Kuldip Maity

With financial inclusion and cashless transactions as goals set by the government, technological development is the crucial answer to the challenge posed by last mile access in India. In the creation of a comprehensive financial inclusion therefore use of technology, digital access technology in particular, could be the answer to the riddle.

The challenge for the financial institutions like microfinance institutions (MFIs) that are specially designed to deal with the masses is even more acute. Not only do they have to deal with physical access issues like roads that vanish during the monsoon, hostile terrain that can only be negotiated by hiking, they also have to face qualitative issues of various hues like, non-functional literacy and total lack of awareness. Taken together they create a formidable barrier to the functioning of the MFIs.

However, things have started to turn around with a) the rapid development in the digital technology and development of various apps suitable for use in this sector, and b) the government’s initiative in linking even hostile terrain through digital connections. The government initiatives like Aadhar has made the task even easier by facilitating KYC and direct transfer of benefits.

According to MFIN data, total number of microfinance accounts increased 21.9 per cent to reach 9.33 crore. NBFCs took a lion’s share. Gross loan portfolio (GLP) reached Rs 1,87,386 crore with year on year growth of a whopping 38 per cent. The growth is ascribed to increased awareness of benefits accruing from institutional finance and of course, the ease of transaction resulting from digital technology.

In the completely paper based system, the turn around time was considerable due to the paperwork involved in the process of application and approval. In the current technologically evolved scenario, documents are getting uploaded digitally making centralized processing fast and easy. Tracking of disbursements and repayment flow has also turned easier and faster making the whole process a win-win for both the institutions and the customers.

A large number of MFIs have turned their entire disbursement process completely digital and cashless. In so far as repayment flow is concerned, the process of digitization is progressing in fits and starts, as the penetration of smart phones in the hands of the customers has yet to pick up momentum specially among the more poorer of the target segment as the hardware has yet to become affordable for them.

Be that as it may, the fact that the digital technology in the hands of the MFIs has enabled them to break through the issue of access and faster turn around of loan disbursement is undeniable. With tab based technology creation of awareness, a major component in the financial inclusion mission, has also become less dependent on the skills of MFI staff. With awareness content loaded tabs, the process of training is also becoming smoother, more homogeneous and less dependent on staff specific training skill.

Going forward and with digital platform based payment facilities, it is further expected that cash transactions would be minimised to such an extent that even where carrying cash is difficult MFIs will not be hindered from spreading their operations. This is expected to happen as the progress of digital technology has reached a stage where most of the paperwork can be done digitally and the delivery of services can also take the same route. Therefore, with such progresses in technology, it’s now just a matter of time before the MFIs get to reach the saturated coverage level in the country.

Globally, MSMEs are now getting increasingly accepted as the main driver of growth given their nimbleness and the ability to create employment. In fact, in the USA, two third of the jobs are accounted for by this segment alone. The same story holds true in their share of sectoral contribution to the total export revenue.

What is interesting to note is that the MSMEs in India are also describing the same narrative as their North American and European counterparts. According to the Indian MSME ministry’s blog, there are more than 63 million MSMEs in the country. Together they employ more than 110 million people and account for more than 45 per cent of the industrial production and 30.5 per cent of the services industry output. And they make more than 60,000 different types of products to meet market demand.

It’s now an accepted fact that any economic growth initiative demands a policy focus on this segment. The reasons are not difficult to guess. Unlike big manufacturing units, MSMEs are more evenly distributed geographically. It doesn’t take an expert knowledge in economic theory to understand that any unit size, that has the potential to find its footprint in any geographical location, will trigger more employment without requiring migration. A big unit obviously rides a totally different path in terms of employment and other external gain implication.

The question that naturally comes to mind is that why do MSMEs create more employment opportunity than a large unit making the same product? The answer lies in the way MSMEs are organized. They are more labour reliant than a large unit and, as a result, they have a bigger labour capital ratio. It means that in the MSME sector, every rupee invested creates more employment than that in large industry segment.

There is also another important factor that endears them to policy makers and entrepreneurs alike. They require lower investment threshold making them ideal for the aspirations of start-up entrepreneurs. All over the world, the challenge for the policy makers is not only to find routes for equitable distribution of income, but also for equitable distribution of capital.

With Indian economy projected to grow to $5 trillion by 2025, and make in India being a mission statement of the government in power at the Centre, MSMEs are going to be the heroes of India given their ability to generate employment opportunity and to spread capital more equitably and fight the issue of labour migration that is taking dire proportion in the country creating a number of regional imbalances.

India is at a juncture wherein it stands to be challenged by the nature to protect it. We all know that the intense debate about development notwithstanding, India is already in the big league in terms of national prosperity and the actual challenge it faces is to ensure a distribution mechanism that would help share the gains from growth with the masses.

