For banks and other financial services providers one big challenge is to deliver accessible and affordable services to people in rural India.
The country has 640,867 villages, with more than 830 million people living in them. Some of these villages lie in places that are not connected through public transport.
Paytm, the country’s largest digital payments company, which also has a payment banks licence, plans to use mobiles as a gateway to deliver financial services to people in these places.
Even after the government rolled out its Jan Dhan Yojana to bring every Indian under the banking regime, 24% of these accounts have zero balance. There are almost 250 million such accounts with half of them seeded to Aadhaar. Government subsidies including those for pension, fertiliser and MGNREGS flow into the same account.
“Villagers don’t use their accounts to save and deposit money,” said Krishna Hedge, head of financial services at Paytm, which is running pilots to assess the use of cash, the primary mode of transactions in villages.
Under the pilot, Paytm is asking the merchants to transfer the money to the farmer’s bank account when he sells his produce. The company is also in talks with agri-commodity companies for direct transfer to the farmers’ account. “They like the digital channel… Consumer goods companies (such as Nestle and Pepsi) procuring from farmers want to do pilots with us,” said Hedge.
With bank accounts linked, Paytm can give credit advances and insurance to villagers. It can also provide loans to buy tractors, seeds and fertilisers.
Paytm will give loans without any collateral. “We will give loans and credit to people based on digital cash flow,” said Hedge. Loans are also given without collateral under the Mudra scheme, which has seen XX million loans, but the background check is usually not done digitally.
The eligibility will be based on the total value of transactions done through Paytm. The borrower will also be able to stagger premium payments according to his needs. For example, for a farmer it can be bi-annual while or a daily wager it can be daily. “All the financial services products will be customisable to meet end-user needs,” said Hedge.
But it won’t be easy. “Collecting tonnes of data that gives banks the confidence to lend money to villages will take time. This has not happened before,” said Sanchit Vir Gogia, CEO and chief analyst at Greyhound Research.
Paytm has negotiated with financing companies, said Hedge, who are ready to even give ₹10,000 loans, based on data that is generated from digital cash flow. “Even electricity bills can be paid through personal loans,” said Hedge.