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Financial Inclusion and the Pandemic
Three broad aspects that have affected the financial inclusion space during the pandemic are examined in the paper. At the outset, the business of inclusive finance (growth, portfolio quality, and discipline) and how it has coped during the pandemic is looked at, and the policy measures and announcements made by the union government during the various waves of the pandemic and its implications are listed. How the technology and digital ecosystem have evolved in the past two years and the implications it might have been assessed, and finally, the business of inclusive finance and how it has coped during the pandemic are analysed.
India has thus far experimented with multiple models of financial inclusion—the cooperatives; public sector bank (PSB)-led inclusion; setting up of narrow banks like Regional Rural Banks (RRBs) and Local Area Banks (LAB); self-help groups (SHGs) that operate on the principle of mutuality initially rotating the savings of the members and later linking to the banking system to leverage the collective savings and carry out internal lending; and Grameen type microfinance models with Joint Liability Groups (JLGs) where the Non-Banking Finance Company–Microfinance Institution (NBFC–MFI) lends to individuals, while they do a mutual guarantee and meet in groups. In the past five years, the policy architecture has also provided for other types of narrow banks—the Small Finance Banks (SFBs) that have restrictions on the loan amount up to 50% of their portfolio and higher requirement of priority sector lending (PSL) and the Payments Banks (PBs), which have to operate predominantly in the payments space with scope to accept limited public deposits without the power to lend. These initiatives have had implications on the inclusion agenda. However, with the pandemic, the business model may have been affected. Technological innovations are also intervening in the operational model. Given these the inclusive finance space may be ready for a reset. In this paper, we examine the following aspects that have affected the inclusive finance space during the pandemic and its implications on how this space would be structured in the future, particularly in the context of India.
(i) Performance of inclusive finance through the pandemic;
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