steps taken towards digitizing the economy, to name a few. However, despite this, the uptake of these initiatives is still extremely farce. Due to this, there have been gaps in the measurement of financial inclusion in our country.
As a first step towards solving this, RBI, in early August this year, introduced the financial inclusion index (FI Index) to capture the growth of financial inclusion in our country. The index is determined by the same three facets, mentioned above, that have been laid down by the world bank. However, it is a comprehensive measure that is determined by about 97 indicators. It not only measures the extent of financial inclusion but also the quality of financial literacy, consumer protection, and inequalities and deficiencies in services. (Economic Times, August 17, 2021) While the FI Index does not have a baseline year, the RBI reported in August 2021 that, as compared to the Global Findex data of 2017, the FI Index has increased from 43.4 in 2017 to 53.9 in 2021. The index will be published annually to understand how the country is progressing with regard to financial inclusion and to gauge the effectiveness of programs and measures taken to close the existing gap.
How is the FI Index important to Rang De and how are we working towards improving the index?
In the Economics Times Financial Inclusion Summit of 2021, RBI Governor, Shakikanta Das had addressed, among other things, the importance of bringing the vulnerable communities into the formal financial sector, in order to achieve financial inclusion and the 3 main challenges in doing so, which are- Identifying the right customer, reaching the last mile; and providing customized, affordable and safe products catering to diverse needs (RBI). Rang De’s work, over more than a decade now, is extensively focused on resolving these very challenges.
The traditional financial structures have for a long time been working to bring financial products to the mainstream communities, however, in order to close the financial inclusion gap, we need all the help from trustworthy financial institutions that are willing to work for the vulnerable communities. With an increasing suspicion to private financial institutions, well regulated and governed Fintechs like Rang De can help democratize access to credit while ensuring lower costs and increasing accessibility while ensuring quicker dissemination of customized products.
Rang De works closely with grassroots organizations to ensure that the community has a genuine need for credit. The KYC guidelines as outlined by the RBI, when added to our partnership with some pioneering organizations, help us identify the right investees. A borrower from Manipur, named Diana Gurumayum shared how she had limited access to credit facilities in her state. She got in touch with several banks explaining her need to avail schemes like entrepreneurial loans. The same banks had these schemes available in different parts of the country. But in Manipur, there were none. They consider it risky to lend to budding entrepreneurs.
Our partners are also our pathway into last-mile connectivity. With most of them working in the remotest regions across the country, enabling them to avail of a loan from Rang De not only provides them with access to timely affordable credit but also helps create a credit history for themselves, thereby providing them with an entry into the formal financial system. When the lockdown was first imposed in the country, early last year, tribal farmers from remote parts of Odisha, Andhra Pradesh, Assam and Rajasthan were left in the lurch with no credit to start their agricultural season. Despite the announcement of government aid, the majority of these tribal communities were excluded as they didn’t have all the appropriate documentation and the means to travel down to the government office to avail the scheme. Rang De along with the impact partner, not only provided these communities with access to affordable credit, but this was also a doorstep service provided in a timely manner.
Rang De’s loan product is a complete package that contributes to more than the accessibility metrics. By providing customized financial literacy, Rang De takes steps to foster responsible borrowing and long-term behavioural change in how communities understand and manage finances. Along with this, Rang De’s Grievance Redressal Policy and the Fair Practices Code ensure that the quality of services provided to the vulnerable communities are empowering, as they take their first step toward financial inclusion.
Even today, more than 1.7 billion people remain unbanked. While traditional banking institutions continue to work on closing this gap, they have their own limitations. Fintechs like Rang De have a great potential to make efficient services for the communities that have been neglected for long. By providing loans to more than 13,559 investees, most of whom are first-time borrowers, Rang De has already taken great strides in contributing to financial inclusion, in the last two years. With proper guidelines and regulations in place now, peer-to-peer lending platforms have become a popular tool for financial inclusion. We, therefore, believe that our continued efforts to provide these communities with a wholesome financial product can have a positive impact on the FI Index in the near future.
You can be a part of enabling financial inclusion by supporting our investees here.