Making financial services work for India's Next Half Billion

By  Roopa Kudva, Amol Warange and Siddharth Nautiyal

The Indian financial services industry has made great strides in the past decade. Impressive progress in improving access to formal financial services through bank accounts and an efficient, low-cost digital payments infrastructure has made India a beacon globally for financial inclusion. However, the industry continues to largely serve the urban, richer India and driving usage amongst India's"Next Half Billion"* continues to remain a challenge. The small business segment too continues to remain underserved by formal financial services.

As studies around the world have shown, the financial lives of lower-income populations are complex. Consumers make multiple decisions daily to manage their limited income and to stretch it to meet their needs. They seek flexible solutions that balance their need for flow (availability of cash as needed) and illiquidity (simple barriers to prevent withdrawal of any savings for discretionary purpose). Thus, they turn to expensive informal financial channels, mainly for short term borrowings. Unsurprisingly, the Report of the Household Finance Committee (2017) constituted by Reserve Bank of India found that Indian households have less than 5% of their wealth in financial assets and insurance penetration is very low. There is also a high incidence of non-institutional debt, suggesting that households are dealing with emergencies and risks through high cost borrowings ex-post as opposed to proactively saving or insuring against risks.

To know more, read our full report here.