India, a rapidly growing economy with over 1.4 billion people, faces significant challenges in financial inclusion. Since independence, its banking sector has evolved through four distinct phases: Pre-social banking (1950-1969), Social banking (1969-1990), and two Liberalisation periods (1990-2005, 2005-present).
Despite rigorous efforts to attain financial inclusion, around 11% of India’s adult population is underbanked even today.
At present, policymakers and Fintech companies along with government schemes are pushing to transform the current state of financial inclusion in India. Loan management systems in India are tipped to open up new avenues to improve financial inclusion and overcome the age-old challenges with financial inclusion.
This article explores how loan management systems in India are likely to turn around the country’s financial inclusion situation, the current challenges, and the road ahead.
What is Financial Inclusion and Why is it Important?
Financial inclusion is the process or strategy to make financial services and products accessible to the underbanked and underserved population. The objective is to ensure financial products and services reach the underprivileged sections of society and remote areas of the country.
So, why is financial inclusion important?
Financial inclusion is crucial to eliminating poverty, inclusive growth of people across different income levels, and achieving social solidarity. It also improves financial literacy and awareness among the masses.
Financial Inclusivity in India: Current Roadblocks
Despite impressive digital or internet penetration and government schemes, a significant number of people in India are underbanked and underserved. Let’s explore some of the major challenges:
Lack of Infrastructure
Many rural and distant parts of the country do not have the basic infrastructure to facilitate financial inclusion.
For example, on average, there is one bank between 12 Indian villages. Additionally, while there is one bank for every 4,700 people in the cities, around 17,000 people depend on a single bank branch in villages. It is clear that financial accessibility continues to remain a major challenge for India’s rural population.
Low Financial Literacy
Apart from the lack of infrastructure, many people have no idea about the different financial instruments and services, how they work, etc. This significant education gap and lack of awareness hinder decision-making, limiting access to credit and other financial services.
Loan Management System in India to Promote Financial Inclusion?
India’s drastic digital transformation across the financial sector can be attributed to financial technology (Fintech) companies that leverage sophisticated technologies to understand the pulse of their customers and roll out relevant solutions and products.
Are loan management systems in India the answer to achieving financial inclusion? Well, while there are other influential factors, loan management systems will play a pivotal role in promoting financial inclusion in India.
Here’s how:
Smooth and Organised Lending
A majority of the underbanked population has limited or no access to credit due to their blank credit and history. Traditional financial institutions have not been able to find a solution to address this problem and open up a window for loan management solutions to take over.
A loan management system includes several features that streamline and automate different aspects of the lending lifecycle. This includes error-free borrower and document verification, swift assessment of a borrower’s creditworthiness using advanced models and multiple data points, and faster loan disbursal.
Access to Credit in Distant and Remote Locations
It is safe to say that traditional financial institutions have not adequately taken proactive measures to make their financial products and services accessible to people living in distant and remote parts of India.
Lack of adequate infrastructure, hesitant bank authorities, and incompetent systems are some of the major reasons why a significant number of Indians living in remote areas are still underbanked.
The arrival of loan management systems in India is disrupting this trend as it primarily operates on the cloud, leveraging digital technologies to reach underserved populations. Borrowers can apply for a loan, submit documents, complete the know-your-customer (KYC) process, and track the status of their application online without visiting the branch.
Lower Interest Rates
Automated loan management systems in India allow lenders to minimise operational costs and thereby offer loans at lower interest rates. Additionally, since lenders and borrowers are interacting directly, it also saves the costs associated with middlemen.
Lower interest rates coupled with the convenient loan application process are some of the major factors why loan management systems are drawing notable attention in India.
Roadmap to Extend Financial Inclusion in India
The Indian banking and financial sector is transforming rapidly thanks to the collaborative efforts between Fintech companies, NBFCs, the Indian government, and traditional financial institutions.
An array of government schemes including the Pradhan Mantri Jan Dhan Yojana (PMJDY), Atal Pension Yojana (APY), Stand Up India Scheme, and Pradhan Mantri Mudra Yojana (PMMY) are playing a key role in promoting financial inclusion in India.
Additionally, the increasing adoption of digital solutions including Unified Payment Interface (UPI) coupled with smart marketing tactics deployed by Fintech companies is also contributing toward the expansion of financial inclusivity in India.
Parting Words
Financial exclusivity in India hinges on several driving forces including government initiatives and schemes, technological advancements, Fintech companies, and the willingness of traditional players to offer accessible financial services.
While loan management systems in India allow borrowers to apply and track loan applications, lenders have a clear idea of the borrower’s credit history, income, and other details.
Finezza’s cutting-edge loan management system paves the way for efficient and hassle-free end-to-end loan management. It is designed to address all the common and unique challenges linked with loan management.
Book a demo today to know more!
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