Role of Fintech companies in fostering financial inclusion in India

Role of Fintech companies in fostering financial inclusion in India

Author: Athira R Nair, a student at School of Law, Christ (Deemed-to-be) University, Bangalore. 

According to the Financial Stability board (FSB) of the Bank of International Settlements (BIA), fintech can be defined as “a technology that enables financial innovation that could result in new business models, applications, processes, or products with an associated material effect on financial markets and institutions”. Nowadays, it can be observed that India is facing a transformative revolution that can be credited with changing the economic landscape. The roots of this profound change can be traced to the coming of Fintech companies. They have paved the way for economic liberation by facilitating both financial freedom and inclusion. In this article, the author seeks to trace the role of Fintech companies in fostering financial inclusion in India. 

The reason for the exclusion of a significant portion of the population from the traditional financial models can be attributed to the remoteness of their locations, lack of access to financial institutions and little to no formal documentation. This completely changed once Fintech companies made an entry into the market. One of the major contributions of Fintech companies are, without a doubt, providing digital payment platforms to bridge this inclusion gap evident in today’s financial lanscape. The lack of access to financial institutions in remote areas has been an overlooked concern for decades. The technological revolution and subsequent coming of Fintech companies that provided a means to leverage technology to ensure that no demography is deprived of financial services can also be seen as one of the reasons behind the economic growth we can see today. The main aspects of this inclusivity initiative is digital wallets. Millions of people who were previously not a part of the formal financial system are now included owing to the various mobile-based banking methods.

The accessibility of financial services empowered the previously deprived individuals to easily access a range of financial services remotely. This not only helped them boost their financial productivity but the added financial literacy aspects also facilitated them in making better business decisions. The profound reduction in cash transactions coinciding with the digital revolution that accelerated the access and need of mobile phones encouraged financial participation and broke various barriers that were, in the past, a hindrance to an individual’s growth. Additionally, the alternate innovative credit scoring models that were formulated considered various unconventional data points to increase credit opportunities to the previously unversed. This includes aspects such as digital transaction history, social media statistics and other traceable online behavioral patterns. So people who were previously deemed to be ineligible could now access loans and other credit facilities. 

Despite the range of advantages, the most beneficial one in terms of future prospects is the provision of financial literacy and education. By recognising the importance of the same, Fintech companies have directly boosted the ability of people to make informed decisions and steer their financial pathways to secure a better future. The various ways in which this was achieved includes but is not limited to webinars, workshops and dissemination of educational resources. Like the famous saying goes, “If you give a man a fish, he eats for a day. However, if you teach a man to fish, he eats for a lifetime.”  So inculating the importance of financial education in the minds of the people and providing them with access to means of empowering themselves will go a long way in securing a well-informed populations who have the means and aptitude to sustain their financial growth. 

In conclusion, Fintech companies have played a multifaceted role in India’s financial solution by providing innovative solutions in the way of digital platforms, financial literacy initiatives and the like. Their contribution has led to a democratised financial landscape today facilitating both the unbanked and underbanked demography in accessing basic financial services. The disruption of traditional financial models that progressively increased the gap between the rich and the poor was the need of the hour.