AI-led Financing Approach Supporting Inclusive Finance In India's Diverse Landscape: Experts

Financial literacy is imperative to trickle-down financial inclusion in India. A population well-versed in financial concepts is better positioned to access and utilise various financial services.

Both the National Strategy for Financial Education (NSFE) and the National Strategy for Financial Inclusion (NSFI) strongly advocate for a comprehensive strategy. They underscore the urgent need to strengthen financial literacy as a key measure to enhance overall financial inclusion.

"It is impossible to even imagine an inclusive society without reaching out to Tier II and III cities’ residents. In a diverse country like India for reaching out to Tier II and III residents, it is critical to know their native language," said Shaktikanta Das, Governor, Reserve Bank of India (RBI) in an interview.

Unbanked and underserved populations, especially in tier II and III cities and villages, are a huge focus area for banks and insurance firms. Vernacular language integration becomes crucial to tapping into the local talent, the central bank's governor added.

Hiring sellers who can speak the local language and empowering them with intuitive, easy-to-use tools that can reduce their paperwork, record their notes, streamline their day-to-day activities and help them stay in touch with their bank branches can provide a huge boost to the way financial products will be sold to this population,” said Rajesh Sabhlok, Managing Director(MD), Asia Pacific, Vymo.

In an era rapidly embracing digitisation, ensuring financial inclusivity remains at the forefront of global economic objectives. One of the most significant barriers to financial inclusivity has been the traditional credit scoring system, which often overlooks individuals with limited or no credit history.

This is where the revolutionary approach of AI-based alternative credit scoring comes into play, offering a solution designed for the modern age by harnessing the immense potential of artificial intelligence.

AI has a huge potential for transforming the way the sale of financial services is done in India. It's expected that 100 million consumers will come under the fold of organised lending for the next five years from tier II, tier III and tier IV locations.

AI-based computing will do real-time translation of sales pitches and product information and enable dialogue with consumers in vernacular languages,” said Aditya Gupta, CEO, Credilio.

As discerned from the meta-analysis of the inclusive financial market in India, technology emerges as a critical facilitator, with digital platforms, big data analytics and AI serving as tools to gather insights, tailor products and streamline processes.

These innovations are seen as critical to meeting the unique needs of different customer segments effectively and affordably.

“Non-banking Financial Companies (NBFCs) leverage technology and AI to make more informed and accurate lending decisions. AI and ML algorithms assess the customer’s creditworthiness, offer them credit and manage their transactions. Predictive tools help manage risks more effectively,” said Anil Pinapala, chief executive officer (CEO) and Founder, FlexPay by Vivifi.

According to the ‘State of Indian FinTech Ecosystem’ report, the digital lending sector in India is projected to grow at a 22 per cent compound annual Growth Rate (CAGR), reaching USD 1.3 trillion by 2030. More recently, apart from traditional digital lending, FinTech, empowered by AI, has stepped in, offering custom solutions for MSMEs.

“Collaboration between banks and fintech startups is one such example, which can foster innovation and contribute to financial inclusion. By integrating the strengths of traditional banking infrastructure with the agility and innovation of fintech, a more inclusive financial ecosystem can be created that serves individuals and communities that were previously excluded from mainstream financial services.

Moreover, government-backed initiatives like Account Aggregator and Open Credit Enablement Network are expected to promote financial inclusion in the next phase of digital evolution,” said Arun Poojari, CEO and Co-Founder of Cashinvoice.

Additionally, the infusion of AI is reshaping the insurance landscape by rapidly processing large data volumes and refining insurance offerings to better match individual requirements. It accelerates claim processes and improves customer experiences. AI-driven predictive analytics help insurers craft innovative products attuned to the evolving needs of India's diverse population.

“In microinsurance, AI promises accelerated and more cost-effective claim assessment and processing, likely to take effect soon. These advancements have the potential to significantly reduce the costs associated with credit risk and insurance assessment, as well as claims settlement,” said Neha Juneja, CEO, IndiaP2P.com

IoT devices and blockchain are also identified for their potential to enhance transparency, trust and efficiency throughout the insurance value chain,especially regarding low-income people. 

“Technological advancements, notably AI-driven risk models and blockchain, improved loan approval rates and transaction security. The sector saw a 35 per cent surge in digital loan origination, reflecting growing consumer preference for digital solutions, attracting over USD 2.5 billion in investments,” said Victor Senapaty, Co-founder, Propelld. 

Simultaneously, commercial insurance entities under the Irdai are amplifying their impact, narrowing the gap between governmental strategies and public needs with a diverse suite of micro-insurance offerings using a wide range of intermediaries.

“Fintech-driven micro-insurance fills in coverage gaps left by traditional models, especially for those working in the unorganized sector. By utilising technology, it reaches those who were previously unreachable, guaranteeing that a larger portion of the populace—including small businesses and those in the unorganized sector—can obtain and profit from insurance coverage,” said Rajesh Kumar, Founder Square Insurance broking.

In an era rapidly embracing digitisation, ensuring financial inclusivity remains at the forefront of global economic objectives. One of the most significant barriers to financial inclusivity has been the traditional credit scoring system, which often overlooks individuals with limited or no credit history.

This is where the approach of AI-based alternative credit scoring comes into play, offering a solution designed for the modern age by harnessing the immense potential of artificial intelligence.

Unlike the conventional systems that primarily lean on credit histories, AI-driven models cast a wider net, drawing information from a plethora of sources.

This can range from an individual’s utility bill payments and mobile and smartphone usage to social media activity, providing wider access to finance and consequently creating a better infrastructure to support financial inclusion.