But it also has another challenge. The trade-off between prosperity and environment. Right now, large swaths of the country have gone dry due to delayed monsoon. The changes in the monsoon cycles is blamed on the issue of global warming and like all other countries (except Bhutan which is not carbon neutral but also has turned itself into a carbon sink) we are also a net contributor to the causes of global warming.

With prosperity comes greater use of energy. With India’s dependence on fossil fuel, coal for example, for generation of electricity, carbon dioxide accounts for 60 percent of the greenhouse gas emission in our country. While development brings greater use of energy, it also brings in its wake, the need for greater infrastructural links like transport. Construction of new roads, railway lines, increased use of airplanes lead not only to greater use of fossil, it also adds to rising greenhouse gas emission.

Going beyond that need, demand for greater space for human habitation is leading to depletion of forests, biodiversity, waste management issues, ground water depletion and water resources. This also has an impact on the livelihood of the poor as they share a symbiotic relation with the nature. The poor depend on the trees for supply of firewood and various other things. But more importantly, rising quantity of non-degradable waste, at a rate that defies management, is also claiming natural resources as victims by choking up water bodies and speeding up soil erosion.

This is not to say that we need to junk our development efforts and take away the steam from the process of economic growth. What is needed, however, is initiation of a social dynamics to balance between economic development and environmental protection. This can never be done through regulations alone. Unless there is a greater awareness about the need to protect our environment as much as we are concerned about our land, we may get to retain the land without its properties that make it so precious to us.

For example, waste management cannot be effective without the participation of the masses in it. People need to be aware of the harm that plastic causes to the environment. There is no mechanism to effectively control plastic litter unless people participate in the process. But making them aware is not enough. Along with it we also need to create easily available and accessible disposal system for such waste so that people need not hoard them for future disposal. Ease, convenience, and access are the key words in this development strategy that strives to work in sync with the environment.

Then there is the issue of tree cover. Without getting into technicalities, it implies that we are not functionally mindful of protecting a major natural resource that acts as a shield to protect the environment. An awareness therefore in this regard is a necessary action point. The same goes for river and other water resources.

The net learning here can be summed up saying that earth doesn’t need protection, we do. Because if we don’t retain the environment that we live in the existence of our race will be at stake. This can only be done through our effort mediated by the government. We do not need to sacrifice development for protecting environment. We need to make development work for the prosperity of environment as well.

Awareness towards environment will let us live in an earth where development will help provide prosperity.

Diwali sales over the last few years have turned out to be huge hits on e-commerce platforms. Starting from refrigerators to clothes everything gets sold at a difficult to get bargain prices, so much so that we are getting to see which platform is outforming whom even in the mainstream media.

If media narrative is to be believed, with the rising ease in using digital payment apps and interfaces, the tendency to pay digitally is trumping cash payments during the festive seasons on such retail platforms. A little dated survey by Euromoney says cash transactions in the total consumer spending in India was down to 68 per cent in 2017 from 78 per cent in 2015. And there is no evidence that it has abated.

This trend is understandable in view of the rising penetration of smartphones and increasing sophistication of payment apps along with the willingness of more and more merchants to embrace the digital payment route. If sellers are willing and buyers find it convenient, the payment route will invariably be the one that both the parties prefer.

It is therefore no wonder that with more than 300 million smartphone users in the market, digital payment apps are finding easy homes to nest. All the predictive studies are also in agreement. A Boston Consulting Group (BCG) study predicts that Indian digital payment industry is likely to touch $500 billion by 2020, contributing 15 per cent to our GDP.

What, however, is of greater interest is the prediction that it is going to be dominated by micro transactions with around 50 per cent being in the category of less than Rs 100. According to a Hindu Business Line report (February 26, 2019), Indian e-commerce is poised to grow to about $1.2 trillion by 2021. The current growth rate is estimated at a CAGR of 32 per cent. And the mobile wallets are seen as an important contributing factor.

The statistics are indicative of a huge growth both in e-commerce and the use of digital payment platforms. However, we should remember that India is a very late entrant to the electronic payment systems. Banking has yet to reach out to the last mile which is a crucial link to the saturated transaction possibility of a cashless economy. Be that as it may, three trends are easily discernible, a) e-commerce is growing and catching up fast, b) digital transaction is also catching up fast, c) there is therefore a rise also in cashless transactions.

We can therefore safely say that India is fast catching up and moving towards an economy where people accept cashless transaction also as a part of life. With e-commerce platforms pushing for digital and electronic payment, emergence of platforms facilitating cross wallet transactions, even in small shops, sensing the ease of digital transactions, acceptance of electronic and digital mode in payment for transactions is on the rise. However, it’s as yet difficult to predict whether India will ever be Sweden where cash transaction has fallen to one percent of the total transaction in the economy.