The emergence of Digital Public Infrastructure like Account Aggregators (AA) paves the way for financial inclusion of many underserved communities in India. It has the potential to empower millions of customers to digitally access and share their financial data across institutions, resulting in the creation of their digital financial identity. The adoption of AA among banks has resulted in optimised user journeys, higher conversion rates, and reduced operating costs. In some cases, the cost of processing a loan application has come down to Rs 90-110, from Rs 440 per case, owing to lesser manual intervention and lower drop-offs.
The financial inclusion of women is one of the critical indicators that determine and enable women’s economic empowerment. Across the country, SHGs have played an important role in bringing women together to build a habit of saving, enable access to formal banking services, and potentially transform groups into micro-businesses to boost their livelihoods. However, over 44 lakh SHGs are still not credit-linked with banks, due to three major challenges – recent formation of the businesses, lack of records pertaining to the financial history of the group and the complicated loan application process of banks, with a typical disbursement cycle of 3-6 months. These impediments often compel SHGs to go back to informal sources of credit.
Digital public goods such as AA have the potential to close the credit gap SHGs face today. This perspective uncovers the promise AA holds for SHGs in India and elaborates on two use cases that can be implemented on the ground to actualise AA-enabled digital financial inclusion.
(i) Loan disbursement through Loan Service Providers: AA shortens the existing Know Your Customer (KYC) process of assessing loan applications from 3-4 days to 10-20 minutes. With simple bank account linkages through OTP, AA enables real-time underwriting of SHG financial data for comprehensive credit assessment.
(ii) Loan monitoring to determine repayment abilities of SHGs: Recurring consent in AA enables the sharing of banking data to study SHG bank statements. This helps in analysing the financial health of SHGs during the loan tenure in order to establish an early detection system for defaulting borrowers.
To ensure that the fundamental barriers to formal financial inclusion are overcome, AA service delivery has to be designed to cater to the needs of SHGs. AA implementation requires assistance. Assisted AA is a phygital model for obtaining AA services with the help of on-ground human assistance. It creates the much-needed trust and comfort in the digital lending journeys for SHGs. AA also needs to be tested on mature SHG businesses. It can be tested with emerging and established business SHGs which currently have a digital financial trail and are primed to adopt it as first movers.
New and emerging SHGs need support. For expanding AA services to all SHGs and low-income communities, it is critical to develop a digital financial trail of linked savings and emerging SHGs. The AA ecosystem needs more investment in evidence-based research. Its success is critical in developing relevant user profiles and testing pilot-based interventions to generate learnings.
Philanthropy should demonstrate the applicability of the AA framework in small settings to highlight its potential. Last-mile financial inclusion requires suitable financial products. Lenders should prioritise the development of relevant financial products for underserved communities based on their business needs, context and repayment abilities.
Finally, the digital experience for last-mile applications needs to be strengthened. The technology service provider and AA companies should simplify the digital lending experience so that it is easily understood, trusted and operated by SHGs.
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Authors: Prerit Shukla, Asawari Luthra, Akshata Jain and Abhishek Yadav
We are grateful to the following contributors for their valuable insights into the scope of Account Aggregators in enabling financial inclusion of SHG women, which helped us shape this document:
- A Krishna Prasad, Founder & CEO, Onemoney
- Anjan Roy Choudhury, Director, Partnerships & Customer Success, Onemoney
- Arjun Singh, Former Managing Director, Asia, Envestnet Yodlee
- Arvind Kumar Malik, CEO, Udyogini
- Kanika Kumar, Director, IDEO
- Mallika Ghosh, Executive Director, Parinaam Foundation
- Mohammed Riaz, CEO & MD, Xtracap Fintech
- Monami Dasgupta, Head of Research, D91 Labs, Setu
- Nita Mahuvakar, CEO, Anarde Foundation
- Saibal Paul, Associate Director, Sa-Dhan
- Shailesh Dixit, Co-founder, Gromor Finance
- Vanita Shinde, Chief Administrative Officer, Mann Deshi Foundation
- Venkatram Jayanthy, CEO & MD, Indian Post Payments Bank
- Vikram Regunathan, Vice President, Samunnati Financial Services