The Landslides in Microfinance Lending Topography of India
The smartphone revolution, Digital India initiatives, and exponentially improving the network infrastructure have combined to infuse a newfound convenience, trust, and sustainability into the financial industry. We also owe significantly to Non-bank financial institutions (NBFCs) and microfinance institutions (MFIs) for democratizing this financial empowerment. While financial literacy is still a work in progress in India, we have come a long way. According to an ASSOCHAM-PwC report, India's Fintech market is expected to expand at a CAGR of 31 percent till 2025.
According to a report by Sa-Dhan, compiling data from 213 MFIs representing more than 99 percent of MFI activities in the country, lending in rural India rose in 2022-23, with the proportion of rural clientele reaching 74 percent. Last year, ₹71.916 crore of loans were disbursed. The union government's vision has made a massive difference in the outcome. Faster financial inclusion, especially in rural India, will be a crucial aspect of the Indian government’s dream of becoming a $5 trillion economy. While this presents a huge opportunity, exploring the market will be equally challenging for the industry. Joining us for a one-on-one conversation is HP Singh, Chairman & Managing Director, Satin Creditcare Network Limited (NSE: SATIN with INR 29.28 billion market cap), who deciphers the challenges and opportunities in the industry. A law graduate and a fellow of The Institute of Chartered Accountants of India since 1984 and a first-generation entrepreneur, HP Singh has over three decades of microfinance experience to his credit.
In conversation with HP Singh, Chairman & Managing Director, Satin Creditcare Network Limited
You possess more than three decades of experience in the financial services industry. How do you perceive the evolution of the industry?
Back in the days when microfinance institutions (MFI) started lending, the prime focus was to lend money to the low-income population, and this eventually changed to poverty alleviation and became gender specific. Now, the focal point of microfinance has transitioned to a more inclusive and responsible approach, with MFIs diversifying their range of offerings to cater to the varied requirements of those at the bottom of the pyramid. The amplified focus now is on social impact and sustainability. Financial institutions are actively integrating sustainable practices into their operations through technology and incorporating ESG practices into their lending processes.
This transition has had a profound impact in recent years, and the future of microfinance appears promising, offering a pathway to economic empowerment and improved livelihoods for millions of people
Technological advancements, expanded services, collaborative partnerships, and emphasis on sustainability have collectively enabled broader access to financial services. Additionally, the government and regulatory bodies have really strengthened the regulatory framework to safeguard the consumers and promote fair practices within the sector.
I believe this transition has had a profound impact in recent years, and the future of microfinance appears promising, offering a pathway to economic empowerment and improved livelihoods for millions of people.
How is digital technology helping the financial industry infuse convenience and trust into a vastly untapped market?
Technology advancement has played a pivotal role in enhancing efficiency, accessibility, better compliance, control, and decision-making. For MFIs, technology is an enabler, and it will not replace the human interface. For instance, today, customer acquisition is digitized. However, collections in microfinance need human interactions.
If you look at the business model of microfinancing, it is based on women coming together in a group for a meeting, and that is where collections are made. If technology takes over, the human touch with the borrower would just evaporate, and it would become like any other business.
How do you perceive the skill gap in the segment? What are the solutions?
Skill development is one of the crucial components in India’s potential economic growth, essential for transforming into a diversified and internationally competitive economy. The globalized world demands vocationally skilled manpower to convert growth opportunities into jobs and steady incomes. The importance of equipping young individuals with skills has been acknowledged and designated a priority for nearly a decade. Significant government initiatives, including the Pradhan Mantri Kaushal Vikas Yojna and SANKALP under the National Skill Development Corporation India (NSDC), have been introduced to address this gap.
One of the biggest challenges organizations are grappling with is the skill gap. At present, the skill gap India faces is a consequence of rapid change – there is a huge disparity between the skill sets required and the skill sets the candidates actually possess. Organizations today are more concerned about their future compared to a decade ago.
Creating the apt skill set for addressing customers in rural India: Today, customers need more information and knowledge, and hence, it is vital for every employee to provide all the information about the product intended to be sold. For instance, organizing classroom and field activities for training the employees based on financial literacy, financial tools and nuisances of customer behavior, selling skills etc.
Learning with Digital: Technology is a vital driver that can easily assist in scaling up the skill development initiative. If skill segments and streams are identified, then the next step is to define educational contents or syllabus, including the practicality of the training. Technology can help identify the candidate's standard training tools, and all tutorials, assignments, and tests can be conducted using technology. To facilitate faster propagation of knowledge, creating quality digital content on training modules is also obligatory, and these must be available to all on the internet. Free digital content will encourage more people, principally self-employed and entrepreneurs, to work proactively towards enhancing their skill sets.
What would be your advice to budding entrepreneurs in the financial industry?
The best advice I can give is to be true and honest in your work, always give 100 percent, be creative, think out of the box, and do good deeds.
Hobbies: “I enjoy writing and doing Yoga.”
Favorite Cuisine: "I love Indian food and thoroughly enjoy Pakodas"
Favorite Book: The Ride of a Lifetime by Robert Iger
Favorite Travel Destination: Eastern Europe and North East India