(Rural India contribute ~ 46 percent of the nation’s Net Domestic Product and employ over 66% of the working age population. In order to seek sustainable development, adequate supply of finance is needed from the formal economy towards sustainable development of micro and small enterprises and individuals in rural area).
Small Finance Banks – A key player in the microfinance ecosystem
Small Finance Banks play a significant role in promoting comprehensive financial inclusion at the base of pyramid, primarily by offering credit to unbanked or underbanked low income households. Micro and small enterprises, engaged in small trade, retail, agri and agri-allied and such other activities in rural and semi-urban centers, looking for credit support for income generating and generally not covered by the more formal financial ecosystem stand to benefit from the existence of Small Finance Banks.
Given the timing of entry, nature of operations, distribution network and operating margins, Small Finance Banks rely heavily on technology for customer acquisition, onboarding, service and collection at the front-end. Thus, Tech and innovation, both by default and by design are in-built in the DNA of these Banks. These Banks are constantly working towards simplifying and automating their processes as well. Further, using technology has enhanced reach and access to an array of financial products and services and facilitated customization of offerings matching with the cash flows of borrowers, also repayment tracking and the full loan life cycle management.
Small Finance Banks are empowering people in rural areas to apply for loans or open Bank accounts using mobile phones. An increasing percentage of Rural population is now on mobile with access to mobile data/internet and hence able to consume financial products and services from the formal financial ecosystem.
To the small businesses, SFBs offer finance in the form of Loans against Gold, Property, bsides Affordable Housing and Two-wheeler Loans among other offerings. Bespoke products s.a. Shopkeeper loan, working capital finance are increasingly common, thanks to the technology platforms, integrated with Credit Bureaus, GST-systems, e-KYC enabled solution, facilitating a less-paperwork, a quick-turnaround and frictionless arrangement.
Rural India Inclusion through Digital Payment Systems
Digitization of Transactions: Banks carry out millions of digital financial transactions using platforms such as Unified Payment Interface (UPI), Unstructured Supplementary Service Data (USSD), Immediate Payment Service (IMPS), National Electronic Funds Transfer (NEFT), Aadhaar Pay, debit cards, BHIM, and credit cards. Besides, banks have built back-end integration with several e-wallet systems such as Bharat Interface for Money (BHIM), PayTM, PhonePe, Google Pay, BharatPe, and lots more!
Small Finance Banks have adopted the online payment platforms in a major way, making the end-to-end loan disbursal and servicing process convenient and seamless.
Many digital tools also offer discounts and attractive offers on download and usage. These are a great way of attracting more and more customers to these platforms, enabling a quicker journey towards a less-cash and formal economy, reducing middlemen, and unnecessary transaction costs. The economically underprivileged sections of the society can benefit immensely from such use cases. They can also enjoy offers, cashback options, and others rewards. Such adoption and associated incentives benefit both users and service providers.
Holistically, all digital initiatives have enabled SFBs to promote a banking habit, increase penetration of formal credit to rural India, counter dominance of unorganized and often unscrupulous intermediaries. These initiatives have also given a boost to mainstreaming of rural households, partaking in the economic progress of the country and becoming the true face of an ‘Aatmnirbhar Bharat and a $5 Trillion economy. With over 3 crore households in their fold, SFBs are in their own way contributing to nation-building, one rural household at a time!
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