In a conversation with ET Digital, Mittal talks about why the role of technology is different in the financial space, the pace of innovation in India and the role of government and regulators. Edited excerpts:
Economic Times (ET): According to you, what has been the role of fintech in financial inclusion and what is its scope?
Alok Mittal (AM): The fintech industry has effectively reshaped the financial services landscape in fundamental ways. Mobile banking, digital wallets and digital lending are virtually everywhere and play a critical role in inclusive growth and prosperity. These services have changed how historically underbanked segments of India interact with formal financial services. By innovating at every step of the financial services value chain, fintech offers new value propositions and better ways to address challenges faced by underserved segments of the country. One of the biggest solutions that has come out of the fintech revolution is access to better and faster credit.
As a digital lending platform that caters to MSMEs across the country, we have addressed the long-standing credit gap in India and those businesses that have been deemed unfit by traditional lenders. The underwriting models we deploy use alternative data sources, including insights gained from mobile wallets and ecosystem platforms (Meesho, Amazon, etc.). We get a better understanding and a more real-time picture of the creditworthiness of the business – which may have been initially operating out of the formal financial system – and can enable credit for them.
However, challenges remain, such as regulatory compliance, building trust and bridging the digital divide. Overcoming these hurdles through effective regulations, partnerships and targeted initiatives will shape the future of fintech-driven financial inclusion.
ET: We have seen the role of digital in areas spanning from food to transportation. How is the financial sector different?
AM: Digital technology in the food and transport sectors offers immediate solutions for specific use cases. However, its role in the financial sector is primarily focused on checks and balances, ensuring integrity and reliability. It revolutionises financial operations, enhancing efficiency and transparency. A process in the financial sector is a lengthy process that has checks in various stages. Through technology and digitalisation — like AI and ML-driven underwriting mechanisms, E-NACH and even Account Aggregator Framework introduced by the government — this process becomes more accurate and faster. A robust digital framework in the financial sector makes the customer journey substantially easier and seamless. In the future, this is crucial to integrate financial offerings at customer touch points, which is an exciting opportunity yet to be fully explored.
ET: What is the pace of innovation in the fintech sector? Are we seeing major transformations, or is it now limited to incremental changes?
AM: The pace of innovation in the fintech sector has been remarkable, characterised by both major transformations and incremental changes; products and offerings are being continuously improved upon. What differentiates one innovation from another has less to do with how radical and new the tech involved is, but more about the magnitude of impact it creates for the end user.
We at Indifi continuously innovate to further our mission to enable credit for businesses across India. One of our latest offerings is an innovation to satisfy businesses’ need for timely credit. We are one of the first lending players to extend ‘instant offers’ to businesses with just a few limited documents. Through an instant offer, businesses that qualify will receive an offer as soon as they apply for a loan, drastically reducing the waiting time. While it is an incremental change built upon an existing system, the reduction in the turnaround time has far-reaching implications for the business.
ET: What is the role of the government and regulatory framework when it comes to innovation? Has the Indian regulatory environment been able to provide the stability and incentive to give a fillip to the fintech sector?
AM: The Reserve Bank of India (RBI) and other regulatory authorities have introduced progressive policies and frameworks to accommodate fintech innovations. The Account Aggregator Framework and the Payments and Settlement Systems Act have facilitated seamless and secure digital transactions. Additionally, initiatives like the sandbox approach allow us to test our innovations in a controlled environment, which has promoted experimentation and developed new solutions while managing potential risks.
Fintech has been at the front and centre of many recent guidelines introduced by the government. Even in the past two Union Budgets, specific policies and amendments have been made to accommodate digital lenders. This not only recognises and legitimises the role digital lenders play in driving credit inclusion, but it also sets up sturdy guardrails for future growth while safeguarding customer interests.
Without a doubt, continued collaboration between regulators, industry stakeholders, and fintech players is paramount to ensure that the regulatory framework keeps pace with technological advancements while maintaining stability and fostering a conducive environment for innovation in the fintech sector.
ET: How do you strike a balance between business models that do not fit neatly into existing legal frameworks, are difficult to monitor but can have a positive impact?
