2 billion people in the world do not use banking and formal financial services, which led the World Bank to call for Universal Financial Access (UFA) by 2020. This number has come down by 20% from 2.5 billion unbanked population three years ago.
In the Indian context, the phrase “Financial Inclusion” gained prominence in 2005 when Y. Venugopal Reddy, the then Governor of Reserve Bank of India, brought it into limelight. RBI’s vision now for 2020 is to open nearly 600 million new customers’ accounts and service them through a variety of channels by leveraging on IT. This, alongwith Pradhan Mantri Jan Dhan Yojna, opens up a potential new market for the banks and NBFCs in India.
Impact of Alternate Data in Africa
80% of Africa’s population was unbanked until 2011. People took up night jobs and resorted to savings in order to build the capital they needed. Lack of collaterals and credit scoring in sub-Saharan desert made the availability of cash flow difficult.
That’s when private players like- Tala & M-Pesa, investors like Omidyar Network came into the picture. They resorted to drive the usage of alternate data to score people and determine their creditworthiness. In an economy where it was difficult to get traditional and conventional data, they used various other (read, digital) sources to determine and verify the potential of a borrower.
This led to rise of the African economy and lending industry. From being unexplored to now being a bright prospect for lending, Africa has come a long way.
Tapping India’s Potential
With a population of 1.21 billion, where:
28% of the population has access to a smartphone (source)
40% of the population is millennials
There is 2.5 quintillion bytes of digital data created every day!And most of the things are accessible just by making a few clicks.
So, banks and other financial institutions have also build digital assets and the old ways of banking are now replaced. No more does one have to go to a bank physically to invest money. Why not apply the same for getting a loan then?
This, is where the banks need to innovate and/or collaborate with Fintech to leverage the innovative solutions and advanced technology. New robust mechanisms- use of alternate data, can help banks turnaround their core business- lending. Use of this proxy and social data will help get more new-to-credit (NTC) and thin-files under the existing credit cycle, thus, creating new segments for business expansion and driving financial inclusion in India.