Pradhan Mantri Jan Dhan Yojana (PMJDY) revolutionized the financial services system for the most deprived section of the society. The scheme is a step towards holistic financial inclusion, with features like no minimum balance requirement for a bank account, direct cash transfer capability, access to RuPay debit cards and pension. Need to celebrate its success as we complete 7 years of this initiative to bring in over 430 million beneficiaries 1.451 trillion in balance under the banking system.
Easy and affordable access to credit and insurance to citizens is the key to overall financial inclusion. According to the International Finance Corporation’s report on financing of MSMEs in India, 80% of the addressable credit demand of small firms is met from informal financial sources.
This has been the main focus of the PMJDY mission as its next step towards financial inclusion. Currently, individuals require physical collateral and often travel from one location to another to obtain a loan with bank statements, documents stamped from notaries, tax returns and cash-flow statements. Since the financial records of individuals are scattered across different organizations, it becomes challenging for them to consolidate all these details while applying for credit. For example, deposit receipts are stored with banks, life-insurance documents are with the life insurance corporation, and mutual fund investment details are with asset-management companies.
Implementing PMJDY, India recently unveiled the Account Aggregator (AA) network to address the challenges of access to micro-credit for individuals and Micro, Small and Medium Enterprises (MSMEs). An account aggregator enables the secure sharing of financial records with financial service providers for access to small amounts of formal credit, once the individual’s consent is obtained. For example, when an individual or business applies for a bank loan, the AA may obtain the applicant’s consent and collect information on bank accounts and other financial assets to share with other financial institutions that the AA may hold. are part of the network. With access to financial records, lenders can establish eligibility for the loan. Since financial data is shared electronically by institutions through AA, counterfeit documents are not a problem.
If a hotelier wants to take a loan for renovation of a property, he can share the bank details of the last five years with the lender. With these details, the lender will be able to determine the creditworthiness of the owner and provide micro-credit.
Thus AA networks are a paradigm shift from physical collateral to information collateral. This will unlock access to affordable credit in a streamlined and reliable manner. This will reduce transaction costs and loan approval times, make smaller loans more viable for banks, and empower them to offer personal loans and more innovative financial products.
An AA is a Reserve Bank of India (RBI)-regulated entity (Non-Banking Financial Corporation-with an AA license). The system has three components: the financial information user (FIU), the financial information provider (FIP), and the account aggregator. The AA acts as an intermediary that collects information from FIPs that hold user financial data, like banks, and shares it with FIUs, such as lending agencies. The future plan is to make all financial data related to taxes, pension, investment and insurance available on the network.
The protection of user privacy lies in the network. It has been developed on a consent mechanism that requires the permission of the individual to share the data with the FIU. The consent methodology is built on the principles of our Data Empowerment and Protection Architecture (DEPA), a policy proposed by NITI Aayog. Second, the data shared over a AA network is encrypted end-to-end. It is encrypted by the sender and can only be decrypted by the recipient. Third, AA is not permitted to store, process and sell Customer’s data. These design principles ensure that data is owned by individuals and not monetized, so there is no conflict of interest when data is shared across AA platforms to provide better financial services. This is fundamentally different from the design principles of large global technology companies that hold consumer data in them to monetize.
The goal should be to expand and expand the adoption of the AA platform in India. All the stakeholders in the AA ecosystem need to play a vital role in this. Four apps—Finvoo, OneMoney, CAMS Finserve and NADL—have operational AA licenses. Three more have received in-principle approval from RBI (PhonePe, Yodlee and Perfios) and are expected to launch the app soon. AA should focus on marketing and create awareness about the services they provide. The growth of these apps will lead to the growth of the entire AA ecosystem. Secondly, since all four apps are only available on Android smartphones, AA should develop intuitive apps for feature phones. If AA network services are made available on feature phones, it will prove to be transformative by catering to a large group of individuals and enterprises. Third, eight major banks – State Bank of India, ICICI Bank, Axis Bank, IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, IndusInd Bank and Federal Bank – have joined the network. There is a need to fast track the process of on-boarding other FIPs like Goods and Services Tax Network (GSTN), insurance companies, National Pension System, etc. Plans for non-financial players like health and telecom companies to join the network should also be accelerated. Fourth, any technical glitches on the platform must be resolved quickly in order to build trust in the AA ecosystem.
India-born technology platforms—Aadhaar, Unified Payments Interface, Government e-Marketplace, Digilocker and GSTN—are jewels in the Indian technology landscape and are examples of how technology can be leveraged for citizen services. There may be a new feather in the AA network cap that will help India formalize credit and boost economic growth in the post-Covid era.
These are personal views of the author.
Amitabh Kant is the Chief Executive Officer of NITI Aayog
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