In a world where the financial sector is undergoing a remarkable transformation, sustainable advancement in India hinges on empowering its large rural and semi-urban population, which constitutes over 65% of the country and contributes to 47% of the nation’s GDP.
A report, titled ‘Financial Services Innovation for Bharat’, underscores significant barriers within this segment, including a lack of financial awareness, unsuitable products, intricate banking procedures, and limited access to formal credit. Much of rural and semi-urban India still relies heavily on informal lending, emphasising the crucial need for a deeper understanding of their financial struggles and habits, which goes beyond savings accounts to full-fledged financial wellness and protection. Given the widespread embrace of the internet among rural communities and the surge in their employment and economic engagement, this presents an opportune market for expanding financial services in the coming decade.
The report by Reserve Bank Innovation Hub (RBIH) & Boston Consulting Group (BCG) highlights how banks and fintechs are innovating to integrate rural and semi-urban Indians into the financial services ecosystem, which is crucial to ensuring an inclusive economic development in the country. “It’s a segment full of promise and untapped potential, and is essential towards building a sustainable financial future of the country,” says the report.
“The future of Bharat hinges on understanding the unique needs, aspirations, and challenges of its citizens, as we stand today on the threshold of a transformative era for financial inclusion,” says Yashraj Erande, managing director and partner at BCG, and Asia-Pacific Lead for BCG’s Fintech and Payments practice. Notably, rural internet adoption has been exceptional, with 200 million users coming online between 2018 and 2022, and another 300 million estimated to come online by 2030.
The factors expected to contribute to a new wave of profitable users from this segment in the future are a combination of rising income levels, farm sector reforms, and effective government schemes.
The report advocates a comprehensive innovation framework aimed at creating sustainable and scalable solutions for Bharat's consumers—the rural and semi-urban populace of India. This framework is dependent on bringing 3 key elements together for a successful outcome – Desirability (Consumer need), Viability (Business lens) and Feasibility (Operation and technological lens).
“The government-supported rural MSME sector is playing a significant role in driving employment and economic activity, making it a promising market for further expansion,” according to the report.
On the other hand, fintechs, while pivotal in spearheading innovation to cater to India's needs, encounter constraints that impede their pace. These obstacles include restricted market entry, challenges in collaborating with established entities, capital shortages, and unclear regulatory frameworks. “Therefore, in developing sustainable solutions for Bharat consumers, fintechs and financial institutions need to assess three essential elements of desirability, viability and feasibility when pursuing innovation,” suggests the report.
Rajesh Bansal, CEO of RBIH believes strategically innovating to develop products and processes customised to needs of rural and semi-urban India at an affordable cost is important for fostering inclusive growth in the nation.
The report explores a series of case studies to illustrate a wide variety of innovative interventions exemplifying their success stories. Using these elements to strike a balance between customer-centricity and astute business acumen, more and more institutions can create solutions that drive growth, prosperity, and positive impact for the country.
It also outlines the need for a comprehensive action agenda, involving all stakeholders across the value-chain including innovators, investors, incumbents, and policymakers.
“With India’s diverse demographic profile, and the high cost to serve and distribute products given limited financial literacy, rural and semi-urban India pose a unique challenge for financial institutions. In order to achieve comprehensive financial inclusion, we need to have a truly innovative approach in product design, distribution and service with collaborative models to make impact at scale,” says Nisha Bachani, a BCG Partner and co-author of the report.