AM: The legal system provides room for innovation. Similarly, regulatory guidelines have allowed new ways of serving evolving customer needs. For example, the gradual transition to digital lending has happened within the ambit of regulations. Initially, such innovation tends to occur as an extension of an understood business model – in the case of digital lending, this corresponded to business correspondent and direct sales agent models. Gradually, as the opportunities and risks in digital lending started to become more apparent, the regulator intervened by initiating the setting up of a framework of regulations to allow for the same. Subsequently, new intermediaries, such as loan service providers, have been recognised as adding value to digital lending transactions. We expect such nimbleness to continue to expand the opportunities in the digital finance space.
ET: Given India’s experience with fintech till now, how do you ensure consumer protection. What works and what does not?
AM: As in any case, even in fintech, consumer protection is essential to ensure sustainable growth. These regulations establish standards for customer grievance redressal, data privacy and fair practices in financial transactions. Consumer education and awareness programmes are essential to empower individuals to make informed decisions and protect themselves from potential risks associated with financial products and services.
The importance of data protection and privacy has always been at the forefront of Indifi’s operations. Our processes are ISO 27001 certified, which is an internationally recognised specification for an Information Security Management System. It is the only auditable standard that deals with the overall management of information security, rather than just which technical controls to implement.
ET: Do you think women-led MSMEs need greater and targeted focus? Is there a need to support digital literacy?
AM: Women-led MSMEs have immense potential that remain largely untapped. This is a result of the unique challenges and barriers they face when it comes to accessing resources, finance, markets and networks. We conducted a survey named “What Women MSMEs Want” and our findings confirmed the notion that women entrepreneurs face more hindrances when it comes to accessing credit. They may not have the property to furnish as collateral due to inheritance systems in India, or they may not even be aware of the schemes available to them as finance is predominantly handled by the men.
Fintech breaks down many of these barriers for a woman entrepreneur to access credit via Indifi or other digital lenders. They remove the social and cognitive bias women face when it comes to underwriting; it is more objective and depends on the profile of the borrower and how their repayment capabilities are. Of the loans disbursed by Indifi, 20% have gone to women-led businesses, of which 25% of the women are new to credit. Also, through our partnership with Facebook, we offer discounted interest rates to women entrepreneurs who borrow through Facebook.
ET: Alternative sources of data have been touted as a solution to access creditworthiness. What has been your experience?
AM: Alternative data sources have been at Indifi’s core from its inception. This comes from the understanding that not everyone will have access to the same information that qualifies them for a loan, but that does not imply that they are not creditworthy. Consider this instance, a 20-year-old e-commerce seller wants to expand his offerings and therefore wants a loan. When he approaches traditional lenders, they may ask for property in his name or require specific years of business operations and three years of ITR – none of which he may have. But using his statements on leading tech aggregators like Amazon or Flipkart, along with other details from the platform like reviews, growth over the last months, online traffic on their microsite/listing, and his UPI interface, which are alternative data sources, a lender can infer that his enterprise is doing well and capable of repaying.
Of all Indifi’s loans, 30% of our borrowers are new to credit. Alternative data sets have helped shift the paradigm of the borrower “must fit” into the lender’s need to ensure the lender’s offerings cater to the borrower’s needs.
ET: How has business grown for Indifi over the years and what have been the personal learnings for you on the journey?
AM: Indifi is privileged to have had an opportunity to significantly expand the availability of financing to Indian entrepreneurs. Various developments in the ecosystem, such as UPI, Account Aggregator and the likes, have provided a backdrop for us to continue to grow our customer base and empower more MSMEs. Our early investments in technology and data-driven decisioning have allowed us to create a branchless MSME lending company. After Covid, we have consistently seen doubling of business year-on-year, while keeping credit quality high.
There are tremendous personal learnings along the way. Agility has been a key to understanding, assimilating and de-risking the impact of many changes the ecosystem has seen over the past few years. Finding the sweet spots of technology with human intervention and of self-serve with customer assistance have been exciting vectors to navigate. Also, in a relatively commoditised space like financial services, keeping a keen focus on the strategy that leads to sustainable solutions has helped us stay on track.
