Digital Lending is essential to achieve the goal of digitally empowered Aatmanirbhar Bharat

Every nation that hurtles along the developmental fast lane usually has three thrust areas from which it can lay the foundation for accelerated development: agriculture, manufacturing, and finance. Much has been written about the former two, while the latter tends to be taken for granted. However, finance is possibly the most important aspect for India, considering the developmental stage that it is in, and our nation’s collective aspiration to become self-reliant (Aatmanirbhar) cannot be realized without addressing capital formation and allocation.

India’s financial infrastructure story, especially in recent times, is legendary. With a government-owned (and led) payment stack in the form of the United Payments Interface (UPI), India has managed to catapult itself into the rarefied stratosphere of nations with a solid foundation for digital payments, second only to China, and the first to have a state-led transformation. This is undoubtedly the bedrock from which India’s digital finance initiatives will emerge.

Promoting Financial Inclusion
One of India’s important priority areas is to ensure that the rural-urban divide does not widen and towards this, the government has taken a slew of measures to close the gap. The posterchild of these schemes is perhaps the Pradhan Mantri Jan Dhan Yojana (PMJDY). Launched with an initial target of opening 7.5 crore accounts by January 2015, the PMJDY exceeded expectations and hit 14.72 crores by March 2015, and as of March 2022, there were over 45 crore PMJDY accounts. The PMJDY has been considerably successful in not only opening bank accounts in the underbanked sections of the population, it has also increased proficiency in using banking services among the rural and urban poor populace.

Concurrently, to ensure that poverty amongst senior citizens is not on the rise, the government has also launched the Pradhan Mantri Vaya Vandhana Yojana (PMVVY) scheme with the intention of providing pension to senior citizens. It was explicitly made available for only a short three-year window (2017 - 2020) to ensure that it was used only for its intended purpose. The PMVVY proved to be an excellent alternative to bank deposits (especially for the senior citizens it was aimed at) and is indicative of the government’s unwavering commitment to ensuring income equality across the board.

To boost small business activity in the farthest reaches of the country, a loan, titled the MUDRA loan, was offered under the Pradhan Mantri Mudra Yojana (PMMY) scheme. This was established in 2015 with the aim of providing small ticket loans. With a three-tier structure catering to different kinds of ventures, the scheme had sanctioned over 28 crore loans worth 14.96 lakh crore since its inception. It had also helped generate over 1.12 crore jobs in the first three years of its inception.

In a bid to do away with the societal bias against girl children, the government had also launched the Sukanya Samriddhi Yojana (SSY), a government-backed savings scheme that was aimed squarely at parents of girl children. With a tenure of 21 years, it was set up with the aim of providing an investment vehicle for parents who wish to save up for their girl child’s marriage expenses and the like. Schemes like these broaden the scope of financial inclusion and also seek to address the gender imbalances in the country. 

How Digital Lending fits into the overall credit enhancement scheme:
All of the schemes that were established by the government succeeded in their mandate of promoting banking literacy amongst the underbanked, rural and urban poor populace. The next step is to take small-ticket, digital-first lending practices to the doorstep of these marginal dwellers. This will serve the dual purpose of channeling finance to areas that desperately need them, while also highlighting the developmental potential that such pockets hold.

This move will be led by young and nimble startups who find themselves penetrating these under represented pockets of entrepreneurship. By making bold bets on Tier 2 and Tier 3 areas in the country, they not only hold the potential to prove the viability of the digital lending model but will also attract attention from both the government as well as big institutional lenders to these places.

Playing the long game
India’s relatively late decision to open up to the world markets in 1991 meant that it missed out on the manufacturing boom of its northeast Asian counterparts and had to come up with alternate ways to foster growth. Thirty years on, while India has managed to find refuge in the service industry, it has run into the problem of stagnating rural growth. By building robust, state-of-the-art technology-first financial infrastructure, the government is looking to channel the wealth that its urban centers have generated and deploy them in rural areas and semi urban areas that have been unable to benefit from the service-led growth model pursued over the last three decades.

This dovetails neatly into the government’s stated ambition of increasing self-reliance in the country. By launching a network of stovepipes that ensure a more equitable dispersion of wealth in the country, the government can kickstart the rural economy into a frenzy of economic activity, much like any other developing country before it has done. Doing so would open up many opportunities for commerce in rural areas. From supercharging handicrafts to incentivizing manufacturing, rural areas could see a complete transformation in their fortunes if they were to be showered with the right kind of guidance and support.