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August 14, 2022

Role of Fintech in Rebuilding India Post Covid-19

The COVID crisis exposed structural inequities of the traditional financial systems the world over. Often the worst affected commu

The COVID crisis exposed structural inequities of the traditional financial systems the world over. Often the worst affected communities are outside the purview for formal finance, which lowers their capacity to cope with the crisis. People lacking safety nets fell into poverty due to sudden unemployment and huge medical costs.

India presently faces a dual slump - demand deficiency and supply failures. The responsibility of socio-economic recovery can be a shared one. Collaborations between fintech sector, the government, traditional financial institutions and non-governmental actors can leverage synergies to profound effect like we see in the rapid socio-economic development of Bangladesh by its NGO sector. NGOs developed Bangladesh’s microcredit, healthcare, education, water and sanitation systems. As International Monetary Fund research suggests, digital financial inclusion could be a pull factor in mitigating eco-social impact COVID-19. This may even be a chance to ensure greater equity and financial access than pre-COVID conditions.

Fintech, a relatively new domain, can actively and quickly identify systemic biases like credit worthiness, documentation, access, micro-needs, logistics, etc. The flexibility and dynamic nature of fintech business models can rectify these biases relatively easily and view them as business opportunities. Saddling public sector financial institutions with social responsibilities, often at great cost, can be lessened.

Small and Medium Enterprises

India’s 63 million SMEs face compounded problems of labour shortage, disrupted market access, low overall productivity and lack of financial access, precipitated by the COVID slump. World Bank data shows that digitalising SMEs can enhance a country’s economic activity- it is estimated that digitalizing SMBs can add $1.1 trillion across ASEAN region by 2025. This is understandable, as it helps businesses with detailed analytics of business flows, formulate business strategies, improve sales, increase cash flows, enhance customer base and improve productivity which levels the playing field vis-a-vis larger enterprises. Neobanks, in particular, can provide fast, affordable and convenient credit options with streamlined documentation processes, rationalize costs with solutions like payouts, automated receivables, customised current account solutions, etc. to fill the urgent business needs.

CREDIT

Government spending has slowed considerably necessitating very urgent need to pump liquidity into the market. Credit is scarce. Access to convenient, sachet-sized credit products could reinforce the government efforts and RBI bailouts. Fintech businesses can bring credit solutions to a much wider set of customers than traditional financial systems with alternate data and contextual, bite-sized customizable solutions. There are currently 190 million unbanked Indians, many in rural and marginalized communities outside the formal credit space who need fast, fair and flexible retail credit. By using alternate payment data such as regularity and clearance rate of payments for purchases, fintech credit can successfully underwrite customers and unleash a revolution. Credit decisions would be faster, reach those without a ‘financial footprint’, with enough accuracy to achieve better results and lower NPAs. It can stop the current health crisis from becoming a debt crisis.

COLLABORATION & INNOVATION

Collaboration between traditional institutions and fintech can become an important factor in economic recovery and rebuilding the nation. Financial inclusion is an enabler for 7 of the 17 UN Sustainable Development Goals. Fintech companies, working in partnership with the government, banks, NBFCs, merchants etc. can democratize financial services. Examples already about - MeiTY partnered with a payment gateway to offer immediate COVID relief facilities in rural India. Fintech companies, SHGs and government initiatives like PMJDY can help marginalized sections of society to integrate into the national economy.

Innovative solutions providing convenience to customers like simple digital financial offerings, buy-now-pay-later alternatives, Neo Banking, etc. can be sustained by widespread permeation of the internet, smartphones and overall digital infrastructure in the country. Tailoring products according to needs of the customers and sachetisation can accelerate the inclusive development process.

The Fintech revolution underway has allowed ordinary people to try fintech newer models – investing, paying, borrowing, trading online (give stat here). Access to government electronic systems, well integrated with digital financial services platforms such as fintech firms, mobile money companies, and digital banking are proving critical in providing wide-reaching public policy support promptly without physical contact.

Fintech as a sector is neither a cure-all nor without inherent risks. Problems are compounded by lack or amorphous regulations and cybersecurity threats which can neutralise the unlimited potential of Fintech and digital revolution underway. Nevertheless, a synergistic, coordinated and well regulated collaboration between Government, Fintech, Banks, NGOs and the common man can help rebuild an inclusive financial ecosystem battered by COVID. Fintech has the potential and wherewithal to help the country beat the current socio-economic crisis.

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