Collaborative Approach Proposed To Boost Rural India's Credit Adoption: Experts

In a rapidly evolving digital landscape, the need to enhance credit adoption in rural India has become paramount. Rural banks and city-based banks need to collaborate effectively to bridge the credit gap and promote financial inclusion in rural areas, feels expert. Seema Prem, Co-Founder and CEO of FIA Global, (a neobank providing a marketplace of sachet financial services and digital payments to individuals and micro-enterprises in rural and the semi-urban areas) emphasises the need to introduce tailored financial products that address the unique requirements of rural markets. 

Seema suggests products like mutual funds and digital gold, specifically modified for rural areas, to drive credit adoption. Seema stated, "The focus on products is lacking in rural banks, which tend to adopt generic products from urban areas. However, it is crucial to introduce complex financial products tailored for rural banks, such as mutual funds or digital gold.”

Gold holds sentimental value for rural communities and presents an investment opportunity, highlighted Seema, adding, “However, purchasing physical gold entails additional costs like making charges, wastage (1-2 per cent), and the prevailing gold rate at the time of purchase. The price of gold typically increases by 2-5 per cent month-on-month, potentially leading to losses if bought and sold within the same month. On the other hand, digital gold involves a minimal transaction charge of Rs 5-10, and there is no loss when selling it. Educating the rural population about the advantages of digital gold, such as enhanced safety and lower transaction costs, is essential.” Seema stressed the importance of a responsible credit mechanism to target the appropriate audience and prevent over-indebtedness.

Praveen Krishna Dev, Co-founder & CEO of Backspace Tech, added insights into the role of cooperative banks in rural credit adoption. He suggested incorporating formalised lending practices and infusing features like guided loan application, auto-debit, and credit score trackers into the system. Praveen believes that by using the technological resources of larger city-based banks, cooperative banks can achieve credit penetration in rural areas.

Further talking about formalised lending, he shared, "By incorporating banking practices like formalised lending, it will bring more creditworthy individuals into the system. Even if they have no credit history, they can be included in the new-to-credit system and educated through direct campaigns." Cooperative banks can further enhance credit adoption by becoming co-brand credit card partners. Using government subsidies channeled through beneficiary accounts, cooperative banks can offer credit cards with minimal risk cover, allowing individuals to build their credit profile, added Praveen. 

Here, technology plays a significant role in facilitating collaboration between rural banks and city-based banks. It improves operational efficiency, enhances accessibility, enables digital payment solutions, empowers banking correspondents, and promotes self-service banking in rural areas, stated Seema, adding "Technology bridges the gap between rural and urban areas, making financial services more accessible to individuals in remote locations."

The collaboration between rural banks and city-based banks, supported by technology and tailored financial products, holds immense potential to increase credit adoption in rural India. By joining hands, these banks can empower individuals, promote financial inclusion, and drive sustainable rural development. With a comprehensive approach, responsible credit practices, and leveraging technological advancements, rural India's credit adoption can become a reality.